Gulf Roundtable: Saudi Arabia's Challenges

Saudi Arabia faces a series of heightened challenges with more constrained tools, according to Hani Sabra. The kingdom will maintain short-term stability despite negative political, economic, and regional environments, he predicted, but he cautioned that the potential for deep disruption will rise if the kingdom is unable to develop a comprehensive long-term strategy to address these issues. Sabra, the head of Eurasia Group’s Middle East and North Africa practice, spoke at a CSIS Middle East Program Gulf Roundtable entitled “Saudi Arabia’s Challenges” on April 8, 2016.

Several forces in Saudi Arabia’s domestic political environment are straining the status quo. First, a structural shift is changing how the country is governed, Sabra argued. At the time of Saudi Arabia’s founding in 1932, a small group of brothers governed the kingdom. Since then, power has changed hands to a much larger and more distantly related cohort of uncles and cousins. The full impact of this change on Saudi Arabia’s highly personalized systems of governance remains unclear.

Second, Deputy Crown Prince Muhammad bin Salman’s rising profile raises questions about the line of succession and the system’s continuity. While many observers of Saudi Arabia have focused on the relationship between Muhammad bin Salman and his cousin Crown Prince Muhammad bin Nayef, Sabra downplayed the importance of their personal dynamic and speculation over competition between the two. What matters more, Sabra argued, is King Salman’s longevity and how key actors align themselves behind the two princes. In particular, King Salman’s continued rule in the short to medium term creates space for his son Muhammad bin Salman to accrue additional experience and alliances needed to present himself as a credible candidate for leadership. 

Sabra explained that an upset in the expected process of succession could have ripple effects beyond the governing elite. While Saudi Arabia remains far from a representative government, branches of the royal family and individual princes provide a degree of representation for various constituencies in society. Should a highly centralizing figure like Muhammad bin Salman become king, the consolidation of power could risk disenfranchising elements of the family, and by extension, the constituencies they represent. Ultimately, however, Sabra assessed that the probability of popular protests destabilizing the Saudi political system remains minimal in the short term, even in the midst of inflationary or other economic pressures.

Oil price uncertainty continues looming over Saudi policymaking. The kingdom currently possesses around $590 billion in reserves, and has the ability to issue debt, cut spending, and sell assets to ensure economic stability over the next few years. Yet, these safeguards have not prevented a drastic drawdown in reserves since last year, nor the widening of the government deficit to 14.8 percent of GDP in 2015 from 2.3 percent in 2014. 

Sustained low oil prices carry far-ranging consequences for Saudi Arabia’s ability to maintain public spending at home and project power abroad. Most importantly, budget cuts weaken the government’s ability to use financial incentives to smooth over political disputes, including among competing interest groups or individuals within the royal family. Saudi Arabia’s demographic challenges also become more urgent without the luxury of higher oil prices. Despite the challenges it engenders, Riyadh appears committed to maintaining relatively high levels of oil production, in large part to protect its market share against Iran and U.S. shale producers.  Rather than slash production, Riyadh prefers to hold out for a demand-led oil price recovery. 

Saudi Arabia’s economic predicament creates opportunity to diversify the economy, but Sabra stressed that such reform is far from certain. Saudi leaders face the conundrum that reining in public spending runs counter to a state-driven economic model in which government spending is the engine of growth.  Meanwhile, the country’s unwillingness to engage in social reform will likely prevent it from diversifying to the extent that other Gulf states—notably the United Arab Emirates—have been able to do. Sabra cited as an example the formidable practical barriers to Saudi women’s labor force participation, which the leadership has shown little initiative to tackle despite an articulated desire to increase women’s economic activity. 

Economic and political trends affect Saudi security and foreign policy in the region, where protracted proxy wars and enduring reservations about Saudi hegemony among other Arab Gulf states have complicated Saudi’s pursuit of its interests abroad. 

Saudi Arabia’s interventions in regional conflicts have been partly fueled by its sense of responsibility to lead Sunni Arab forces and build domestic support for confronting Iran’s regional influence in the region. Yet, these interventions have not produced results which are necessarily favorable to Riyadh, Sabra argued. Riyadh has invested blood and treasure in a campaign to restore Yemeni President Abed Rabbo Mansour Hadi to power, but its inability to strike a decisive military victory represents a strategic disappointment. Saudi Arabia’s support for armed rebel groups to topple the regime of Bashar al Assad in Syria has also fallen short of Riyadh’s ambitions. Instead, Russian and Iranian support for the Syrian regime has helped turn the tide towards increased negotiating power for Assad and cast doubt on the feasibility of his removal. 

Ultimately, Saudi Arabia’s influential position in the broader Middle East means many regional actors have a stake in its stability. In the event of Saudi economic decline, countries such as Egypt, Lebanon, and Jordan would be devastated by the substantial loss of remittances they receive from sending their workers abroad to the kingdom. Even Iran’s leadership does not seek the collapse of the Saudi state, Sabra argued. However, the Saudi government is grappling with its limitations in foreign policy at the same time that it is facing new challenges at home. In an increasingly complex environment, Saudi Arabia’s image of itself as the natural Sunni Arab leader may not translate into an ability to corral allies and shape outcomes to the degree it desires.