Saudi Arabia is effectively beached. It relies on oil for 90pc of its budget revenues. There is no other industry to speak of, a full fifty years after the oil bonanza began.
Citizens pay no tax on income, interest, or stock dividends. Subsidized petrol costs twelve cents a litre at the pump. Electricity is given away for 1.3 cents a kilowatt-hour. Spending on patronage exploded after the Arab Spring as the kingdom sought to smother dissent.
The International Monetary Fund estimates that the budget deficit will reach 20pc of GDP this year, or roughly $140bn. The 'fiscal break-even price' is $106.
Far from retrenching, King Salman is spraying money around, giving away $32bn in a coronation bonus for all workers and pensioners.
He has launched a costly war against the Houthis in Yemen and is engaged in a massive military build-up - entirely reliant on imported weapons - that will propel Saudi Arabia to fifth place in the world defence ranking.
The Saudi royal family is leading the Sunni cause against a resurgent Iran, battling for dominance in a bitter struggle between Sunni and Shia across the Middle East. "Right now, the Saudis have only one thing on their mind and that is the Iranians. They have a very serious problem. Iranian proxies are running Yemen, Syria, Iraq, and Lebanon," said Jim Woolsey, the former head of the US Central Intelligence Agency.
Money began to leak out of Saudi Arabia after the Arab Spring, with net capital outflows reaching 8pc of GDP annually even before the oil price crash. The country has since been burning through its foreign reserves at a vertiginous pace.
Posts tagged ‘Arab Spring’
In this country, at least in high school civics classes, we often equate freedom and democracy. But this is not the case. I have written before that protection of individual rights is far more critical to our well-being than voting. If there was a system with a better track record for protecting individual rights than democracy, I would support it, even if it did not involve voting.
Here is an interesting example from Kuwait of a king protecting individual rights from a democratically-elected body
Although a monarchy, Kuwait has an elected parliament and a generally free media. It regularly invites foreign analysts and journalists to observe its elections. I am making my second trip this year.
Tremors from the Arab Spring are being felt here. The parliament elected in 2009 faced charges of corruption and lost popularity, and was dissolved at the beginning of the year. Elections were held in February.
All very democratic.
The new legislature was dominated by anti-government activists and, more important, Islamists. Top of the latter’s agenda was making Sharia the basis of all laws, imposing the death penalty for blasphemy, and closing Christian churches. Not very good for liberty.
The Kuwaiti emir, Sheikh Sabah al-Ahmad al-Sabah, said no to all three. Liberty was protected only because Kuwait was not a genuine parliamentary system where elections determine the government.
Please, do not over-interpret my point here. I am well aware that the Emir in Kuwait holds a number of illiberal views with which I would disagree. But its an interesting example none-the-less.
It appears the Arab Spring, unsurprisingly, is coming to an end, as Islamic hard liners take a large share of the Parliamentary seats.
The idealist in me is offended when the US supports dictators with mixed respect for individual rights. The realist in me knows that often, when such people are removed, worse governments take their place.