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Saudi Arabia’s Great Run Seems Headed for Trouble: Noah Smith


Jan 4, 2019, by Noah Smith
(Bloomberg Opinion)

On the surface, Saudi Arabia and its ruling family — an absolute monarchy flush with oil wealth — look secure in their power. Despite oil price fluctuations, income per person has been more or less constant for many years now:

In purchasing power parity terms, Saudi Arabia is a rich country — only slightly behind the U.S. in living standards. Meanwhile, the country’s leadership is feeling confident and powerful enough to prosecute a war in Yemen and kill dissident journalists.

But beneath the placid surface, there could be trouble brewing. First of all, the country’s demographics are headed in a direction that is sometimes associated with social unrest. As recently as 2000, Saudi Arabian families were very large, with an average of more than six children per woman. But fertility has dropped precipitously, and is now below the replacement level of 2.1 children per woman:

This means that there are a large number of Saudi Arabians now coming of age who will have relatively few children of their own to take care of. In countries with economies based on manufacturing, this would produce a demographic dividend, causing growth to accelerate due to an abundance of young workers.

But in Saudi Arabia’s resource-dependent economy, it may simply put a strain on government finances. Saudi Arabia has traditionally been a rentier economy, where government jobs distribute oil money to the population and keep social tensions from rising. A bigger population means more mouths to feed. And youth unemployment in the country typically hovers between 25 and 30 percent, while overall unemployment hit record highs in early 2018.

A big cohort of idle young adults with high unemployment and relatively light child-care duties could be a volatile mix. Political scientists have long noted the correlation between youth bulges and civil strife.

This volatile situation could be made even more precarious by three additional factors: declining oil revenues, climate change and social liberalization.

As batteries and charging technologies improve, electric cars are quickly going mainstream:

That’s great for the world and for the future of the climate, but not so great for Saudi Arabia’s main industry. According to the Organization of Petroleum Exporting Countries, the kingdom relies on oil for about 50 percent of its economy and 70 percent of its export earnings; other estimates put the latter number even higher. Petroleum is used for lots more than powering autos and trucks, of course — plastics, fertilizer, ship and jet fuel, and a host of chemicals — but if electric vehicles start eating into the market share of the internal-combustion engine, oil prices could be headed south for good.

The country has long vowed to diversify its economy away from oil, but its ambitious reform plans often seem to degenerate into yet more lavish government spending. Meanwhile, even if a price crash caused by electric cars never materializes, the country’s oil reserves are not infinite, and the country may already be struggling to raise production.

Another threat to the country’s stability is climate change, whose effects may be manifesting already. Drought exacerbated by global warming may be contributing to the conflict in Yemen, where arable land is disappearing, and Saudi may not be far behind. There is little that the country can do on its own to stop climate change, other than to stop drilling oil (which would devastate its economy).

The third potential threat to stability is social change. The country’s culture is liberalizing — arts, theater and other cultural expressions are becoming more widely tolerated, women are driving cars and voting in elections, and hardline political Islam is falling out of favor with the government. This is all great for Saudi Arabian society, but it also creates the opportunity for turmoil. Young people who become used to a rapid pace of social change might become sharply dissatisfied if and when progress slows — a phenomenon known as a revolution of rising expectations.

So despite its appearance of stability, wealth and power, Saudi Arabia could be headed for a building storm of troubles — falling oil revenues, drought and an angry surplus of underemployed youth with frustrated expectations. The country’s rulers are surely aware of this danger, which may be why they’re handing out more money and offering social reforms even as they clamp down on political dissent and murder regime critics. Fear that Yemen’s civil war might touch off rage in Saudi Arabia may also be why the country is fighting so hard to suppress the rebellion in its southern neighbor.

But all these measures may not be enough. It may simply be that the era when an oil-rich desert kingdom could satisfy the economic and social needs of a burgeoning population will soon draw to a close.



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