A Dangerous Spark In The Oil Fields

Just four years ago, the U.S. quickly moved to protect the richest oil fields in the world when it led a 39-nation force to oust Saddam Hussein from Kuwait. But the car bomb that struck a Saudi National Guard installation in Riyadh on Nov. 13 suggests once again that internal enemies, not external ones, may now be the biggest threats to the desert sheikdoms. Five Americans and two others were killed in the blasted building, where hundreds of U.S. defense personnel worked.

While it is not yet clear who was responsible, the bombing is certain to contribute to the sense of unease that was already spreading through the pro-Western Arab states of the Persian Gulf. As oil revenues decline, there is growing discontent with the existing political and economic systems. Experts are calling it the Gulf Disease. The symptoms vary from sheikdom to sheikdom, but most of the six members of the pro-Western Gulf Cooperation Council (gcc) seem to have some of them.

Saudi Arabia, the linchpin of the region's pax Americana, has been troubled by antigovernment religious dissent. In the offshore banking center of Bahrain, which hosts the U.S. Navy's gulf fleet, Shiite dissidents demanding jobs and a greater stake in the political system have been rioting. In Qatar the current ruler, Hamad bin Khalifa Al-Thani, overthrew his father last June.

The mood is downbeat even in Kuwait. The economy has failed to regain its prewar vibrancy, and many influential Kuwaitis are worried about their emirate's lack of direction.

The roots of the problem are the same across the gulf. The era in which ruling families could use seemingly limitless oil revenues to buy the loyalty and silence of the population is coming to an end. Cash-strapped governments are cutting back social services, while the stream of rich contracts that helped oil the economy has dwindled to almost nothing. "Our ability to sustain major projects and welfare is being reduced," says Ali A. Rashaid Al-Bader, managing director of the Kuwait Investment Authority, which is in charge of the oil-rich emirate's shrunken savings. "We have to spend within our means."

But this adjustment is breeding resentment. Belt-tightening has led to increased questioning of the rulers' legitimacy and their management of the national wealth. "When you are being paid lavishly, you don't look closely at the faults of your benefactor," says a Riyadh-based economist. "But when you are struggling to survive and the royal family lives high, that fuels resentment."

Saudi Arabia sits on top 25% of the world's oil reserves, but that hasn't kept it from feeling the same economic pressures as its neighbors (charts). Declining oil prices and the $55 billion Riyadh spent to support Operation Desert Storm have left the country with a growing public debt. A population explosion has also helped sharply erode per capita gross domestic product from more than $12,000 in 1982 to little more than $7,000 today. Some 3 million Saudis--44% of the labor force--work in the public sector, where salaries have been frozen for almost a decade. This year, in a huge departure from traditional largesse, King Fahd is more than doubling the fees charged residents for electricity, water, and other services.

HOT TAPES. Such erosion of the desert welfare state sorely strains the paternalistic social contract between the ruling Al-Saud clan and the population. Since all political activities are banned, discontent in Saudi Arabia is often expressed through Islamic channels, as it is elsewhere in the Mideast. Shadowy groups with an apparent Islamic agenda have threatened Western embassies and companies in Saudi Arabia, and some claimed responsibility for the blast.

Renegade preachers regularly attack the Saudi royal family for supposed corruption, loose living, and their ties to the U.S. Last November, following antigovernment disturbances near Riyadh, the authorities jailed hundreds of Islamic agitators. Among those arrested was the well-known preacher Salman Al-Awdah, whose incendiary cassettes, secretly distributed through the kingdom, have made him a rebel hero.

A London-based opposition group, the Committee for the Defense of Legitimate Rights (cdlr), now regularly exposes corruption and human-rights violations in Saudi Arabia in its weekly broadside, Al-Huquq, that is faxed into Saudi Arabia and widely photocopied. cdlr spokesman Muhammad Massari predicts that the bomb attack could signal a sharp uptick in political violence. "When things like this start, it's difficult to stop," he says. Massari, who spent six months in Saudi jails in 1993--without charges--says that a Saudi government crackdown on Islamic radicals following the car bombing could further widen the gulf between the House of Saud and the populace.

Saudi Arabia could soon face another highly delicate and potentially explosive problem: the succession to ailing 74-year-old King Fahd. Since 1953, the throne has been occupied only by sons of Ibn Saud, the founder of modern Saudi Arabia. The lack of rules about how power could pass to the 500 to 600 senior third-generation princes suggests that Saudi Arabia's huge ruling family could soon be riven by the kinds of bitter rivalries that in the past have split Kuwait's ruling Al-Sabahs.

Of course, none of this is to say that civil strife is around the corner. The Al-Saud and other royal families still hold many trump cards, including ruthless, efficient security services. But that said, all of the monarchies of the gcc face a tough predicament. Governments are going to have to curb expenditures and rely more on the private sector to create jobs. But to chop services and public-sector payrolls will require bringing the people more and more into the decision-making process. "To restructure economically, you need a new political arrangement," says Fareed Mohamedi, global oil-markets analyst at Petroleum Finance Co., a Washington consulting firm. He envisages the ruling families sharing more power in return for their constituents' accepting spending cuts.

RUBBER STAMP. Tentative steps are already being taken in that direction in some of the gulf countries. After years of stalling, King Fahd finally appointed a Consultative Council, or Majlis Al-Shura, to give voice to nonroyals. But the group serves more as a rubber stamp for government policies than a forum for real debate. And one still hears plenty of grumbling from the business community about princes muscling into what had been the merchants' turf.

In Kuwait, by far the most open of the gulf countries, the Al-Sabahs have ceded considerable power to an elected national assembly. While this body has been an invaluable safety valve for dissent, it is far from a panacea. Parliamentary deputies who have been playing to the voters have made it difficult for the government to trim services and implement serious privatization.

So the next few years promise to be critical in the gulf. The period of adjustment is only beginning, and so are the strains. And the U.S., which is vigilantly watching Iraq and Iran, would be well-advised to devote more attention to the inner workings of its gulf allies.

Before it's here, it's on the Bloomberg Terminal.