Shuji Hosaka: What is Happening in Saudi Arabia Now?

2018/03/01

In June last year, King Salman of Saudi Arabia dismissed his nephew, Crown Prince Muhammad bin Nayef (MbN), and promoted his own son, the young Deputy Crown Prince Muhammad bin Salman (MbS), born in 1985, to Crown Prince.

One could dismiss this as a father's doting favoritism, but in fact, rumors had been circulating plausibly within the industry since immediately after Salman's accession to the throne that this would eventually happen.

MbS is also known as "Mr. Everything." This reflects the fact that he holds almost all power. His major titles alone include Crown Prince, Deputy Prime Minister, Minister of Defense, Chairman of the Council for Political and Security Affairs, Chairman of the Council for Economic and Development Affairs, Chairman of the Supreme Council of the state-owned oil company Saudi Aramco, Chairman of the Public Investment Fund, and Chairman of the MiSK Foundation, his personal foundation.

Of course, Saudi Arabia is an autocracy with the King at its pinnacle, and no one can defy him. However, the King is over 80 years old, and his physical and mental decline is said to have become noticeable. MbS is the King's favorite son, and it could be said that the King is effectively playing a supporting role for the policies being launched one after another by the young Crown Prince.

MbS first drew significant international attention when he inherited the position of Minister of Defense from his father. Just to the south of Saudi Arabia, in Yemen, the Houthi Shia armed group had driven the legitimate government out of the capital, and chaos was escalating. The young Minister of Defense, acting on a request from the legitimate government, collaborated with the United Arab Emirates (UAE) and others to organize an Arab-Islamic coalition and launched military strikes against the Houthis and the supporters of former President Saleh, who were backing the Houthis.

However, far from improving, the situation has only become more chaotic since then, with no sign of a resolution. Late last year, a clash occurred between the former President and the Houthis, who were supposed to be fighting together, and the former President was killed by the Houthis. On the side of the legitimate government, the Southern Transitional Council, which had been part of the coalition, defected and seized control of Aden, a major southern city that served as the legitimate government's base. With terrorist organizations like Al-Qaeda and the "Islamic State" also joining the fray, Yemen now resembles the Sengoku (Warring States) period.

Saudi Arabia believes it has a righteous cause, as it is conducting military strikes based on a request for support from the legitimate government and in accordance with UN Security Council resolutions. However, it has also faced international condemnation because the Arab coalition's attacks on the Houthis have resulted in many civilian casualties.

Militarily, it is a seesaw battle, but in reality, it is a quagmire. Amidst low oil prices, the military strikes in Yemen have become a serious financial burden for Saudi Arabia.

The chaos in Yemen is often described as a proxy war between Saudi Arabia and Iran. The view is that Saudi Arabia and the UAE support the Sunni-led legitimate government, while Iran supports the Shia Houthis.

While this perspective is not incorrect, emphasizing only the sectarian conflict between Sunnis and Shias risks being misleading. Fundamentally, it should be seen as a struggle for hegemony between Saudi Arabia and Iran in the Middle East. For both parties, sect is a card that can be played relatively freely, but it is by no means absolute.

The situation is the same in Syria, where chaos continues. While Iran supports the Assad regime, Saudi Arabia supports anti-Assad forces, excluding terrorist organizations. In Syria as well, as the dominance of the Iran-backed Assad regime becomes clear, the forces supported by Saudi Arabia are clearly at a disadvantage. Here, too, Saudi Arabia is being pushed back.

Though not widely known, Saudi Arabia maintained good relations with Iran from the 1990s until the early 2000s. However, after a Shia government was established in Iraq following the 2003 Iraq War and Iran's influence gradually expanded in the Arab world, relations between the two countries began to tense. When Iran's nuclear suspicions came to light, the conflict deepened further, leading to a war of words between the media of both countries. Ultimately, in January 2016, the two countries severed diplomatic ties following the execution of a Shia cleric in Saudi Arabia.

At that time, the U.S. was under the Obama administration, which had begun to adopt a conciliatory policy toward Iran. This was also a factor that irritated Saudi Arabia. However, when the Trump administration took office in the U.S. and shifted policy toward an anti-Iran stance, Saudi-U.S. relations entered a new honeymoon period, despite Trump's criticism of Saudi Arabia during the presidential campaign.

Perhaps not exactly a byproduct, but rumors are often heard that Israel, which similarly takes a hardline stance against Iran, is approaching Saudi Arabia. While the possibility of unofficial contact cannot be denied, official relations would likely carry too much risk for Saudi Arabia. In fact, when President Trump recognized Jerusalem as the capital of Israel and announced the relocation of the embassy, Saudi Arabia severely criticized the U.S. decision.

Even more complicated is the relationship with Qatar. Qatar is a member of the GCC, just like Saudi Arabia, and is an ally. However, in June last year, four countries, including Saudi Arabia and the UAE, suddenly severed diplomatic ties with Qatar. The reasons cited include Qatar's support for "terrorist organizations" such as the Muslim Brotherhood, its proximity to Iran, and its use of the satellite broadcaster Al Jazeera to attack neighboring countries, but the exact details remain unclear.

In any case, from Saudi Arabia's perspective, the Qatar crisis is a trivial matter and is currently being left on the shelf. However, from the perspective of Japan, which imports more than 60% of its oil from Saudi Arabia and the UAE and nearly 20% of its natural gas from Qatar, the conflict between the two is a major headache. Foreign Minister Kono has been actively trying to mediate, but there are no signs of a resolution.

Saudi Arabia is a so-called "rentier state," where income from oil exports accounts for the majority of national revenue. Based on vast oil revenues, many Saudis are high-paid civil servants or employees of state-owned enterprises; fuel costs like gasoline and basic food items are heavily subsidized; and public schools are free from elementary school through university. Various other government services are also provided for free or at low cost.

All of this is possible only because of oil. If oil runs out, this country, which has no significant industries, would collapse instantly. Furthermore, because revenue depends on oil prices, a drop in oil prices immediately leads to a fiscal deficit. Moreover, in recent years, rivals such as shale oil have emerged, and oil, which emits CO2, already has a bad reputation due to global warming. With the shift toward EVs progressing mainly in developed countries, oil might stop being used even before it runs out.

A few years ago, the theory of "peak oil" was a hot topic in the industry, but this was strictly a concern about the peak of supply. What is being questioned now is the peak of demand. The oil age is about to end with vast amounts of oil still left underground.

Furthermore, Saudi Arabia faces a time bomb in the form of population growth. If the population increases and domestic energy consumption expands, the amount of oil available for export will decrease. There are even estimates that if the population continues to grow at the current pace, Saudi Arabia will fall to the status of an oil importer by 2038. Moreover, if oil prices drop and spending is cut, it is inevitable that employment for the younger generation will shrink. Breaking away from oil dependency is now an urgent matter.

Based on this recognition, MbS announced a new socio-economic reform project, "Saudi Vision 2030" (hereafter abbreviated as SV), in 2015.

As the name suggests, SV targets the year 2030, but its seriousness can be seen in the setting of specific numerical goals, such as lowering the unemployment rate, increasing the female labor force participation rate, raising the private sector's share of GDP, and significantly expanding non-oil revenue.

While the goal is to become a normal country that does not depend on oil, Saudis who are accustomed to a comfortable, subsidized lifestyle cannot be thrown into the jungle overnight. For now, the goal of becoming an "investment powerhouse" has been set. However, funds are needed for this, and to raise them, plans to list Saudi Aramco have been revealed. Although only 5% of all shares are said to be listed, optimistic figures like a total of $100 billion are being touted.

However, there is a strong religious and emotional allergy to foreign capital entering the oil industry, which is the foundation of the nation. In fact, SV includes many "reforms" that are incompatible with traditional Saudi values.

There are many members of the royal family who resent MbS, who leaped over numerous older princes to reach the position of next in line to the throne. There are likely a significant number of people dissatisfied with his policies. At present, MbS is suppressing such potential opposition by force, including arrests and detentions. It is not just the royal family. To realize SV, MbS is expanding investment in the entertainment sector and actively promoting the expansion of women's rights. This includes holding anime and manga festivals (Comic-Con), hosting concerts, lifting the ban on women driving, and allowing women to watch sports matches in stadiums. The fact that such ordinary things were not allowed may be a surprise to most people. However, in this country, conservative religious groups have effectively banned these things based on their own interpretation of Islam.

MbS's cultural liberalization policy has overwhelming support from the younger generation and has so far suppressed the backlash from conservatives. However, if the situation in Yemen worsens or if the structural reforms under SV do not go well, criticism of MbS will likely intensify. Yet, if those reforms fail, the very survival of Saudi Arabia as a nation will be at risk. For Japan, which relies on Saudi Arabia for oil, the chaos in this country is not someone else's problem.

*Affiliations and titles are as of the time of publication.