The smokescreen created by Saudi rulers over Iran’s criticism of prominent cleric Sheikh Nimr al-Nimr’s execution has concealed the kingdom’s economic troubles.
The fallout from Saudi severing of diplomatic ties with Iran has raised fears of an escalation in a region already riven by the world’s worst conflicts in recent years but less noticeable is the crisis which Riyadh is facing with its balance sheets.
The steep slide in oil prices, a mess of the kingdom’s own making, has blown away big chunks of foreign reserves and liquidated public finances in a country where 90% of the economy suckles on the big oil money.
The International Monetary Fund (IMF) expects Saudi Arabia to run a budget deficit of 19.4% in 2016 and run out of financial assets within the coming five years.
Several key factors are currently shaping the kingdom’s outlook, most important of which are deepening regional conflicts and slumping oil prices.
Structural changes and risks
New Saudi rulers seem bent on stirring up regional tensions in a bid to divert attention from a convoluted power restructuring which is currently underway in the kingdom.
As part of the plan, the current Oil Minister Ali al-Naimi, a technocrat and not a royal by blood, is said to be replaced by Abdulaziz bin Salman, one of King Salman’s sons.
The appointment is set to put the most important sector of the country under the new royal family’s clutches and consolidate its power.
King Salman launched its coup by naming another son, Mohammad bin Salman, as defense minister. The young prince is already believed as the real ruler and the driving force behind Saudi Arabia’s current confrontational policies.
The prince has also unveiled a raft of risky plans to cut spending, privatize basic services such as healthcare and education and raise taxes.
Such measures carry high risks in a country where a clan-based system of vested interests is unlikely to brook any major changes.
Meanwhile, dictating austerity on a community long used to a lavish lifestyle while the royal family and the elite continue with their opulent ways is set to stir up dissent.
Risks of unrest
Populist spending is the glue which keeps the tribal community together in Saudi Arabia. There is already a bottled rage lurking beneath in the oil-rich Eastern Province which could boil over at any moment after the execution of Sheikh Nimr.
However, it is the youth unemployment which provides the powder keg in the country of 31 million where a third of the first-time job seekers are out of work.
King Salman splurged $32 billion in his coronation as bonuses to all workers and pensioners.
The kingdom is also running a costly patronage system and acting as a pack-builder, explaining why a curious set of states such as Djibouti, Bahrain, Sudan and Somalia took Riyadh’s lead in cutting ties with Iran.
That comes with costs and obligations. For example, Saudi rulers have had to splurge $22 billion to Morocco and $8 billion to Egypt.
The collapse in oil prices, military expenses in Syria and Yemen and the fallout from severing of ties with Iran, however, are burning through reserves at an alarming pace.
In 2015, the kingdom squandered $100 billion of its oil reserves and issued debt for first time. It has also opened its stocks to foreign buyers for the first time and is even mulling to sell stakes in the national firm Aramco, the world’s largest oil behemoth.
Saudi Arabia’s further vulnerability is from its currency which is increasingly under pressure from depleting foreign reserves because it is pegged to the US dollar.
While welfare spending is shrinking, military largesse is growing — a troubling sign in a high risk gamble which could spell the collapse of the Al Saud House.
By Press TV