DISADVANTAGE/OIL

LOWER OIL PRICES WILL DESTABILIZE SAUDI ARABIA

SAUDI ARABIA DESPERATELY NEEDS THE CASH FROM HIGH OIL PRICES IN ORDER TO AVOID AN ECONOMIC COLLAPSE

The Times (London), January 20, 2000, HEADLINE: Too slick to be had by oil price rise//Ixnx hxm

Opec countries are in dire need of cash. Saudi Arabia recently caused astonishment by revealing a $ 10 billion hole in its finances. Economists had expected substantial improvement to the country's fiscal deficit after a year of rising oil prices. The country needs cash to pay wages and keep discontent with the regime at bay, a factor that may explain its desire to keep the oil market tight. Iran, too, needs funds to rebuild its economy, Venezuela has been badly battered by floods and Nigeria is in a parlous state.

A year of high oil prices might be deemed a small price for the West to pay for stability in a few very unstable countries.

SAUDI ARABIA IS RIPE FOR CIVIL WAR IF THE ECONOMIC SITUATION WORSENS WHICH COULD SPARK A GLOBAL RECESSION

David J. Lynch, March 22,1999, USA TODAY, HEADLINE: Analysts: Saudi Arabia faces economic reforms

If the financial outlook worsens, one expert warns that Saudi Arabia could be ripe for civil war. "Saudi Arabia is extremely vulnerable to internal wars. If the economy continues to deteriorate, the government will have to make hard choices that could rock the Saudi state," Steven David, a political science professor at Johns Hopkins University, wrote in the journal Foreign Affairs.

David says the poor economy is steering disaffected youths to religious extremism. And the rise of fundamentalists threatens to split the military.

Other analysts scoff at what they call an alarmist view.

But the stakes for the USA are enormous: A disruption of production in Saudi oil supplies could plunge the industrial world into recession.

SAUDI ARABIA'S PEOPLE ARE ENTIRELY DEPENDENT ON OIL PRICES

STEVEN R. DAVID, Professor of Political Science at The Johns Hopkins University, Foreign Affairs, January/February, 1999, HEADLINE: Saving America from the Coming Civil Wars //lxnx hxm

Fabulous oil wealth has been a mixed blessing for Saudi Arabia. Oil has spared the Saudi government from the need to tax its citizens; as a result, the regime has never learned to convince its subjects to sacrifice for the good of the state (nor have the citizens teamed to weather privation). The timid Saudi government must constantly buy the people's loyalty with material comforts.

SAUDI ARABIA IS ENTIRELY DEPENDENT ON OIL

Agence France Presse, December 21, 1999, HEADLINE: Saudi Arabi a battles debt in cautious 2000 budget

"The importance of oil for Saudi Arabia's economy became very obvious in the last two years, but it is a double-edged sword. A balanced budget will only happen when our dependence on oil is addressed," he said.

THE SAUDI ECONOMY IS ENTIRELY DEPENDENT ON OIL PRICES

Agence France Presse, December 21, 1999, HEADLINE: Saudi Arabia battles debt in cautious 2000 budget

Saudi Arabia, the world's largest oil producer, decided to chop its oil output by 585,000 bpd to a new level of 7.44 million bpd.

But as a result of the boost in oil prices, which last month hit nine-year highs, state revenues for 1999 rose from a forecast 32 billion dollars to an actual figure of 39.2 billion dollars.

This helped slice the forecast budget deficit by nearly a quarter to just over nine billion dollars.

Saudi Arabia's outlook for 2000 is a huge turnaround from the economic crises of 1998 and early 1999, when crude oil dipped below 10 dollars a barrel, prompting a slash in spending to counter a 12-billion-dollar deficit.

"We have passed through a very difficult period like other oil producers and we have now emerged," the finance minister said. "The rationalisation of spending is continuing, without harming the spending which impacts on the lives or future of citizens, for instance in the health and education sectors," he added.

IF OIL PRICES FALL SAUDI INSTABILITY WILL INCREASE DRAMATICALLY

David Knott, Senior Editor, 1996 [Oil and Gas Journal, Aug. 5. Foreign partners scarce in OPEC gulf states \\VT98-hovden]

CGES said that, faced with Saudi Arabia's growing internal problems, the U.S. is keen to avoid any risk of a sharp fall in oil prices that might add to the kingdom's worries. "Saudi Arabia has earned $ 8 billion more than it expected so far this year as a result of high oil prices," said CGES, "and this has helped alleviate its financial troubles. "If oil prices were to erode as a result of Iraqi exports, Saudi budgets would be squeezed once more, adding to the pressure for economic and political reform in a country that is used to spending its way out of trouble.

OIL IS INTEGRAL TO SAUDI ARABIA'S ECONOMY

Reuters North American Wire, 1996 [June 25, HEADLINE: Key facts about Saudi Arabia\\VT98-hovden]

ECONOMY Saudi Arabia is the world's biggest oil producer and exporter. Oil revenues accounted for 37 percent of its gross national product in 1995. Its economic might lies in owning a quarter of the world's oil reserves. Crude oil reserves stand at about 260 billion barrels and it has 186 trillion cubic feet of natural gas deposits. Saudi Arabia has the capacity to produce 10 million barrels per day (bpd) of oil, although its quota obligation in the Organization of Petroleum Exporting Countries keeps production at eight million bpd- about a quarter of OPEC's total and 10 percent of global output.

A WEAK SAUDI ECONOMY CAUSES AN INCREASED ISLAMIC PRESSURE

Ethan Bronner, 1996 [The Boston Globe, June 27; HEADLINE: Blast points to Saudi instability; Threats from within and without undermining the authority of ruling family; Material from wire services was used in this report.\\VT98-hovden]

The tentative switch to Abdullah comes at a time when the country is facing unprecedented economic and social woes due partly to the drop in oil prices over the past decade and reckless spending by the royals. About a quarter of Saudi university graduates are said to be without work.

Saudi Arabia has among the most severe of Islamic legal codes but the rulers face pressure from Muslim fundamentalists who come not only from the minority Shiites but increasingly from the majority Sunnis and even from within the Wahabis, an orthodox Sunni subsect that includes the ruling family and many other wealthy families.

THE WEAKENING SAUDI ECONOMY IS FODDER FOR ISLAMIST DISSIDENTS

Trudy Rubin, 1996 [Austin American-Statesman, July 1. HEADLINE: U.S. must talk straight to Saudi rulers\\VT98-hovden]

But declining oil prices, immense defense spending and the cost of the Gulf War have run up huge Saudi debts, undercutting the rulers' ability to buy off the rest of the population with lavish subsidies. Middle-class income is declining (some experts say per capita earnings have dropped from $14,000 to $4,000 yearly since 1982) and unemployment is rising. No wonder the royals' corruption provides grist for Islamist dissidents.

OIL MONEY IS THE ONLY THING THAT KEEPS SAUDI ARABIA FROM DISINTEGRATING

Mohamed H. Heikal; Yomiuri Shimbun, 1996 [The Daily Yomiuri, April 29; HEADLINE: INSIGHTS INTO THE WORLD;Strains showing in House of Al-Saud//VT98-hovden]

The other, more recent, phenomenon dates back to the oil boom of the 1970s. Thanks to the huge windfall of petrodollars coupled with rapid urbanization and a dramatic increase in services, including education, health and basic infrastructure, the kingdom's subjects, a traditionally nomadic or semi nomadic people, outgrew their modest Bedouin origins and their traditional lifestyle as small traders.

Social and class configurations became sharper and more clearly defined, and a new breed of educated, prosperous commoners coagulated to form a middle class. Exposure to the outside world has fueled the aspirations of the new Saudi bourgeoisie for participation in the decision-making process, but though they play a major role in running the country's economy and government bureaucracy, they have not enjoyed comparable political power, which is still wielded exclusively by the class of princes. Their frustration is compounded by the fact that the progeny of Ibn Saud also exert enormous influence in the field of business and upper-echelon government posts.

During the 1980s, these potentially destabilizing phenomena were held in check by the rivers of oil wealth flowing into the Saudi coffers. In 1981, for example, oil revenue amounted to $110 billion per year, which allowed for a public spending budget of $20 billion and a further $20 billion to finance the five-year development plans, in addition to the share of the king and his immediate branch of the family that, according to a very loose interpretation of a Sharia provision, was assessed at $20 billion.

LOW OIL PRICES CAUSE ISLAMIC FUNDAMENTALIST BACKLASH IN SAUDI

Amy Myers Jaffe and Robert A. Manning January, 2000 / February, 2000 [ AMY MYERS JAFFE, former Senior Economist for Petroleum Intelligence Weekly, directs the Energy Research Program at the James A. Baker III Institute for Public Policy at Rice University. ROBERT A. MANNING is Senior Fellow and Director of Asian Studies at the Council on Foreign Relations and author of the forthcoming The Asian Energy Factor Revisited. ] HEADLINE: The Shocks of a World of Cheap Oil. Foreign Affairs. //LX-NX ARF

As the Gulf's economies shrink, jobs are becoming an increasingly critical problem. In the ten largest Saudi cities, for example, unemployment is socking the middle classes, and about 20 -- 30 percent of Saudis lack jobs. Broad cultural and demographic shifts do not help, either. Many countries, especially Saudi Arabia, now have a large, idle class of students, some favoring religious study. If employment opportunities in the kingdom remain bleak, Riyadh could lose its ability to co-opt this expanding younger generation, which could become a major constituency for Islamist opposition movements.