Saudi Arabia in Turmoil

Saudi Arabia is geographically the second-largest state in the Arab world after Algeria, the world's largest oil producer and exporter; it controls the world's second largest oil reserves after Venezuela, and the sixth largest gas reserves. The oil industry is concentrated in the northeastern part of the country, and its production costs are estimated among the lowest worldwide.

Last year oil output of the Kingdom represented more than 39% of the Middle East production. Now, with the largest economy of the region, Saudi Arabia is pushing to increase the oil price for the early 2018 to 70 dollars the barrel. Saudi Arabia’s economy is driven mostly by petroleum, which accounts for almost 90 percent of revenue. Still, crude remains at almost half its mid-2014 price, leaving the Kingdom desperate to fire up its economy to buttress plummeting gross domestic product.

The Kingdom is in need of serious reforms. Unemployment raised to more than 12% of the labor force at the end of 2015, but among the youngest people. In April 2016 it was published in Riyadh (the Saudi capital) a plan called “Vision 2020”, a daring proposal whose main points were to diminish the dependence from oil exports, an accelerated growth of the private business segment of the Kingdom’s economy, shortcuts in the public sector employment, cancelation of subsidies, increased taxation to diminish the public debt, and more transparency and profitability to the government economic activity. By the 2019 it is expected an important increase of the cost of fuel, water and electricity. The base of the reforms are the recommendations of the International Monetary Fund.

An open question is what will happen with the more than six million foreign workers, who play an important role in the Saudi economy, particularly in the oil and service sectors.

The Kingdom has a plan to increase the annual number of pilgrims to Mecca from the current seven million to thirty million in the future. Half of those trips will be flown by Saudi Arabian Airlines, with the remaining covered in joint ventures with the flag carriers of Islamic nations including Malaysia, Indonesia and Nigeria.

The modernization process included some strong measures, like the arrest this month of more than 200 Saudi citizens, including eleven princes and four government ministers, on corruption charges. The big question remains if this harsh steps aim to create a more open and dynamic business environment, or if the arrests turn out to be no more than a purge of opponents to the crown prince's accession to the throne. According to some Saudi sources estimates, the Kingdom may be able to recover between US$50 billion and US$100 billion from settlement agreements with suspects detained in an anti-corruption crackdown.

The anti-corruption crackdown comes at a delicate time for the Saudis, an absolute monarchy grappling with the worst economic slowdown since 2009 as well as political unrest in the region, stirred in no small part Iran’s aggressive foreign policy to empower the Shiite influence in the region. In the past two years, Saudi Arabia had to deal with the Shiite Houthi insurgency in Yemen and confrontation with its neighboring Qatar.