Saudi Arabia’s inner dynamics: regime, oil and people

Authors:

  • Carl-Adam Lindros

Publish date: 2014-06-23

Report number: FOI-R--3891--SE

Pages: 62

Written in: Swedish

Keywords:

  • Saudi Arabia
  • Al Saud
  • petrostate
  • oil-dependency
  • young population
  • growing expenditures
  • declining exports

Abstract

The House of Saud has ruled Saudi Arabia with absolute power since its unification in 1932, but the regime has been faced with burgeoning opposition in recent years. The issue stems from several different factors. Today circa 70 % of the population is 30 years or younger, and despite the country's oil wealth many citizens are socially gridlocked, and poor, and they lack education and work. For the regime the greatest challenge has become remaining in power through increasing concessions to the people. Therefore the regime has been forced to strike a balance between modern and conservative reforms as a way to regain loyalty and respect. The regime also tries to buy control with the oil money, by for example funding welfare benefits and stimulus packages. These actions have led to an increasing dependency on oil and despite efforts in economic diversification, 80-90 % of Saudi Arabia's income is still oil-related. Eventually this is likely to become a serious issue as the country faces an increasing domestic consumption of oil, while the oil available for extraction is decreasing. To maintain a high level of spending Saudi Arabia will be forced to compensate for the lower production of barrels by raising the price. The increase in oil prices has led to an international backlash for Saudi Arabia as it makes other energy assets more profitable in comparison (for example renewable energy as well as more expensive natural resources). If this development continues the Saudi Arabian oil assets will lose value which in turn could cripple the financial possibilities for the country. The regime risks facing a problematic future if Saudi Arabia fails to create economic activities which can diversify the economy. The economic activities must also be able to finance the investments for the young and demanding population which have an increasing consciousness about the current situation in the country.