Obama’s Arabian nights

After 70 years of buying allies abroad and quiet at home, the Saudis must use oil’s dwindling power to reinvent the Arab world.

By
April 23, 2016 03:57
US President Barack Obama takes part in a summit of the Gulf Cooperation Council (GCC) in Riyadh, Sa

US President Barack Obama takes part in a summit of the Gulf Cooperation Council (GCC) in Riyadh, Saudi Arabia April 21, 2016. (photo credit: REUTERS)

Having seen a man in a jellabiya for the first time in his life, a guest in San Francisco’s glitzy St. Francis Hotel whispered to another: “I wonder what he is wearing under that.”

It was 1945, and the man in the jellabiya – the future King Faisal, in town for the drafting of the UN charter – turned around and said: “BVDs.”

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A lot has happened since then between the House of Saud and Uncle Sam, as each came to know all about the other’s attire and also their coffers, psyches and arms, as would befit one of history’s most durable marriages of convenience.

This week, however, as President Barack Obama landed in Riyadh for a farewell visit, the Saudis felt as if their strategic spouse had publicly stripped them nude.

The American-inspired Saudi insecurity is diplomatic, military and economic.

Diplomatically, the Saudis feel Obama allowed and even encouraged their Iranian arch-rival to cast its shadow on the Arab world.

Obama’s dialogue with Tehran, heralded by a historic phone conversation with his Iranian counterpart in September 2013, would have rung alarm bells in Riyadh anyhow; but having followed the Egyptian upheaval of 2011, it was interpreted as a calamity.

As the Saudis see things, Obama betrayed former Egyptian president Hosni Mubarak by demanding his resignation as demonstrations gathered in Cairo.

Mubarak was Washington’s most veteran, loyal and dependable ally in the Middle East, and also the Saudis’ partner in leading the Arab world. From their viewpoint, the American-inspired Egyptian upheaval triggered the Arab world’s slide into the five-year-old chaos that no one seems able to undo.

The conversation with Iran’s President Hassan Rouhani came just when Obama reneged on his vow to attack the Syrian Army should it use chemicals weapons. Assad is anathema for the Saudis, a mass murderer of fellow Sunni Arabs and an agent of Iranian intrusion in the Arab world.

America’s abandonment of Mubarak, accommodation of Assad and embrace of Iran dealt a longterm blow to relations with Riyadh. Even if a new president sets out to reverse all this, the Obama era’s trauma will remain vivid, and its scars deep.

The deepest scar will be Iran’s nuclear program.

The American-led deal with Tehran was for the Saudis a strategic punch in the nose. The geographic distance from the Bushehr nuclear power plant to the Saudi shore across the Gulf is less than half the length of Israel. Psychologically, it is even closer.

Moreover, the Saudis have reason to fear that the Shi’ites to their east want to someday wrest from them Islam’s holy sites. Whether such fears are reasonable is immaterial. What matters is that the Saudis harbor this trepidation, and that the American conduct has done little to assuage it.

What everyone agrees the Saudis have all the right to fear is their economic condition.

BACK WHEN prince Faisal was in Frisco, Saudi oil was crucial to the US economy, whose postwar industry thirsted for crude at a time when the Saudis didn’t dare think of bullying America, and America couldn’t imagine a global oil crunch. The result was an understanding that the Saudis would sell and the Americans would buy, as both have indeed done for decades.

Since then, however, the Saudis proved they can bully, only to learn that bullying carries a price that in the long run is beyond their means.

The famous Saudi-led oil embargo that spiked a barrel’s price from $3 in 1973 to more than $37 by 1980 initially seemed from Riyadh like a stroke of brilliance. In fact, it was a Pyrrhic victory because it deluded its masterminds into thinking they could buy whatever they want for as long as they wish, without making their society do what others do to prosper: work.

This went not only for the Saudis but for all the political elites behind OPEC, from Libya to Venezuela.

In the Saudis’ case, this meant buying American arms, and by extension America’s alliance, while lavishing the masses with generous subsidies.

Defense spending became so massive that in 2014, when it bought $6.4 billion worth of arms, Saudi Arabia became the world’s leading arms buyer.

However, the market forces the Saudis thought they could control forever soon proved unruly. First, industrial conservation efforts coupled with new prospecting by non-OPEC members such as Britain and Norway created a 20-year price plunge.

Prices later recovered due to industrial expansion in India and China, but then the markets did their number again, this time by developing shale, which made prices dive this decade from more than $100 per barrel to less than $30, before bouncing back to $42.

Recent production cuts have stemmed the decline, but everyone understands that no market manipulation will change the economic reality which is that supply’s growth is outpacing demand’s. Oil will not return anytime soon to where it once was financially, and will never return to where it once was politically.

Worse, from the Saudi viewpoint, not only is its oil cheaper, the US no longer needs it, since shale is making the American economy a net exporter of crude.

Understandably, just as all this leaves Saudi leaders depressed, it is making American politicians euphoric. That is why lawmakers in Washington tabled a bill that would enable US courts to hold Riyadh partly responsible for the 9/11 attacks, whose 19 perpetrators were mostly Saudi.

Now the already tense US-Saudi relationship reached boiling point, as Riyadh responded last week by threatening to withdraw assets from the US, mainly longterm bonds.

It is a hollow threat.

Foreign governments last year sold some $225b. worth of US bonds. Wall Street easily absorbed that commotion, and the Saudis’ holdings are believed to be much lower than that sum. This is besides the fact that no Saudi can tell American lawmakers what to legislate.

In his meeting this week with King Salman, Obama is believed to have reassured his host that he will veto the bill should it pass. But such a gesture will not change the fundamental Saudi predicament, which demands historic change.

The Saudis will have to understand that just as they are in no position to bully America, the formula by which they have been living since 1945 is obsolete. Oil has ceased to impress America, its value – regardless of America – is on the decline, and Saudi needs have transformed beyond recognition.

The Saudis today think regionally, unlike King Ibn Saud’s outlook when he and US president Franklin D. Roosevelt established the relationship that has now reached a crossroads.

Thinking regionally, Riyadh’s wish is to somehow rewind history to the eve of the tsunami that felled four Arab regimes, sparked multiple civil wars, pumped the Iranian threat, produced Islamic State and also intensified Russian meddling, from Egypt through Syria to Iran.

Obama’s meetings in Riyadh are still taking place at this writing, but their bottom line is already clear: There will be no turning the clock back. America is losing interest, and the Saudis will have to face fate alone.

TO AVOID the kind of people power their neighbors have come to face, the Saudis must reboot their budgetary thinking. The old deal, whereby 5,000 princes bought social quiet by lavishing patronage and spraying subsidies, is no longer tenable.

On the revenue column, the situation whereby petrodollars pay 90 percent of the Saudi budget cannot stand. With its budget deficit estimated at $140b., or 20 percent of GDP, the day when Riyadh will have to start charging income tax is fast approaching.

On the expense side, subsidies and the defense budget must be slashed, as the kingdom’s evaporating foreign currency reserves – down from $737b. two years ago to a forecast $200b. in 2018 – now make plain.

And on the investment side, education spending and job creation must be multiplied, not only at home but throughout the Arab world.

Some of this is already understood in Riyadh. Recent cuts in subsidies for water, fuel and electricity are part of a plan to increase non-oil revenue by an annual $100b. Yet urgent though such change is, it is but the symptomatic part of the treatment the Saudi economy begs, and its resources can still buy.

The surgery Saudi Arabia needs is about furnishing 30 million citizens with modern professions and jobs. That is not what the Saudis have been doing even at home, let alone elsewhere in the Arab world, where social stagnation resulted in the violence that the Saudis have been watching in horror for the past five years.

Now, after 70 years of using oil to buy allies abroad and quiet at home, the Saudis must use what’s left of its oil’s power to reinvent the Arab world. The disincentive is clear: Empowering the humbly born threatens the well-born. Then again, considering events in nearby Yemen, Bahrain, Iraq, Syria and Egypt – the alternative is worse.

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