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For American policymakers, Saudi Arabia is deemed as one of the pillars of stability in the Middle East. Despite its export of Wahhabist Islam and its suppression of democratic and gender rights, the kingdom has anchored the interests of Sunni Muslims in the region for the last six decades. Saudi Arabia has also been a reliable American ally, assisting in the Persian Gulf War of 1990-1991 and offering ideas for solving the Israeli-Palestinian dispute. The House of Saud’s leadership in global oil markets has been valuable as well, with the country serving as the de facto leader of the Oil and Petroleum Exporting Countries (OPEC) cartel. However, the growing strength of Iran over the last decade has created significant anxieties in Saudi ranks. With the decline of Western sanctions against the Islamic Republic it is possible that the Iranian economy could overtake Saudi Arabia’s in the long-term, and low oil prices are forcing the kingdom to make choices about how it can sustain its social model without provoking unrest in the coming years. These Saudi anxieties could prove harmful for the Middle East, especially if they cause the regime to engage in risky interventions and some of this is already taking place in Syria and Yemen.
This topic brief will discuss Saudi Arabia’s rivalry with Iran, highlight its current economic struggles, and analyze how Saudi anxieties could affect the larger Middle East in the years ahead.
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The Saudi-Iranian Rivalry
The ongoing Saudi-Iranian rivalry goes back centuries before both modern nations were formed. The Saudis are a Sunni monarchy, while Iran’s Islamic Republic is based on Shi’ite principles. This regional sectarian struggle unfolded during the sixteenth and seventeenth centuries between the Sunni Ottoman Empire and the Shi’ite Safavid Empire. The Ottomans triumphed in that conflict, but tensions between Sunnis and Shi’ites have continued in the Middle East since that time. Just like the Ottomans and Safavids, some Saudi and Iranian leaders conceptualize their struggle as one that will determine the leadership of the world’s Islamic community. And Saudi Arabia uses history to justify its fight against the Iranians, invoking the old Safavid kingdom in an effort to rally support behind its anti-Shia policies. In addition, both nations continue to fund proxies and support nations that support their sectarian viewpoint. For example, Iran uses Hezbollah to exert influence on Lebanon and is a supporter of Syrian President Bashar al-Assad, while Saudi Arabia backs Egyptian Sunnis and works in concert with Jordan’s Sunni monarchy. There is also some ethnic tension behind the rivalry, with the Saudis usually arguing that they represent Arab interests in the Middle East versus Iran’s Persian majority.
It is a well-known secret that Iran wishes to topple Saudi Arabia’s monarchy and that Saudi Arabia has viewed Iran with alarm since the 1979 Islamic Revolution. The Week explains on January 31 that Saudi Arabia is quite intolerant of its Shi’ite minority, which constitutes 15% of the national population. Shi’ites are discriminated against in public sector employment and they are regularly denounced by Sunni clerics and national television. Iran uses this as a justification for its encroachments toward Saudi interests, stirring up its population by noting abuses of Shi’ites within the kingdom’s borders. In recent months the Saudis have expressed an ever growing intolerance of their Shi’ite minority with the government executing Shi’ite cleric Nimr al-Nimr for terrorism back in October. Although the government justified Nimr’s execution on national security grounds, critics noted that Nimr was probably killed because he was active in organizing Saudi Shi’ites and regularly denounced the House of Saud’s grip on power. Nimr’s death sparked a diplomatic crisis in the Middle East, as Voice of America reports on February 7 that the Saudi embassy in Tehran was attacked and in response the Saudis, Kuwait, Bahrain, and the United Arab Emirates cancelled or limited their diplomatic relations with Iran. To their credit, Iran’s leadership condemned the embassy attack and arrested those responsible, but the episode illustrated that Saudi Arabia is growing wary of what it perceives as Iranian-inspired disturbances within its borders.
Diplomatically, Saudi Arabia has held the trump card over Iran for the better part of thirty years due to its relationship with the United States. The United States has military bases in Saudi Arabia – one of the reasons that former al-Qaeda leader Osama bin Laden justified terror attacks on the United States – and American policymakers catered to Saudi interests to guard against Iranian expansion. However, the Obama presidency has changed this calculus by re-engaging the Iranians and overcoming the nuclear weapons fears that bogged down George W. Bush’s presidency. Voice of America writes that the Saudis were highly critical of the Iranian nuclear accord, arguing that the Iranians primarily benefitted at the expense of Western nations. According to the Saudis, Iran should have not only been required to dismantle its nuclear program but it should have been forced to end its ongoing actions in Syria, Yemen, and elsewhere in the Middle East. It is for this reason that there is growing antipathy among the Saudi leadership to the United States. The Boston Globe notes on February 3 that Saudi King Salman refused the offer of a summit with President Barack Obama in May. This behavior is alarming because it is unthinkable that prior Saudi monarchs would have rebuffed an American president in this fashion. The Saudis fear that now that Iran is no longer contained by Western sanctions that it will have a greater freedom of action in the Middle East. It also fears that the Obama administration has been willing to overlook elements of Iranian aggression to lock the nuclear deal in place and this explains why the Saudis have been reaching out to other world powers in recent months such as Russia. Additionally, there is still the fear among Middle Eastern analysts that if Iran ever acquired a nuclear weapon that Saudi Arabia and Egypt might follow suit, creating even more instability in the region.
What makes Saudi-Iranian relations worse is that the Saudis do not appear interested in trying to reach any type of long-term agreement. Reuters explains on January 18 that Iranian President Hassan Rouhani has made some overtures to the kingdom, but the Saudis have brushed him aside. Saudi officials view Iran’s democratic system as a joke, noting that real power belongs in the hands of the Council of Guardians and Supreme Leader Ayatollah Ali Khamenei. Reuters notes that Saudi leaders view Rouhani as the “smooth-talking cipher” for Khamenei, a leader that they despise. As a result, Saudi Arabia is digging in its heels for a protracted regional battle of influence with the Iranians, and 140 Saudi clerics recently urged the government to support regional Sunnis to combat Iran’s “record of criminality and treachery.” This is a recipe for continued struggles in the Middle East and a source of heartburn for policymakers that wish to stabilize the region.
Saudi Arabian Economy Struggles
Saudi Arabia’s anxieties about Iran and its own position in the Middle East have been exacerbated by its recent economic difficulties. All of this is due to low oil prices as oil is what has allowed Saudi Arabia to solidify its status as a regional power. Reuters writes on February 3 that profits from Saudi Aramco, the nation’s oil company, constitute 70% of the government’s revenue and the Saudi monarchy needs this for stability. Although the kingdom does not have a democracy, it has managed to hang onto power due an unwritten social contract with its population to provide easy employment and benefits. According to The New York Times on January 27 this arrangement has given Saudis subsidized housing and cheap energy, but low oil prices are threatening this arrangement because it is shrinking the Saudi budget. The Wall Street Journal explains on February 3 that the Saudi budget deficit was 15% of last year’s gross domestic product (GPD), meaning that its deficit represented that percentage of the nation’s economy. There have been fears in some markets that Saudi Arabia’s economy could eventually go under and The Wall Street Journal points out that investors are paying 10% more to insure against a Saudi debt default, which is three times higher than a year ago. The Week writes that the collapse of oil prices from $115 per barrel in 2014 to $35 now means that the government does not have enough money to provide benefits to its young population. More than 50% of Saudis are under the age of twenty-five and the government is not currently able to provide public sector jobs for these Saudis. The 20% of Saudis that are still poor are most at risk from austerity measures, which Deputy Crown Prince Mohammed bin Salman al Saud is pushing for. The Wall Street Journal notes that new austerity measures in the 2016 budget have reduced Saudi Arabia’s breakeven point for oil to $77.60 per barrel versus $100.40 last year, but oil prices are nowhere close to this level at present. As a result, another budget deficit is expected and this could lead to a further reduction of Saudi Arabia’s foreign currency reserves, although it still has hundreds of billions of dollars on hand to survive in the immediate future. The UK Telegraph adds on January 30 that the International Monetary Fund (IMF) has recommended new consumption and value added taxes (VAT) to shore up the Saudi budget, but following through with this policy carries significant risks for the kingdom’s social model.
One of the questions extempers might ask is why Saudi Arabia does not go for the obvious fix: cut back on oil production, encourage other OPEC members to do the same, and then try to reach out to another major oil producer such as Russia to follow its lead. After all, Russia is another major oil exporter that is being harmed by low oil prices and it seems reasonable that President Vladimir Putin would welcome high prices to deal with Russia’s economic difficulties. The answer for why Saudi Arabia is not following this path is that it is gambling that it can use its reserves to bankrupt Western competitors such as America’s shale oil industry. There is a significant glut in the global oil market at present and this is why prices are so low. According to the Saudis, if they drive prices down low enough then the cost of continuing to produce oil in the West will become uneconomic. Over time this would drive out competitors, allow Saudi Arabia to remain as the world’s pre-eminent oil producer, and restore oil prices to high levels. Unfortunately for the Saudis, though, Western oil interests are being quite stubborn giving up the game as several nations still have new wells coming online. Also, the Saudis are reluctant to take steps that they think could increase market share for competitors such as Iran. Once again, Saudi-Iranian interests are clashing in the energy field and The Wall Street Journal writes on February 4 that Iran is increasing output now that sanctions against it are ending. Iran does want OPEC to agree to a production cut, but the Saudis are so interested in preserving their market share that they have refused to go along. The Saudis may also fear what a richer Iran might do with a higher oil price as that could provide more funding for the Islamic Republic to continue its militant activities in the region.
If low oil prices become the norm for the immediate future, extempers should carefully monitor how much the Saudi economy is liberalized to cope with the situation. Prince Salman has positioned himself as an economic reformer, floating the idea of selling parts of Saudi Aramco, which was gradually nationalized during the 1970s. Reuters argues that an initial public offering (IPO) of shares in the company would provide some much needed foreign capital for the Saudi regime. The Business Insider reports on February 3 that investors pulled $21 billion out of Saudi banks in December and bank deposits have contracted by 1.1%. A listing of Saudi Aramco is not without its problems, though. As Reuters explains, an IPO would require the Saudis to become more transparent about the status of their oil reserves and the country’s budget. This might help the kingdom fight corruption, but it could upset some significant political actors in the nation. Additionally, Salman’s drive for economic liberalization could place the House of Saud at odds with religious authorities upon whom the Saudi regime’s legitimacy depends. The Economist explains on January 30 that King Salman does not want to anger the Saudi religious establishment and this is harming foreign investment since multinationals want clarity on whether men and women can work together in certain regions of the country and want to know whether they answer to the Saudi government or its aggressive religious police. Prince Salman may want Saudi Arabia to eventually become like nearby Dubai, where twenty-one of the world’s top twenty-five banks have setup shop, but doing so will require a greater clarity of work rules.
Saudi Anxieties in a Larger Middle East
Right now it appears that Saudi Arabia is projecting its anxieties onto the larger Middle East. The engineer behind this renewed Saudi aggressiveness is Prince Salman, who is the heir apparent to his father’s throne and will probably take power soon since King Salman is eighty years old (Prince Salman is just thirty). The Week points out that unlike Saudi Arabia’s older rulers, Prince Salman was educated in a Saudi university instead of an American one and he has very little expose for Western culture. Foreign intelligence services report that Prince Salman has “a reputation for arrogance and ruthlessness” and these services blame him for some of Saudi Arabia’s recent moves in the region that could carry dire consequences later. For example, Deutsche Welle explains on February 6 that Germany’s BND foreign intelligence service recently warned that the Saudi leadership is showing a tendency toward “impulsive interventionist policy.”
One of the theaters where Saudi anxieties could have a significant impact is Syria. The Syrian Civil War is entering its fifth year and there is no end in sight, especially after Syrian President Bashar al-Assad secured the intervention from Russia. The Saudis have desired the overthrow of Assad since he leads a Shi’ite minority government (an estimated 74% of Syria’s population are Sunni whereas just 13% are Shia) and is one of Iran’s strongest allies in the region. Thus far the kingdom has funded an assortment of militant groups in Syria to fight Assad, but this has the possibility of blowback since some Saudi financiers have been accused of also funding the activities of the Islamic State. Deutsche Welle points out that the Islamic State has called for the overthrow of the Saudi monarchy and the kingdom fears that hundreds of citizens that have gone to fight for ISIS will return home and create problems for it later on. Like other regional actors, Saudi Arabia desires an end to the conflict, but it has been a strong advocate for Assad’s removal. It was very disappointed when President Obama did not react more forcibly to accusations that Assad used chemical weapons in the fall of 2013 (which it interpreted as the White House subsuming Saudi interests for Iranian interests) and it is presently contemplating more aggressive steps in the area. According to The Christian Science Monitor on February 6, Saudi Brigadier General Ahmed Asseri has recently called for sending ground troops into Syria since air strikes have not been effective in battling ISIS or forces loyal to the Assad regime. This would significantly escalate the Syrian conflict and could create a larger regional war since Saudi troops would not only be engaging ISIS, but also Iranian-backed Hezbollah forces and possibly Russian forces as well. Still, Saudi Arabia’s proposal of a ground force that might include it, Gulf states, and Turkey might appeal to some Western politicians. Florida Senator Marco Rubio talked about assembling such a Sunni force in the latest Republican presidential debate in New Hampshire. The Christian Science Monitor goes on to explain that if Saudi Arabia and other Sunni forces knocked out ISIS that it may undermine Assad’s position since his outside backers such as Russia and Iran have justified their presence in Syria on the grounds of fighting the terrorist outfit. Nevertheless, a large-scale invasion of Syria could present problems for the Saudis. First, there is little evidence that its army could succeed without American airpower. Second, its army could become bogged down against a guerilla force and this could eventually bleed the regime to death. And the intervention could eventually prove unpopular if it lasted too long, thereby weakening the Saudi monarchy in the eyes of its citizens.
Another area where Saudi overreach could occur is Yemen. The Saudis have accused Iran of meddling in Yemen’s affairs and backing Houthi militia forces that drove President Abd-Rabbu Mansour Haddi from his presidential palace last March. Haddi requested Saudi intervention, something that the kingdom has been happy to provide. The Saudis have launched airstrikes in Yemen to back Sunni forces there, but they have also been accused of directly targeting civilians and impeding a political solution to the crisis. Some of the frustration about Saudi Arabia’s intervention in Yemen is beginning to emerge as an issue in the U.S. Congress as The Huffington Post writes on February 5 that Senator Christopher Murphy (D-CT) has said that the U.S. should cease its military backing for Saudi Arabia’s activities in Yemen. According to Murphy, future weapons sales to the Saudis should be stopped if those weapons could be used in Yemen, arguing that the Houthis are not a Saudi enemy and are instrumental in the regional fight against al-Qaeda and ISIS. Although the Obama administration has backed Saudi goals in Yemen, there is no guarantee that the next American president will do so by 2017. Additionally, an enhanced Saudi presence in Yemen, which could happen if the Saudis fear a Houthi takeover is imminent, carries the same risks as a Syrian intervention. It is unlikely that Yemen could lead to a direct war between the Saudis and the Iranians, but proxy wars are costly affairs and that could exacerbate Saudi Arabia’s economic situation. After all, the Saudis are showing little progress in their Yemeni endeavor and it is unclear how wider involvement in that area will improve the status quo.
There is an old English saying that when one “corners a dog in a dead-end street that it will turn and bite.” Saudi Arabia finds itself in a somewhat similar position today. Pressed by economic problems, directed by an ambitious prince, and worried about the growing influence of Iran, Saudi Arabia is showing a growing proclivity to engage in risky domestic and international pursuits. These could eventually place the legitimacy of the Saudi monarchy at risk, a possibility that global policymakers would prefer not to fathom in an already volatile area of the world.