A Test for the House of Saud

Can it keep the lid on in the face of huge social and economic pressures?

Scenes from Saudi Arabia, post-September 11: In an airy but modest house in the Saudi capital of Riyadh, a member of the royal family turns to the problems dogging the Kingdom and much of the Arab world. Relations with the U.S. are badly frayed. Unemployment is alarmingly high. There is mounting discontent and religious extremism. "We worry," says this royal, a man known for reformist leanings. "If there is no improvement in conditions, this will hurt us three, four, five, or seven years down the line."

Elsewhere in Riyadh, a group of bankers, lawyers, and other business leaders gather inside a walled compound. Over dinner, talk turns to the overt hostility of many Americans, who are enraged that 15 of 19 terrorists were Saudis. "I am afraid my grandchildren will never enjoy the freedom of the U.S. the way my generation has," says the host, Sheikh Omran Al-Omran, former chairman of Riyadh Bank. Hundreds of Saudis studying in the U.S. have come home, fearful of harassment in America.

Meanwhile, in an academic's office, a moderate Islamist offers a Westerner what seems a surprising admission about the impact of Osama bin Laden's attacks on Saudis. "I don't know a man, woman, or child who was not happy about what happened in the U.S.," says Abdullah Al-Sabeh, a professor of psychology at Riyadh's Imam Muhammed bin Saud Islamic University.

RISING ANGER. Throughout the Kingdom, Saudis at all levels of society are beginning to wonder if something fundamental has changed in their relationship with America. For some, the enormity of the September 11 attacks is beginning to sink in. "It was a shock to Saudis that Saudis undertook such abhorrent activities," says Prince Turki Al-Faisal, former chief of Saudi intelligence. In the wake of the attacks, two certainties that formed the bedrock of Saudi society have been shaken. One is the idea that the U.S.-Saudi alliance will remain in place, a tie forged on the anvils of money and power whose dynamics will never change. The other is the conviction that the House of Saud could always, with a deft mix of ruthlessness and popular appeal, control its destiny and that of the Kingdom.

These certainties have given way to a daunting list of questions from both Saudis and Americans. Will the U.S.-Saudi relationship, scarred by events of September 11 and inflamed by passions on both sides, ever be the same? Can Saudi society, under huge social and economic pressures, remain stable--or is it simply set to blow, with incalculable consequences for the Mideast, the global economy, and the U.S.? Will the House of Saud survive?

The answers may depend on one 78-year-old man, Crown Prince Abdullah, who rules Saudi Arabia in the name of his invalid brother, King Fahd. Despite his age, the Crown Prince is a reformer determined to save his house by dampening corruption and opening the economy to more competition and investment. He's also determined to lessen dependence on the nation's powerful U.S. ally.

Abdullah's actions on the diplomatic front have raised hackles in American quarters, even though the Bush Administration says it is happy with the cooperation it's getting from the Saudis. Abdullah knows that anger at the U.S. is rising across the land. That's because the masses can now view the daily clashes between Palestinians and Israelis on satellite TV from Qatar or read about them on Internet sites that reopen under new names as fast as the government shuts them down. The fundamentalist religious Establishment preaches constantly against the Israelis. Abdullah reflects that anger. In an unusual series of letters and phone calls to President George W. Bush, the Crown Prince pleaded for more American activism on the Palestinian question. In a follow-up visit to Bush, Prince Saud Al-Faisal, the Saudi foreign minister, has urged him to take quicker action.

Abdullah has offered limited cooperation with the U.S. after the September attacks. The Saudis did act behind the scenes. They severed relations with the Taliban and pledged support for Pakistani President Pervez Musharraf. They instructed local banks to scour their records for traces of individuals or organizations named by the U.S. as suspected of funding terrorist organizations. Saudi American Bank says it has 42 people on the case.

Yet the House of Saud is caught between its American ally and public opinion in the Kingdom, which, it fears, is running dangerously in favor of bin Laden. So Abdullah never made the big gesture that would have gone down well with the American public--and persuaded the Saudis of the horror of the terrorist attacks. "Abdullah should have quickly assembled a party of top leaders and gone to the U.S. to express their condolences," says a Saudi banker in Riyadh. Americans wonder what the Saudis are holding back. "They have not been fully supportive," says Eliot A. Cohen, a national security expert at Johns Hopkins University's Paul H. Nitze School of Advanced International Studies. "The conversations [between the U.S. and the Saudis] may be tougher than they have been in the past."

HIGH UNEMPLOYMENT. As Abdullah holds those conversations, he will have to have some tough exchanges with the royal family, too. Their legitimacy is also on the line. Ordinary Saudis believe that the family has wasted the Kingdom's vast wealth through mismanagement and corruption, and that no one has taken them to task. So Abdullah has instituted a family council to try to discipline family members, and reduced military spending to dry up the opportunity for corruption there.

But the fight against corruption is just one part of Abdullah's struggle. Thanks to the recent oil boom, Saudi Arabia has built up reserves of $90 billion, but that doesn't solve the systemic problems. Per-capita gross domestic product has fallen to just one-fourth of its peak of $28,600 in 1980 (charts). Oil and oil products still account for at least 90% of Saudi exports, 75% of government revenues, and close to 40% of GDP. Manufacturing outside of petrochemicals accounts for less than 10% of GDP. Although oil prices are in decline now, the Saudis are hoping that they and other OPEC members can keep them high enough to tide the economy over until structural reforms bear fruit.

One scourge worries the House of Saud above all--unemployment. "You don't want to see people on the street. In the long run, it creates instability," says Prince Mohammed K.A. Al-Faisal, the 34-year-old vice-president of the Al Faisaliah Group, a family company. Each day, shiftless young men gather on the outskirts of Riyadh, smoking water pipes and drinking coffee. They have all the time in the world to get angry at the system.

This powder keg wasn't always there. Twenty years ago, just about any Saudi could find a comfortable position, and access to the universities was easy. Now, huge population pressures are overwhelming the schools and, ultimately, the job market. Joblessness is estimated at 15% and rising. Companies are just not creating enough jobs, despite intense pressure to hire Saudis instead of South Asians and other expatriates. This move toward so-called Saudiization is the bane of Saudi bosses, who say foreigners are better skilled, and more reliable than locals. "The Saudi wants to be well-paid to do nothing," says a Saudi manager who asked not to be named. Meanwhile, about 150,000 young Saudis enter the workforce each year. Some 50,000 find work. "I don't see any data to suggest Saudi Arabia has turned the corner on creating jobs," says Brad Bourland, chief economist at Saudi American Bank, a Citigroup (C ) affiliate in Riyadh.

Observers worry that fallout from the attacks could scare off investment in areas like telecommunications and tourism. Since a new investment law was passed 18 months ago, some $10 billion in foreign projects had been approved. "This momentum will certainly be slowed," predicts Bourland. For now, the biggest foreign investment project is still on track. ExxonMobil (XOM ), Royal/Dutch Shell Group (RD ), and BP (BP ) are still hoping to finalize deals worth up to $25 billion to exploit Saudi gas reserves.

Putting money into people's pockets would certainly help quiet discontent. But it's not the full answer. While the world will probably never know why so many Saudis participated in the September hijackings, the rapid social change of the past five decades certainly played its part. "We don't feel good in our identity as Saudis," says Omar Al-Modayfer, a psychiatrist and liberal Islamist, adding that attempted suicides are rising. "Saudis are caught between what I call Americanization and their own values. They have no way to adjust." Al-Modayfer and other observers say that Saudi Arabia is short on sports programs, recreational activities, and other tools that modern societies use to engage young people.

Some Saudi analysts say that the top leadership either doesn't get this message, or if it does, doesn't know what to do. The royal family includes thousands of members, surrounded by tens of thousands of retainers. "They want to change, but when you don't have a feedback mechanism you are stuck," says one Saudi professional.

Abdullah could still try to give citizens more of a stake in the country's decision-making. But many of the House of Saud and their supporters say that democracy would be a disaster in the Kingdom. Saudi Arabia, they argue, is a patchwork of tribes that are held together by the royal family. Elections would rekindle ancient rivalries. "We would have a Yugoslavia here," says one businessman.

Maybe, but restricting dissent as the government does has its costs, too. The lack of public debate helps what even many fundamentalists consider warped ideas about Islam to take root. For instance, Sheikh Abdulaziz Al-Qasem, a former judge, says the notion that America's support of Israel justifies jihad--holy war--on the U.S. does not wash under Islamic law. Yet many people across the region endorse it. "Unless people can debate freely, extremist opinion will rise," he says.

"EVOLUTION, NOT REVOLUTION." The frustration is mounting. At a recent gathering in Riyadh, a dozen Saudi professionals and executives expressed a wide range of gripes. A professor said his students were so poorly prepared for higher education that they were hopeless. A business manager said he doubted his children would find the same opportunities that he did. There was much discussion of corruption, although some thought the U.S. should have used its influence to help curb it.

Is this the kind of malaise that feeds revolution? Not yet. "Ninety percent of the people would like to see the House of Saud change--not have them [removed]," says an engineer and moderate Islamist from Bureida, a hotbed of religious fundamentalism north of Riyadh. Outside observers wonder what these pressures will produce. "In the long run, I can't see the system surviving as it stands," says Fareed Mohamedi, chief economist at energy consultants Petroleum Finance Co. in Washington, D.C. He predicts "evolution, not revolution."

And if Abdullah is to press ahead, he needs time and perhaps luck. A breakthrough in the Mideast peace process, for example, could restore the warmth to the U.S.-Saudi alliance, and give the regime a new legitimacy. "If we solve the Palestinian problem, what other issues are there between us?" says Abdulrahman Al-Zamil, chairman of Al-Zamil Group, a petrochemicals conglomerate with about $1 billion in annual revenues.

Meanwhile, Abdullah seems to be looking for ways to finesse the contradictions that face his country. His watchwords: Tinker with sensitive institutions. Don't tear them up root and branch. "When faced with problems, we look at all the ramifications," says Al-Faisal, the former intelligence chief. "That has been a mainstay of the Kingdom." Whether that approach fits the realities of the world after September 11 remains an open and frightening question.

By Stanley Reed in Riyadh

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