Springtime for Saudi Arabia and its friends

Saudi Arabia signed a huge weapons deal with the US in December and hosted the prime ministers of the UK and China in early January.

With a booming economy and a strong government, Saudi Arabia was the principal beneficiary of the events of 2011.

The Arab Spring dealt a heavy blow to Libya, Egypt, Yemen and Syria, but the events of 2011 have left the Kingdom of Saudi Arabia in a stronger position economically and regionally than any point in its nine-decade history.

The figures speak for themselves. The elimination of Libyan oil production and worries about growing tensions between Iran and the US drove oil prices to an average of more than $100 a barrel in 2011, a record level for a 12-month period. Seeking to contain the price spike, Saudi Arabia lifted oil production to an average of 9.25 million barrels a day through the year, also a record. The value of its oil exports are estimated, as a result, to have rocketed to more than $300bn and, despite a robust rise in imports, the kingdom’s trade surplus in 2011 was probably about $250bn. The current account surplus, another record, rose by more than 100 per cent to reach $150bn. Gross domestic product (GDP), boosted by the trends in the oil sector, grew by almost 30 per cent to an estimated $580bn, equivalent to about one quarter of the output of the whole Middle East.

The government’s finances have never looked better. It is estimated the budget surplus rose to about 15 per cent of GDP. Government debt is now about 6 per cent of GDP, one of the world’s lowest levels. The kingdom’s official foreign reserves amount to more than 100 per cent of GDP and greater than six times Saudi Arabia’s total 2011 merchandise import bill.

The year that has passed was a golden moment for Saudi Arabia’s hydrocarbons industry. Unprecedented investment in expanding oil and gas production, refining and distribution capacity since 2002 has been triumphantly vindicated. Every dollar invested since then was effectively paid off in a single year. It is also just as well that the kingdom spent so much. Without Saudi Arabia’s capacity to increase oil output, the suspension of Libya’s oil exports for most of 2011 could have seen oil hitting $200 a barrel.

In contrast, most of the rest of the region has gone backwards. Civil war and the deposition of Muammar Gaddafi have thrown Libya into chaos. Egypt’s economy probably contracted in 2011 and foreign investment collapsed. Damascus, once considered a regional power, is struggling to assert itself effectively within the borders of its own country. Iraq is divided and could disintegrate and Iran is isolated. Never since the end of Europe’s control over the Middle East has Saudi Arabia been so relatively strong and influential.

The kingdom’s appetite to exert itself regionally has also grown. Instability in Yemen is a constant worry and Riyadh intervened subtly, but decisively, to smooth the replacement of President Ali Abdullah Saleh. The republic remains a potential source of domestic problems due to the family, tribal and religious connections that cross Saudi Arabia’s border with Yemen – but the country is weak and the kingdom’s capacity to contain infiltration and contagion has never been greater.

The decisive moment for the kingdom came in February when US President Barack Obama, in an act of extraordinary naivete, declared his support for the deposition of Egypt’s President Hosni Mubarak and demonstrators on Manama’s streets demanding radical change in Bahrain. Obama dismissed King Abdullah’s personal plea for Mubarak to step down as he originally planned. This was shocking: no US president since 1945 would have treated any previous Saudi Arabian king in such a manner. America’s reputation in Riyadh was damaged and Abdullah’s credibility undermined.

This was unacceptable, but encouraging rebellion in Bahrain was intolerable. Saudi Arabian troops were dispatched to support the Bahraini regime as part of a GCC force to demonstrate the kingdom was determined to stop the rot whatever the White House said. Demonstrations of support for Bahrain’s dissidents in the Eastern Province were dispersed and public gatherings banned across the kingdom.

The increasing robustness of Saudi government policy has been underpinned by generational change at the highest levels of the Al-Saud family. King Abdullah was recuperating in Morocco after two months medical treatment in the US when the Arab uprisings – the so-called ‘Arab Spring’ – erupted.  Popular and benign, Abdullah is now almost 90 and struggles to deal with demands that massively increased during 2011. Deputy Premier and Crown Prince Sultan, who had been battling cancer for almost a decade, died in October and the scene was set for the most important shift in the balance of power within the kingdom since King Fahd was devastated by a stroke in 1995 and effectively replaced as head of government by Abdullah.

Speculation that Prince Sultan’s death would open the door to a new generation of younger Saudi princes has proven to be hopelessly misplaced. Shrugging off the claims of others, Interior Minister Prince Nayef secured the position of Crown Prince and deputy premier. Prince Salman, the governor of Riyadh and Nayef’s full brother, replaced Prince Sultan as defence minister. This was followed by a cabinet reshuffle that has brought in competent technocrats.

The rise of Nayef and Salman is sometimes seen as the renaissance of the Sudairi Seven, the sons of King Abdulaziz by Princess Hassa al-Sudairi, of which King Fahd was a member. Five of them are still active. Their single-minded determination to defend their father’s legacy and their place within it is perhaps the most important factor in the kingdom’s history since King Abdulaziz died in 1953.

Saudi government action since the autumn has reflected the dominance of tough-minded realism at the heart of the kingdom’s government. Domestic security has been tightened. The announcement in December of a $30bn weapons deal with the US, the largest contract ever awarded, delivered a double message. One, principally though not exclusively directed to Iran, is that Saudi Arabia is acting to offset the declining capacity of the US to provide a security umbrella for the region in all circumstances. The second is to President Obama, Congress and the US business community: Saudi Arabia is good for America and don’t you forget it.

Another theme that will become increasingly important was elaborated by the visit to Jeddah on 14 January by China’s Prime Minister Wen Jiabao. Its visible component was the confirmation of China’s involvement in building in Yanbu one of the world’s largest refineries. There would have also been talk about how to deal with Iran and a possible interruption to oil supplies from the Gulf, regional issues, including the future of Syria where the kingdom sees no alternative to President Bashar al-Assad, and greater coordination of Saudi and Chinese policies within the UN, the G20 and other supranational bodies.

Set against the critical importance of the US and China, the UK is a second-rank partner, but UK Prime Minister David Cameron did visit Riyadh for one-day on 13 January. This is being seen as a sign the kingdom and its new crown prince has secured in less than a month the fealty of three of the five permanent members of the UN. Saudi Arabia’s diplomatic capital has been significantly enhanced as a result.

Who would have thought it? Saudi Arabia was the accidental by-product of the defeat and collapse of the Ottoman Empire in 1918. The powers that then shaped the region envisaged a system of small and manageable states to which the noble but poor Bedouin of central Arabia would be peripheral and probably irrelevant. How wrong they were. More than 90 years later, those they dismissed have become the rock upon which the stability of the entire region now depends.  Saudi Arabia this spring is strong, confident and ready to defy the seasons sweeping the rest of the Middle East.