News Behind the News

The sudden drop in oil prices is having serious impact on Saudi fiscal and economic policies for 2002. According to a December 5th Reuters dispatch, "Saudi Arabia's chronic budget deficit is expected to worsen in 2002 as weak oil prices hit the world's biggest oil exporter...."

According to chief economist Saeed al-Sheikh at the National Commercial Bank, the largest bank in Saudi Arabia, "The drop in oil prices will cut revenues significantly which will leave us with yet another deficit, but a big one this time...." Indeed, in its 2001 annual report on economic trends in Saudi Arabia, the U.S. embassy in Riaydh projected that Saudi GNP would decrease by close to $20 billion from the 2000 level of $173 billion. The report forecasted that per capita GDP levels would decline by $1000 to $6800 in 2001 (by contrast, in 1981, that figure stood at $28,600).

Combined with an estimated unemployment rate of 30% and a literate young male population that has been imbued with the teachings of militant religious educators, difficult times lay ahead for Saudi Arabia. In order to cope with massive undeclared off-budget expenditures which distort the official numbers for deficit spending estimated at $5 billion for 2001, it will be difficult for Saudi Arabia to cut overall spending in order to meet fiscal criteria that would bring the economy into line.

If oil prices maintain themselves in the $17/b- $23/b range for a protracted period of time and if Saudi Arabia cannot reduce subsidies, its bloated bureaucracy, and interest payments on the debt (domestic debt is 107% of GDP), the stability of the regime may be undermined by internal opposition forces, who will argue that the continuing fiscal and economic mismanagement of the Saudi regime negates its legitimacy as a governing authority. Such perception combined with radical Islamic ideological impulses within the country represent a real danger to the regime.