How has Oil shaped Saudi Politics?




How has oil shaped politics in the Gulf States?


How has oil shaped Saudi politics? Marco Malagoni.


Ibn Saud unified the country and established his authority as the dominant ruling family after his victory over the Ikhwan in 1929-30. He further consolidated his position by buying the loyalty of the various tribesmen. Resistance to the centralisation of power in his hands was effectively nullified when oil resources were exploited. The rise of Saudi Arabia’s oil revenues were quite dramatic: from ₤100 000 in 1915, to ₤500 000 in 1925, to well over ₤100 000 000 in 1953. The stability of the regime was maintained by buying off, rather than fighting, opposition – the golden rule of Saudi politics to this day.

Problems began to emerge in the 1950s, with oil wealth and modernisation changing the face of Saudi society, as well as the increasing tension from Nasser’s militant nationalist leadership in Egypt. Widespread corruption in the government and the scandalous extravagance of the King were common knowledge. Debts soon began to grow, and by 1957 the country was on the verge of bankruptcy. An IMF loan was needed, allowing experts to examine Saudi Arabia’s economic problems. Anti-western sentiments among the population during this period can’t be underestimated. Western-regional defence pacts caused incredible tensions. The Aramco oil company in the east was seen as a colonialist exploiter. During the late 1970s especially, the need to protect the Saudi ‘way of life’ from the corrupt western culture with its materialistic values and permissiveness, was linked intrinsically to advancing national solidarity. Traditional differences were, however, relatively unimportant as long as oil revenues kept pouring in.

Central government was strengthened under the reign of Faysal, 1964-75, and a greater allocation of the oil revenue went to modernisation of the kingdom. Social change had thus far proceeded with only minimal national integration. Faysal ruthlessly suppressed and mercilessly persecuted militant nationalists and bribed the important middle class elites. He prudently channelled the major part of the kingdom’s increasing wealth to modernisation and development and to improving the standard of living of the various classes of Saudi’s through a network of subsidies, welfare services, and opportunities for advancement. The danger of social upheaval resulting from accelerated modernisation and rapid urbanisation was largely avoided. With the exception of insignificant radical-nationalist leftist and Shi’ite opposition organisations, largely based abroad, the disunited elites on the whole preferred personal achievement, prestige and wealth to a confrontation with the regime and reconciled themselves to the existing situation. Promises for National Consultative Commissions, and measures to disperse policy-making decisions were conveniently forgotten.

By 1970 the oil market had undergone dramatic change: The U.S had become a net oil importer and demand in the industrial west was increasing at an average rate of 10% p.a. The establishment of OPEC in 1960 had changed the balance of power. The price of oil began to rise dramatically in the 1970s compared with the 1960s. Pressure was brought to bear on Saudi Arabia to use oil for political leverage in the Arab-Israeli conflict. The use of the ‘oil weapon’ improved Faysal’s relationship with the Arab countries, especially Egypt and Syria. By 1974, however, relations with the U.S had recuperated and there was cooperation concerning oil supply and pricing.

Oil revenues declined in 1976/77 due to a decrease in demand. The massive finance needed for the development and defence programs were therefore unsustainable. In 1976 OPEC wanted to raise the price of oil by 15%, but Saudi Arabia refused, making it only 5%. Saudi opposition increased, with the nation accused of being an instrument of western imperialism. The fundamentalist regime in Iran, coupled with the exposure to Arab radicalism from Syria and Iraq led Saudi Arabia to disengage with the U.S. A total boycott on Egypt, and a full rejection of Camp David proceeded. Oil prices were raised which led to a collapse in the price after 1981.

OPEC’s substantial price hikes in 1980 caused demand for oil and its price to decline in the 1980s. This was due to the introduction of conservation measures and alternative sources of energy by the industrial countries and rising production of non-OPEC oil. Saudi policy ensued that reducing production as demand for oil declined would be followed by an increase in production when demand intensified. Production fell from 10 million barrels a day in 1981 to 2 million a day in 1985. The kingdoms revenue rapidly declined:

Saudi Arabia’s oil revenues, 1981-1987.

Year Billion$

    1. 109
    2. 70
    3. 37
    4. 35
    5. 22
    6. 16-18
    7. 17.4

Source:M, Abir, Saudi Arabia in the Oil Era, p. 180.

The 1986 budget was little over half that of 1982/83. Economic activity totally stagnated. The investment in other non-oil related economies proved far less profitable than expected. Although these were largely joint ventures with international concerns they met marketing and other difficulties. Nearly one million foreign workers and experts left the country between 1982-87. This may have pleased the nationalists but it further aggravated the country’s economic stagnation. A law was introduced making foreign contractors purchase Saudi services, supplies and products to they value of at least 30% of their contract. Apprehension among investors meant that capital was directed outside the economy in major western industrial economies. Saudi Arabia stepped up its production and caused the price to decline to under $20 a barrel. There was a total collapse of oil prices during the first half of 1986. Saudi Arabia managed to stabilise OPEC’s average oil prices towards the end of the 1980s.

However, the ability of the regime to further withstand their growing pressure in decision-making will depend largely on what will happen to the oil market in the near future, on the continuous support of the ‘lower classes’, and the level of solidarity within the royal family. Oil revenue has transformed the Saudi’s into a multi-layered prosperous bourgeoisie. Oil wealth has also facilitated the process of national integration and the gradual emergence of a Saudi identity. The countries enormous oil reserves and financial resources endowed Saudi Arabia with power and influence in the Arab and Muslim camps and in the international arena out of proportion to its size and level of development. Saudi Arabian solidarity with her Arab and Muslim sisters was achieved by financial and political support, which in turn gave her prestige and stability. Influence in the Arab camp and in the world waned as oil reserves dried up in the 1980s. The oligarchy has to fund tens of thousands of its members in order to maintain its internal stability and consensus. It is not the most stable of systems.