The spread of Coronavirus and the collapse of the oil market are straining the Saudi economy and Muhammad bin Salman’s projects. Saudi Arabia’s Vision 2030 is in danger of definitively sinking as austerity policies threaten the social contract.

Last update: 2022-04-22 10:02:05

The health emergency caused by the spread of coronavirus has severely affected the global economy and the oil market. The collapse of crude oil prices is putting a strain on the economies of the Gulf countries, especially Saudi Arabia’s. Since the discovery of oil in Saudi Arabia in the early 1930s, the finances of the Kingdom have depended almost exclusively on black gold. Over the decades, the Saudi economic and financial model has experienced fluctuating fortunes, following the trends of the oil market. After the magical decade of 2003-2014—when the price of a barrel reached a record high of $145 in July 2008—the summer of 2014 opened a bearish phase that lasted until the historic OPEC agreement reached in Vienna in 2016. With the spread of the pandemic and the halt of the world’s industrial production in early 2020, the demand for oil collapsed by almost 30 million barrels per day. This figure is quite significant if we consider that oil demand pre-crisis was 100 million barrels per day. The health emergency has generated an unprecedented imbalance; even the Gulf War, which decreased the demand for crude oil by 4-5 million barrels per day, did not cause such serious instability. In a market characterized by a huge excess of supply and storage capacity reaching warning levels, OPEC producers and their allies have agreed to a production cut of 10 million barrels per day as of May. However, analysts believe this cut is insufficient. This scenario is what triggered the collapse of the price of oil, which has declined 60% since the end of 2019.


Saudi Arabia is therefore heading towards what could prove to be the most serious market downturn ever. In early May, Saudi finance Minister Muhammad al-Jadaan announced a series of measures that the Kingdom wants to adopt to deal with the crisis, including increasing the VAT from 5% to 15% starting in July, and cutting a component of state employees’ salaries beginning in June. The latter decision will affect 1.5 million state employees, who have been receiving a monthly allowance of 1000 riyals (about $267) since 2018 to make up for an increase in the cost of living due to the rise in oil prices and the introduction of the VAT in 2015.


In early April, King Salman announced extraordinary measures to support the private sector, which included the allocation of $2.4 billion to pay part of the wages of private-sector workers and discourage companies from firing staff.


However, the delicate financial situation the Kingdom is facing does not depend exclusively on the economic slowdown triggered by the pandemic. The origin of the crisis manifested itself a few years ago. In 2015, when King Salman succeeded his brother, foreign exchange reserves amounted to $732 billion, but by December 2019 they had dropped to $499 billion, marking a decrease of over $200 billion. A similar trajectory (albeit of the opposite sign) has occurred with public debt, which has grown steadily over the last five years: in 2014 it was $12 billion, four years later it had risen to $151 billion, and it reached $183 billion in 2019. In short, it has grown by 1500% in five years, passing from 1.6% to 23% of Saudi Arabia’s GDP.


In addition to the collapse of the price of oil, the increase in public health spending to guarantee assistance to Covid-19 patients is also weighing on the Saudi economy, as is the decrease in non-oil revenues due to the interruption of production activities, and the suspension of religious tourism to the cities of Mecca and Medina, which generates $12 billion in revenue per year. In the Kingdom, the lockdown came into effect on March 25, with a ban on entering and leaving Mecca, Medina, and Riyadh—the cities most affected by the coronavirus—and on circulating between provinces. The decision to limit this year’s annual pilgrimage, scheduled for the end of July and the beginning of August, to Saudi residents only will further affect the Kingdom’s economic situation. In addition to the economic loss—the pilgrimage is a central element of the Saudi economy, with 2.5 million faithful flocking to Mecca in 2019—any cancellation or limitation of the pilgrimage also has major repercussions on a symbolic level. The Sa‘ūd legitimize their leadership role in the country through their guardianship of the holy cities of Mecca and Medina, and the King’s adopted title khādim al-haramayn, or “custodian of the two holy cities,” constantly reflects this task of the royal family.


What Future for Vision 2030?


Moreover, the measures taken by the Kingdom may not be sufficient to face the economic and public health crisis, and this could also have repercussions on a socio-political level.


The social contract that underlies the relationship between Saudi subjects and the ruling family is based on a generous welfare system. In return, citizens promise total loyalty to the Sa‘ūd, they accept the absence of political representation and to be ruled over as subjects, and they also acquiesce to the repressive measures put in place from time to time by the government in the name of safety and well-being. With the dramatic reduction in oil revenue, however, it is not obvious that the government will be able to maintain this state of affairs. Almost two thirds of Saudi subjets are in fact state employees, and state salaries represent about half of government spending.


Saudi Arabia is not the only country that employs this form of social contract; this type of relationship between sovereign and citizens is quite widespread among other Gulf countries. If we were to draw up a ranking of the Gulf states with the largest percentages of state employees, the United Arab Emirates (93%), Qatar (90%), and Kuwait (79%) would rise to the podium, immediately followed by Saudi Arabia (66%). This system is clearly problematic, since it focuses on public office at the expense of the private sector, does not guarantee quality of work performance, and becomes increasingly unsustainable in the face of a high population growth rate.


Over the years, Saudi Arabia has tried to remedy this problem by implementing a policy of “Saudization”, a development strategy designed by the Ministry of Labour according to which private Saudi or foreign companies based in the Kingdom must hire a percentage of Saudi citizens, which is established on the basis of the total number of the company’s employees. Though attempted many times, this policy has been largely unsuccessful. The campaign to replace foreign workers with local workers has been going on since the 1980s, when the fourth four-year development plan was launched (1985-1989). Since then, six other development plans have followed, and all of them stipulate a decrease of foreign workers in favour of Saudi citizens. Furthermore, the Saudi government has recently created more job positions for its citizens, who represent 63% of the 33 million residents of the Kingdom in 2018, according to the General Authority for Statistics. However, the problem does not seem to have been solved. In this respect, the Saudi education system is not particularly helpful since it is lacking in many ways, despite the astronomical annual budget allocated to schools ($53 billion in 2017, i.e. 8% of GDP).


The policy of Saudization is also a strong aspect of Vision 2030, the socio-economic development plan that Muhammad bin Salman launched in April 2016 to diversify the economy, create new job opportunities, and improve quality of life in the Kingdom. Basically, the project is divided into 96 objectives related to three macro-areas, which are indicated in the official documents through slogans: “A vibrant society, a thriving economy, and an ambitious nation.” The Council for Economic Affairs and Development created twelve programs in 2017 to implement the Vision. One of them is the 2018-2020 National Transformation Program that includes a number of measures to support the private sector, which today still represents a small part of the economic activity of the Kingdom. In particular, the Program aims to support entrepreneurs who want to open a business, attract foreign investments, develop the digital economy and the sales sector, and promote the culture of entrepreneurship and innovation by helping small and medium-sized enterprises to create employment and contribute to the national GDP.


The Public Investment Fund Program (PIF), chaired by MBS, is the program that should act as a driver of economic diversification in the Kingdom and the development of strategic sectors. This program should also act to transform the Public Investment Fund (PIF) into the largest sovereign fund in the world and build strategic international economic partnerships to strengthen Saudi Arabia’s local and global role.  


This fund is largely fuelled by government funding, the transfer of public goods, loans, and other debt instruments, and investment income. This fund is partly allocated to support three major projects, which are the centrepieces of MBS’s Vision: Neom, the hyper-automated smart city that will house 1 million inhabitants by 2030; the Red Sea project, which involves the development of luxury resorts on 90 natural islands on the west coast of the Kingdom; and al-Qiddiya, a city for entertainment, sports, and culture that is planned 40 kilometres from Riyadh and is projected to be completed in 2022. The austerity measures adopted by the Kingdom in early May following the economic crisis include a nearly $8 billion cut to the budgets for these projects. Coronavirus is testing the crown prince’s ambitions, and Vision 2030 runs the risk of becoming the next victim of the pandemic.


MBS’s Populist Nationalism


In a not so distant future, the current economic crisis may also threaten MBS’s ruling narrative, which is based on an (rather expensive!) idea of a country that is difficult to achieve if the price of crude oil does not rise to pre-crisis levels in the next few months.


The time when Islam was the only identity of Saudi Arabia, or when the country identified with pan-Islamic ideology, seems to be well in the past. Islamic nationalism, which dominated the country from its origins to the decades after the birth of the third Saudi state in 1932, acted as a glue between the tribes and ethnic groups that inhabited the territory, helping to create a sense of national belonging that was necessary to maintain cohesion and rule. Later, during the Cold War, Saudi Arabia claimed its role as a global Islamic leader by serving as the custodian of the sacred cities of Mecca and Medina, eventually using this to promote its “transnational pan-Islamic identity.”


During both of these stages, the state was the policy maker, while the religious establishment was in charge of the religious, cultural, and social spheres. The difference between the two phases lies in the level of international Islamic projection: in the first Saudi Arabia acted locally, while in the second one it emphasized its ability to play a role globally.


These models seem to have been overcome by the rise of MBS, who has launched a rebranding. However, this change of course dates back further than that. As a matter of fact, during the reign of King Abdullah (2005-2015) some attempts were already made to overcome the primacy of the religious establishment in the supervision of social practices. For example, declaring Saudi National Day (September 23) a public holiday against the will of the religious authorities, who saw this decision as a departure from tradition.


Today, the model Saudi citizen is no longer the pious Muslim who knows the Prophet’s sayings by heart and can quote the right one on the right occasion, nor is it the family who enrolls its son in the Quran competition, hoping that he will win first prize (strictly financed by the state). And it is also not the young man who must choose between the “family section” or the “single men section” at a restaurant, since a December 2019 decree ended gender segregation in public places.


MBS’s narrative is a populist one where Islamic and pan-Islamist ideology, which has allowed Wahhabism to spread across the Islamic world since the 1960s, has given way to a local “entrepreneurial” spirit. The new rhetoric of the crown prince celebrates Saudi youth (the under-30 age group makes up 60% of the population), a demographic that actively participates in the economic development of the country and welcomes the overcoming of the old social contract, who are loyal to the absolute monarchy in return for an easing of social restrictions and the right to entertainment, which was forbidden until a few years ago.


The entertainment industry was almost nonexistent in Saudi Arabia until 2018. For many years the only sources of entertainment were Manama,—the capital city of Bahrain, which welcomes flocks of Saudi citizens from the Eastern Province every weekend—parties organized by the embassies and consulates and attended by expats and (the few “lucky”) Saudis with good connections, and private parties. Today, the entertainment market offers much more than it did in the past: in spring 2018 the first cinema opened in Riyadh. That same year women were allowed to attend football matches in Jeddah stadium, and in June the ban on women drivers was lifted, an event that was much celebrated by the Saudi media but also and above all by Western news outlets. The young prince (born in 1985) therefore aims to gather the consent of young people by promising them less social conservatism and religious zeal, and more fun and employment opportunities in return for their loyalty to the crown.


This also includes overcoming a cultural distaste for pre-Islamic cultural heritage, which has traditionally been fuelled in Saudi Arabia by Salafist circles. As is well known, Salafism tends to eliminate the memory of whatever preceded the advent of Islam, including traces of civilizations that arose in the so-called Jāhiliyya, or the era of pre-Islamic ignorance. Until a few years ago the only historical site worthy of this name was Dir‘iyya, a settlement north of Riyadh that was the capital of the first Saudi state until 1824. Today, MBS’s vision seems to prioritize the history and culture of the country. Archaeological sites such as Mada’in Salah and al-Ula—the ancient Nabataean settlements located 400 kilometres north of Medina—or al-Balad district—the oldest part of the city of Jeddah, with its Ottoman buildings in coral stone and inlaid wood—have become the flagship of the crown prince’s tourism campaign, despite the oblivion in which they languished for several decades. This unprecedented opening to tourism is actually one of the objectives of the National Transformation Program: 447 tourist sites are expected to be open to visitors by 2020, with a turnover of more than $17 billion. Saudi Arabia, which has always implemented rather restrictive rules for the entry of foreign visitors, definitively opened its doors to international tourism in September 2019. The establishment in 2017 of the Royal Commission for al-Ula, aimed at preserving and promoting this 2000-year-old site, had already showed that the development of tourism was an important part of the crown prince’s agenda. A few months later, the prince launched the Project for Historical Mosques Renovation, which so far has led to the renovation of 30 mosques located in different regions of the country, for a total spending of 50 million riyals. Although the Saudi newspapers keep advertising the Kingdom’s artistic and cultural heritage and the country’s unprecedented opening to foreign tourism, this project, too, is likely to be seriously compromised by the spread of the pandemic.


“Game of Thrones”


MBS’s “new course,” however, does not envision the abandonment of repressive policies, which have actually become even more severe towards both those who express their dissent and those who are reluctant to comply with the monarchy. Words such as “traitor” and “enemy” have entered the the young prince’s rhetoric. The still-ongoing arrest campaigns launched in 2017 against preachers, human rights activists, royal family members, and businessmen must be interpreted precisely from this perspective. The first arrest campaign in autumn 2018, which resulted in the detention of some preachers and intellectuals who were accused of plotting with enemies of the state (particularly the Muslim Brotherhood and Qatar), was followed by a second operation that resulted in the detention of former representatives of the state apparatus and influential businessmen at the Ritz Carlton hotel in Riyadh, who were first accused of corruption and then eventually released on bail. A few months later, the murder of Jamal Khashoggi—a journalist from the Washington Post who was killed on October 2, 2018 inside the Saudi consulate in Istanbul—followed. In early 2020, another round of purges occurred. The former Minister of the Interior and former Crown Prince Muhammad bin Nayef, his brother Nawaf bin Nayef, and Ahmed bin Abdulaziz, who was the only surviving brother of King Salman, were detained in what is widely believed to have been an attempt by MBS to secure his throne.


Muhammad bin Nayef and Ahmed bin Abdulaziz are indeed high-profile personalities: the former enjoys an excellent reputation in Washington, and in 2017 he was given the George Tenet award by then CIA director Mike Pompeo for his contributions to counterterrorism efforts. Ahmed bin Abdulaziz is the youngest brother of King Salman, and he would have been entitled to the throne if the latter had not reversed the logic of succession by introducing a vertical system that envisions the transmission of power from father to son rather than from brother to brother, as it had been from 1932 to 2017. Although Prince Ahmed has publicly declared more than once that he does not aspire to the throne, his membership in the powerful “Sudairi seven”—a block comprised of the seven sons of King Abdulaziz (grandfather of MBS and founder of the third Saudi kingdom) and the late king’s favourite wife Hussa bint Ahmed al-Sudairi—puts him in an awkward position. Two of his brothers ascended the throne, King Fahd who ruled from 1982 to 2005, and Salman who became king in 2015, while the other five hold important institutional positions. Prince Ahmed ended up in the middle of the storm because of his criticism of MBS’s policies: in 2015 he publicly took a stand against the Saudi military campaign in Yemen, and in 2017 he opposed King Salman’s decision to change the line of succession to the throne in favour of his son.


In recent weeks, several detained Saudi princes and princesses have sought Washington’s support by hiring lawyers and lobbyist close to President Trump, in the hope that the US government will pressure the royal family for their release. This also confirms the profound divisions that exist within the Saudi royal family.


On a religious level, MBS advocates for a return to a phantom “original,” moderate Islam. In an interview given to the international media in 2018, MBS expressed the idea that the troubles of Islam started in 1979, with the Iranian revolution and the siege of the Grand mosque in Mecca by Juhainam al-Otaybi’s rebel group. According to his narrative, these events fostered the spread of radical interpretations of Islam throughout the Islamic world. In doing so, the prince absolves the Kingdom of any responsibility, and introduces the idea that it was an oasis of tolerance before 1979. But he forgets (or deliberately omits) that it was precisely this jihadist impetus that allowed his ancestors to unify the tribes from which the first Saudi Kingdom arose. After all these considerations, MBS must be careful not to totally alienate the Wahhabi establishment, and to keep intact the fine balance that historically has allowed the Sa‘ūd to exercise their authority over the Gulf country. This alliance could definitely come in handy if the economic results of the Vision are long in coming and symptoms of discontent begin appearing among the people.


One Man in Command


In the challenging economic context that is emerging as a result of the pandemic, MBS is intensifying propaganda efforts in an attempt to consolidate his cult of personality and ensure the system’s stability. On the third anniversary of his appointment as crown prince (19 May 2020), the Saudi Arabic-language press gave prominence to the event, unlike the local English-language newspapers. The pro-government daily Al-Riyadh devoted forty pages to the anniversary, running the headline: “Hand in hand we will remain faithful to the promise...what has been achieved has overcome the barrier of time.” The newspaper contained messages praising the prince from the governors of the thirteen provinces of the country (it would seem that the governor of Qassim, Faysal bin Mish‘al Āl Sa‘ūd, has this issue particularly close to his heart, judging from the number of spaces he purchased within the newspaper), families descended from influential Arab tribes (for example the al-Jarba, a branch of the Shammar tribe), and public and private Saudi companies (i.e. the Bupa health insurance company, the Samba financial group, the Mahara HR company, the al-Ojaimi electricity supply company, etc), all publicly renewed their oath of allegiance to the king and the crown prince.


These long articles, interspersed with celebratory images of MBS with his father, recounted the glories of the young prince, who is described in ambitious terms: “the architect of a clever modern politics,” “an exceptional leader who looks to the future and builds history,” “the man of historical change,” “the champion of Saudi renaissance.” The prince is recognized for having strengthened the position of the Kingdom at a political, economic, and international level, guiding the country towards cultural and social progress, and fulfilling the hopes of women by allowing them to drive and access the labour market. As could be expected from propaganda journalism, there was no reference to the detention of Saudi feminists such as Loujain al-Hathloul, Aziza al-Yousif, or Hatoon al-Fassi.


In the archetypal Saudi journalistic narrative, MBS is the man who looks to the future while defending tradition. The day after the anniversary, al-Riyadh published an image of MBS with his father and grandfather, ‘Abdul ‘Aziz ibn Saud, the founder of the third Saudi kingdom who ruled for more than twenty years. A major headline accompanied this iconic representation: “The descendant of glory, in continuity with his father and grandfather.” This page was sponsored by the Saudi Telecom Company (STC), of which the PIF (Public Investment Fund), which is chaired by MBS, is a shareholder. The memory of the past is constantly celebrated by MBS, as evidenced by his tweet: “If you don’t know where you started from, you don’t know where you are going”, a sentence from “Started with the Desert,” which is a song composed by a Pakistani band in 1992 for the Saudi national day to celebrate the history of the Kingdom and the glories of the Saud family.


A Difficult Game


The global crisis generated by the Coronavirus pandemic is jeopardizing the economic, political, and social system of the largest rentier state in the Gulf. With the price of oil more than halved since the end of 2019, there is good reason to believe that Saudi Arabia will not be spared from the global recession. The country’s economic system is based mainly on oil export earnings, which are redistributed to citizens in the form of public sector employment, subsidies, and totally free services. According to an estimate by the International Monetary Fund, the price of oil must stabilize at $76 per barrel for this system to remain unchanged. If this does not happen soon, the government will be forced to reduce the welfare system drastically and increase the tax burden, definitively putting to an end the assumption upon which the Gulf rentier states are based: no participation without taxation. MBS may then have to deal with popular discontent, which will not be easy for him—especially now that he is the only man in command, having alienated part of the royal family and the religious establishment—to save the country from decline. The narrative of big projects and a strong populist nationalism may indeed no longer be sufficient. In that case, the crown prince’s only option left is hyper-authoritarian repression, which he practiced widely already without too much hesitation.


The opinions expressed in this article are those of the authors and do not necessarily reflect the position of the Oasis International Foundation