Inside Saudi Arabia

The Kingdom copes with the fallout from terrorism

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. A demographic time bomb is ticking away. "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 by an indoor swimming pool, 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 that Osama bin Laden's attacks had 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.

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, the former chief of Saudi intelligence. Now in the wake of the attacks, two certainties that formed the bedrock of Saudi society have been severely shaken. One is the idea that the U.S.-Saudi alliance, a relationship forged on the anvils of money and power, 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.

BIN LADEN SUPPORT. These certainties have given way to a daunting list of questions raised by both Saudis and Americans. Will the U.S.-Saudi relationship, scarred by the 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, a straight-talking man determined to save his house by dampening corruption and opening the economy to more competition and investment. He's also determined to distance himself from the U.S. and lessen his Kingdom's dependence on its most powerful 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 Kingdom. 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, which controls the schools and enforces a strict Islamic social code, preaches constantly against the Israelis. Abdullah reflects that anger. In an unusual series of letters and phone calls to President George W. Bush in recent months, 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 also strongly urged him to take quicker action.

Abdullah has only 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."

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 royal family has wasted the Kingdom's vast wealth through mismanagement and corruption, and that no one has taken them to task. For example, the cut for "middlemen" runs from 5% to 40% on military contracts, sources say. Abdullah wants to wean the clan off its take from these deals. He has instituted a family council to try to discipline family members. He has reduced military spending, drying up the opportunity for corruption there. And recent bidding on a new landmark gas project has been remarkably clean, industry sources say.

DEMOGRAPHIC BOMB. 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. That's a cushion, but it 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, the Saudis are hoping that they and other OPEC members can keep them high enough to tide the economy over until Abdullah's 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, groups of shiftless young men gather on the outskirts of Riyadh. They spend their days smoking water pipes and drinking coffee at emporiums on the edge of the desert. They don't have jobs, and 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 colleges 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 Asians and other foreigners are better skilled, cheaper, and more reliable than local workers. "The Saudi wants to be well-paid to do nothing," says a Saudi manager who asked not to be named. Meanwhile, the demographic bomb keeps ticking. 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 affiliate in Riyadh.

The September 11 events could set back Abdullah's efforts to reform the economy further. For one thing, 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 by the Saudi Arabian General Investment Authority. But "this momentum will certainly be slowed," predicts Bourland. For now, the biggest foreign investment project is still on track. By yearend, ExxonMobil, Royal/Dutch Shell Group, and BP (BP ) are still hoping to finalize deals worth up to $25 billion to exploit Saudi gas reserves, even though differences remain on pricing.

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 and economic change that has swept across the Kingdom over the past five decades certainly played its part. Omar Al-Modayfer, a psychiatrist and liberal Islamist, sees an increasing number of Saudis who are whipsawed between a new materialism and traditional values. "We don't feel good in our identity as Saudis," he says, 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 youth sports programs, recreational activities, counseling, and other tools that modern societies use to engage young people. That gives some young people the time to become obsessed with fundamentalist Islamic doctrine.

ANCIENT RIVALRIES. 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 privileged royal family includes thousands of members, surrounded by tens of thousands of retainers and hangers-on. "It is like an old company challenged by modernization," says one Saudi professional. "They want to change, but when you don't have a feedback mechanism you are stuck."

Abdullah could still try to open the political system to give citizens more of a stake in decision-making. About a decade ago, King Fahd did agree to appoint a consultative assembly called the Majlis Al-Shura, or Consultative Council. Dismissed as a joke at first, the Shura is gaining some power. All legislation goes through the body. But it's appointed by the King, not an elected body--so it lacks true legitimacy.

Still, many of the House of Saud and their supporters say democracy would be a disaster in the Kingdom. Saudi Arabia, they argue, is a patchwork of rival tribes held together by the royal family, and 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.

The frustration is mounting. At a recent gathering in Riyadh, a dozen Saudi professionals and business executives expressed a wide range of gripes. A university 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 in business, although some thought the U.S. should have already 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. It's telling that even among extreme fundamentalists, bin Laden did not always win the support of those he may have been targeting. For instance, Salman Al-Ouda, perhaps the most respected dissident religious leader in the country, issued a pamphlet criticizing the killing of civilians.

Yet that's cold comfort for a society facing so many challenges. The Saudi education system, for instance, seems ripe for some reworking, both because its graduates don't suit the needs of modern business and because it has become a breeding ground for Islamic extremism. Yet taking back the schools, if it happens, could be a long and difficult struggle. Meanwhile, women, long second-class citizens, are also becoming more assertive. A televised session in which female educators sharply questioned Crown Prince Abdullah, who supports improving the status of women, drew national attention.

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. But he predicts "evolution, not revolution."

If Abdullah is to press ahead, he needs time and perhaps some luck. A breakthrough in the Mideast peace process, for example, could restore warmth to the U.S.-Saudi alliance, cool off local passions, 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. Saudi Arabia and the U.S. may also find common cause in rebuilding Afghanistan after the war.

Meanwhile, Abdullah seems to be looking for ways to finesse the contradictions that face him and his country. His watchwords: Be conservative. 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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