In the wake of some 48 executions in Saudi Arabia this last weekend, and the outbreak of protests in the Middle East against the (out)house of Saud, some of which have come from within that mediaeval kingdom itself for more freedoms (and are we really all that surprised?), this article by Dr. Nafeez Ahmed was shared by Mr. W.M.”:
The collapse of Saudi Arabia is inevitable
The article says it all: declining revenues from oil, the eventuality(?) that the kingdom’s oil reserves, its chief source of revenue, will play out, lack of agriculture, lack of water, expensive deslination, and an increasinigly reckless regime that has sponsored wars, has been a long term sponsor of terrorist organizations, and now most recently is engaged in what can best be a “crackdown” on “dissidents,” none of this bodes well for the desert kingdom.
In addition to this, the regime is entering increasingly reckless geopolitical ventures, in this article shared by Mr. T.M.:
Saudi Arabia and Turkey agree to set up a ‘strategic cooperation council’
While one might wonder at the long term geopolitical wisdom of entering strategic planning with the regime of Sultan Erdogan with its own special blend of Ottomania revisionism, one can clearly see the signs of urgency. The kingdom needs friends, and needs friends fast. The reason for this urgency is contained in this profound observation of Dr. Ahmed:
Renewable energy is one avenue which Saudi Arabia has tried to invest in to wean domestic demand off oil dependence, hoping to free up capacity for oil sales abroad, thus maintaining revenues.
But earlier this year, the strain on the kingdom’s finances began to show when it announced an eight-year delay to its $109 billion solar programme, which was supposed to produce a third of the nation’s electricity by 2032.
State revenues also have been hit through blowback from the kingdom’s own short-sighted strategy to undermine competing oil producers. As I previously reported, Saudi Arabia has maintained high production levels precisely to keep global oil prices low, making new ventures unprofitable for rivals such as the US shale gas industry and other OPEC producers.
The Saudi treasury has not escaped the fall-out from the resulting oil profit squeeze – but the idea was that the kingdom’s significant financial reserves would allow it to weather the storm until its rivals are forced out of the market, unable to cope with the chronic lack of profitability.
That hasn’t quite happened yet. In the meantime, Saudi Arabia’s considerable reserves are being depleted at unprecedented levels, dropping from their August 2014 peak of $737 billion to $672bn in May – falling by about $12bn a month.
At this rate, by late 2018, the kingdom’s reserves could deplete as low as $200bn, an eventuality that would likely be anticipated by markets much earlier, triggering capital flight.
To make up for this prospect, King Salman’s approach has been to accelerate borrowing. What happens when over the next few years reserves deplete, debt increases, while oil revenues remain strained?
As with autocratic regimes like Egypt, Syria and Yemen – all of which are facing various degrees of domestic unrest – one of the first expenditures to slash in hard times will be lavish domestic subsidies. In the former countries, successive subsidy reductions responding to the impacts of rocketing food and oil prices fed directly into the grievances that generated the “Arab Spring” uprisings.
And there’s the rub: capital flight. In the long term, with nothing else to export other than oil and terrorism and beheadings and a barbaric and medieval “culture,” the kingdom has little to offer the world at large. With declining oil revenues, the long term risk to investors even in Saudi sovereign securities would be risky. While the kingdom has been successful in acquiring technological expertise through its various large and powerful corporations like the Bin Laden group, ultimately the ability to purchase these technologies and maintain technological growth are imperiled by these long term trends. Indigenous development of technologies does not work well under tyrannies, especially tyrannies in league with a kind of fundamentalism that occasionally expresses itself in the form of imams speaking in favor of “recent creation” theories or other equvalents of flat-earth mentalities.
The other prospect is equally risky for the regime: foreign investment into the country inevitably exposes it to the influences – cultural and otherwise – that inevitably accompanies external capital influx. And for a fundamentalist regime, any such influence can only be viewed with suspicion(and we’re being “soft” in our choice of words here). And while its role in the support of Islamic terrorism has long been known, the fact that in the last year increasing focus on this role has finally been broached in major media outlets of the west could be taken as a signal that there has been a “sea change” in the West and its “power oligarchs” regarding the desert kingdom.
In short, the regime is fragile, and increasingly reactionary, and is showing no signs of change. Change will inevitably overtake and overwhelm it, of course, but in the meantime, that very fragility means that the kingdom will play an increasingly destablizing role. For 2016, it’s a story to watch closely.
See you on the flip side…