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Economic Crunch Jolting Gulf Monarchies

By Lal Khan


The Saudi King Salman’s midnight decree installing his son Mohammed bin Salman as the heir apparent exposes the internal crisis of the monarchy. The deteriorating economic situation in the Kingdom due to the collapse of oil prices is behind these drastic changes and is the cause of fissures within the Al Saud family.

The new crown prince now holds the portfolio of the defence minister, deputy prime minister, and is in charge of managing the economy and privatizing the world’s largest state oil company Aramco. The sudden shake-up has taken place at a time when the Saudi war in Yemen has gone terribly wrong, the traditional rivalry with Iran is becoming fiercer, and Saudi is now facing a perilous standoff with Qatar.

These changes have made Saudi Prince Mohammed bin Salman heir to his father’s throne which gives the 31-year-old unhindered powers to push through his policies on the economy and foreign affairs.

Saudi Arabia has been hit by a major fall in oil prices, which collapsed from more than $100 a barrel in 2014 to around $30 last year and remain under $50 today. The crash in oil revenues along with the extravagant state spending mainly on the upper and middle class Saudis has seen the Kingdom’s budget deficit burgeon.

Saudi Arabia and other monarchical regimes in the Gulf only managed to survive the onslaught of the 2011 mass upheaval in the Arab world because of extravagant concessions to their tiny populations. However they cannot afford to continue to function the old way

The government is also slashing construction projects, forcing contractors to lay off workers. There has been a backlash from migrant workers who hail mainly from Pakistan and other poor Asian countries with protests that often turn violent because of the severe repression of the state.

Saudi Arabia’s monopoly on the world oil market has been cut by US shale oil extraction. The Saudis are the largest oil producers amongst the OPEC countries that had cut production in the hope of raising prices. But the Americans raised shale oil production keeping these prices at bay.

These low oil prices along with an increasingly costly war in Yemen have aggravated the crisis of the Saudi economy and led to cuts in state spending and falling pay scales for even Saudi nationals.

The budget deficit in 2016 was more than $100 billion. Foreign reserves have fallen by more than 25 percent since 2014. Saudi loans from foreign banks have sharply risen and the state is trying to borrow more from the global bond and financial markets.

This stark economic and social crisis is the basis of the regime’s policy of deporting and sacking immigrant workers, and encouraging native Saudis to take over. However, this policy of ‘Saudisation’ has failed repeatedly with the number of migrant workers rising from one million to ten million since the 1980s. With the escalating crisis, the regime is pushing even harder to expel foreign workers.

According to some reports in 2013 there were between 2 to 4 million people- 12.7 percent to 25 percent of the population-living on about $17 a day which is considered the poverty line in Saudi Arabia. The regime is overtly worried of amass eruption with this aggravating socioeconomic crisis.

Most analysts are sceptical about how the new Crown Prince will handle these burning social, economic and foreign policy issues. A Bloomberg analyst wrote, “Given who’s calling the shots in Riyadh and Washington, it is not really a question of if but rather of when a new escalation with Iran starts... Under Mohammad’s watch, Saudi Arabia has developed aggressive foreign policies and he has not been shy about making strong statements against Iran.”

Saudi Arabia and other monarchical regimes in the Gulf only managed to survive the onslaught of the 2011 mass upheaval in the Arab world because of extravagant concessions to their tiny populations. However they cannot afford to continue to function the old way.

Despite the relative calm on the surface, contradictions have been accumulating that can erupt sooner rather than later.  The shake-up in Saudi Arabia imposes new dangers. The Economist wrote, “Oil is likely to remain cheap for a long time, the politics of religion are tearing at the region, and many Arab states have collapsed into civil war. Yet rule by a callow, hot-headed prince could be just as dangerous as stagnation under a gerontocracy.”

The cuts and austerity measures can be the sparks that could trigger such revolts. The so-called stability in Saudi Arabia, Iran, Egypt, Israel and other crucial states in the region is extremely fragile. Wars usually give birth to revolutions.

The strategists of Iran, Saudi Arabia and other regimes are aware of this fact. Hence they have resorted to proxy wars in other people’s lands and to propping up external conflicts to crush domestic revolts. But mass upheaval in any country can spread throughout the region faster than the 2011 uprising.

People’s emancipation from wars, mayhem and misery can only be achieved by transforming this coercive system through a socialist revolution across the entire Middle East.


Lal Khan is the editor of Asian Marxist Review and International Secretary of Pakistan Trade Union Defence Campaign.