By Kamran Bokhari

Summary Saudi Arabia has embarked on a path of unprecedented transformation. A key characteristic of this major effort at reform is that it is reactive. The Saudis are under tremendous pressure to preserve their polity at a time when the region around them is in the throes of a massive convulsion. While business as usual is untenable, rapid changes could make matters worse.
Saudi Arabia’s Cabinet approved an ambitious plan on April 25 to reform the kingdom’s political economy. Dubbed Saudi Vision 2030, it is being described as the brainchild of Deputy Crown Prince Mohammed bin Salman, the 30-year-old son of the kingdom’s monarch. The plan aims to eliminate the kingdom’s dependence on oil revenues – in large part through the sale of a small stake in the state-owned oil company, Aramco, and creation of the world’s largest sovereign wealth fund. In an April 25 interview with Al-Arabiya designed to showcase the plan, whose details will be made available in early June, the second in line to the throne criticized the kingdom’s dependence on oil revenues. Prince Mohammed, who is also defense minister and chief of the top decision-making body of Aramco, said, “Oil has become our constitution. The Koran, the Sunnah [Prophet Muhammad’s reported practices, sayings and tacit approvals] then oil!” This indicates his desire for change. However, drastic reform of Saudi Arabia’s oil-dependent economy is unlikely to succeed, given the internal and external constraints the kingdom currently faces.

The Foundations of the Saudi State

The modern kingdom of Saudi Arabia, officially established in 1932, is the third incarnation of the Saudi regime and is based on three pillars: religion, tribalism and oil. However, the two previous Saudi regimes were not underpinned by oil wealth and instead derived their legitimacy from the first two pillars, which ultimately led to their collapse. The first Saudi state, for example, was established by a pact between the founder of the ultraconservative interpretation of Sunni Islam known as Salafism, Muhammad ibn ʿAbd al-Wahhab, and the patriarch of the royal family, Muhammad bin Saud. The latter held political power and the former was in charge of religious affairs, but ultimately it was religion that provided the core legitimacy for the state.

Religion by itself was not enough to hold together the new polity. Arabia, since before the advent of Islam, has been a tribal society. The first and second Saudi states gained territory through conquest by forging alliances with tribes – a system that exists till this day. The making of the modern kingdom from 1901 through 1932 was no different.

However, the fall of the first two Saudi states was in large part due to the fact that the Saudis were not very powerful in relation to their internal rivals (largely the al-Rasheeds and the Hashemites) and external enemies (Egypt and the Ottoman Empire). The third Saudi regime was able to overcome this challenge using its oil wealth, which helped it maintain internal stability and propelled the country into the position of regional Arab leader. As the region came under British influence in the aftermath of World War I and later American influence after 1945, the third Saudi state also had the support of foreign powers. But foreign patrons can only support an entity that is able to maintain stability at home. The Saudis faced several problems – from the rivalry between King Saud and his Crown Prince Faisal to Egypt with its secular government threatening to overthrow the Saudi monarchy – and needed to a way to preserve internal loyalty and fight off external challenges.
Oil Hardwired into the State
What allowed the third Saudi state to endure was the discovery of its large petroleum reserves in 1938, which became the main source of income for the regime by the early 1950s. Oil wealth allowed the Saudis to consolidate power at home and also insulate itself from the threat from Egypt. By the 1970s, the Saudis became the world’s largest exporter of crude and were able to use their financial muscle to project influence internationally. In essence, the modern kingdom would not be what it is today and may have met the same fate as the first two Saudi regimes if it were not for oil.
After all, other sectors of the economy remain marginal in comparison to petroleum, which in 2015 accounted for three-quarters of the state’s revenue. Therefore, Prince Mohammed is not exaggerating when he says that oil is the third most important component of the kingdom, after the Koran and the Sunnah. That said, his claim that “by 2020, we’ll be able to live without oil” is not just an extremely ambitious target; rather, it is wishful thinking. It is extremely difficult for any country heavily reliant on a particular commodity or industry to reduce its dependency to that extent.
In the case of Saudi Arabia, it is even more difficult to transform the economy given that its entire social contract and national security doctrine is based on revenue from crude exports. The kingdom could have gradually decreased some of its dependency on oil in the last four decades or so, had it invested its wealth in developing alternative sectors. However, a major obstacle to doing that has been the social setup of Saudi society. Not only is the kingdom’s culture deeply conservative, but the public is also accustomed to receiving handouts from the state.
Prince Mohammed is trying to fast-track changes to the Saudi state and society that his father and uncles, who previously held the throne, were not able to implement even gradually. Shocking the system is bound to increase the risk of backlash from ultraconservative social and religious forces in the kingdom, which has already seen considerable penetration by the Islamic State and al-Qaida. Even if the Saudis were to somehow continue to contain their Salafist and jihadist opponents, the magnitude of change that the apex Saudi leadership is seeking requires years – if not decades – of evolution. More important, the plunge in the price of oil and subsequent loss of revenue has created a situation where Saudi Vision 2030 is a highly elusive goal, to put it mildly.

Since late 2014, the Saudis have already burned through $115 billion of their reserves – a drop of 16 percent. This situation has forced the Saudis to turn to borrowing tens of billions of dollars from international lenders for the first time in a quarter of a century. Riyadh has moved to cut spending, but there is only so much it can do without undermining the fragile domestic situation. Four months ago, the government raised the price of utilities (water, electricity and fuel), which triggered some resistance and resulted in the king firing the country’s minister of water and energy last weekend.
Reforms Unlikely
Effecting radical change and being able to preserve historical state-society relations alone is no less than a Herculean task. And these changes are being pursued at a time when the Saudis do not have to worry about only domestic matters. The entire region is collapsing and Riyadh, being the only remaining major Arab power, is having to manage the autocratic meltdown so that democratic and radical Islamist forces cannot take advantage of the growing regional power vacuum. In addition to financially supporting many countries (most notably the largest Arab state, Egypt), the Saudis are engaged in a costly war on their southern flank in Yemen.
While they are being pulled in multiple directions in the Arab world, the Saudis also have to deal with the threats posed by their archrival Iran, which is on the path towards international rehabilitation. To counter Iran’s influence in the region, the Saudis are heavily focused on trying to back the rebellion against the Bashar al-Assad regime in Syria. That the Syrian regime has been strengthened in recent months with Russian and Iranian assistance means that Saudi support for the rebels has been unsuccessful. What is worse is that the Islamic State, which poses the biggest threat to the kingdom, has benefited from the sectarian struggle between the Saudis and Iranians.
At the same time, Saudi Arabia’s relationship with the United States, its historical ally, has greatly soured. American and Saudi interests have diverged to where the United States has moved away from its close alignment with the kingdom. Washington is pursuing a balance of power strategy that not only involves working closely with Iran but also with Turkey, which represents a major challenge to the kingdom from a fellow Sunni country. The United States is hoping regional powers take the lead in managing the growing turmoil in the Middle East, but Saudi Arabia’s imperatives are increasingly in conflict with those of the United States.

A complex regional situation and domestic constraints severely limit Saudi Arabia’s room to maneuver. It is highly unlikely that Riyadh will succeed in its efforts to overhaul its political economy. In the process, the kingdom could end up creating far more problems than it faces at present.