Saudi Reform Essential but Perilous

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Saudi Arabia is undergoing a perilous, but essential transformation. Those wishing to safeguard one of the last bastions of Middle East stability should support Crown Prince Mohammad bin Salman’s (MBS) dramatic socioeconomic reforms and also appreciate the challenges, resistance, and limitations amid which he is forced to operate. As rapid reform risks destabilizing the kingdom’s broad and deeply divided political base, rule by consensus will not work. Only a strong hand can balance Saudi Arabia’s competing constituencies.

MBS ascended to power at a time of growing political and economic crisis. The collapse in oil prices made the state’s cradle-to-grave welfare system and its role as the primary engine for job creation and economic growth untenable. At the same time, the kingdom found itself squeezed by an expansionist Iran and transnational Salafi jihadist groups.

Political paralysis exacerbated the scope and severity of these challenges. The royal family had grown numerous, fractious, and insular. Despite holding a near-monopoly on power, successive monarchs, fearing backlash from conservative elements in society, perpetually begged off difficult decisions. Meanwhile, a deeply ingrained tradition of deferring to their elders prevented younger would-be royal reformers from speaking up. With so much depending on a monarch whose chief role was to arbitrate widely divergent views among his myriad constituencies, change occurred at a glacial pace, if it occurred at all.

With the tripartite threat of an unsustainable socioeconomic model, jihadists, and Iran looming, the kingdom reached a tipping point. But for change to come, the country needed a bold leader with the drive and strength to steamroll decades of overdue reforms.

Under MBS, Saudi Arabia has its royal strongman and is now modernizing at a breakneck pace. While the scope and speed of reform invites resistance from those who benefited under the old system, there is no alternative. Although oil prices have recently recovered, the American shale revolution and rapid development of alternative energy makes the reemergence of the $100 barrel improbable.

Confronted with this reality, Prince Mohammad has prioritized job creation and the social and economic empowerment of women as he strives to privatize state assets and invest the returns in new industries that will diversify the kingdom’s economic base. He has also begun closing the kingdom’s budget deficit by cutting subsidies and introducing value-added and excise taxes, while also creating a fiscal safety net for the poor.

Last autumn’s anticorruption drive netted over $100 billion in ill-gotten assets. But this sum was not nearly as significant as the message sent by detaining high-profile individuals known for their graft (not their political power). Clearly communicating that the era of excessive elite entitlements had ended should significantly reduce corruption-related “leakage” in the national budget and foster a more level playing field. Long term, this will pay dividends for the economy. And the recent uptick in cash inflows suggests that some investors agree. 

The Aramco IPO may also generate as much as $100 billion. But as with the corruption clampdown, the long-term economic implications, rather than cash, are what is important. The kingdom needs to move gradually toward international transparency standards to encourage investment without destabilizing the economy. Listing Aramco on the Saudi, rather than an international exchange first, may be the best way to achieve this balance, while setting a precedent for future privatizations and generating foreign interest in the kingdom’s stock market.   

Socio-religious reform has accompanied socioeconomic reform. The participation of Saudi citizens in the horrific September 11 attacks, Riyadh’s bloody 2003–06 war with al-Qaeda, and the fight against ISIS convinced the kingdom’s leadership that it must drain Islamic extremism of its ideological currency. To this end, the crown prince circumscribed the powers of the dreaded religious police; detained dozens of clerics, many of whom had ties to extremist groups like the Muslim Brotherhood; and publicly stated his intent to move the kingdom back toward moderate Islam.

MBS set strict controls on the clerical class’s international proselytization activities to ensure compliance with the domestic laws of foreign states. He also nominated a moderate cleric as secretary general of the Muslim World League, an important transnational Islamic organization, and encouraged his message of intra-Islamic tolerance and interfaith dialogue. And he lifted prohibitions on women’s driving, a move many clerics staunchly opposed as the thin end of the Westernization wedge.

Even so, as the second pillar of the Saudi ruling order, religious elites still wield enormous power and influence; conservative blowback, in some form or another, is probably inevitable. To preempt this eventuality, MBS has limited free speech and political activism. Silencing both religious reactionaries and progressive liberals is, unfortunately, the best guarantor that the swift implementation of sweeping and controversial reforms will not provoke civil strife in what remains a deeply divided country.

Saudi Arabia has also cracked down on terror financing, provided intelligence support in the war against ISIS, and engaged al-Qaeda in Yemen. But Sunni radicals, at home and abroad, are just one side of the extremist coin; the other is Iran.

The United States’ war in Iraq left a power vacuum that Iran has spent fifteen years filling. Across the region, Tehran has used the Islamic Revolutionary Guards’ extraterritorial wing, the Quds Force, to radicalize Arab Shia, indoctrinate them into Khomeinism, and train and arm them as proxies. As one close confidant of Supreme Leader Ali Khamenei boasted, Iran then used these proxies to capture “four Arab capitals”—Beirut, Damascus, Baghdad, and Sana’a. Tehran also backed an insurgency in Bahrain and terror cells in Bahrain and Kuwait.

Riyadh adopted a multifaceted approach to counter the Iranian threat. In Yemen, the Saudis launched a multilateral military campaign to prevent Iran-allied Houthi militias from controlling the kingdom’s southern border. And in Iraq, the Saudi government pledged billions of dollars for reconstruction and development projects and has sought to bridge sectarian divisions by reaching out to Shia nationalist leaders like Muqtada al-Sadr who reject Tehran’s transnational theocratic model.

To avoid overreliance on the United States, Riyadh has built up its special forces and combat capabilities while working to reform its military bureaucracy. Warming ties with Russia allow the kingdom to coordinate oil production policies with the world’s largest non-OPEC producer. Moscow, as the Middle East’s newest power broker, is also an important interlocutor and a potential source of arms.

Saudi Arabia strengthened its security alliance with Abu Dhabi, increasing its ability to take multilateral action, as it did in Yemen. And the kingdom has attempted to hold its allies accountable, most notably Qatar, which Saudi Arabia, the UAE, and Bahrain boycotted after decades of what they saw as Doha’s repeated attempts to undermine their internal security.

Washington has an important role to play in advancing the kingdom’s reforms. Supporting Saudi Arabia’s pursuit of peaceful nuclear power will redirect locally consumed oil to export markets, and upholding the kingdom’s uranium enrichment rights will allow the country to exploit untapped mineral reserves. In addition, Washington can encourage US companies to forge strategic partnerships with Saudi firms and directly invest in key industry sectors, most especially energy, tourism, entertainment, manufacturing, and technology. 

The Saudis also need the United States to continue helping to roll back Iranian influence. In the near term, Riyadh will want Washington to keep providing targeting and refueling support for the war against Iran’s Houthi proxies in Yemen. The kingdom, which views Yemen as a “war of necessity” in order to prevent the emergence of a new Hezbollah on its southern border, will continue fighting as long as the Houthis refuse to negotiate. Under these circumstances, the United States’ technological and logistical superiority will ensure that civilian casualties are kept to a minimum.

Riyadh, which believes Tehran never gave up its pursuit of nuclear arms, welcomed the Trump administration’s decision to withdraw from the Joint Comprehensive Plan of Action (JCPOA). From the Saudi perspective, the JCPOA’s sunset clauses and failure to account for Iran’s expansionism and ballistic missile program made it an incomplete agreement at best and a fatally flawed plan at worst. Saudi Arabia will support Washington’s reimposition of a strict and wide-ranging sanctions regime that covers all three components of what it sees as Tehran’s regional domination strategy. Riyadh will also want Washington to keep forces in Iraq and, if possible, in Syria, as a check on Iran as well as ISIS. Ultimately, the Saudis hope that sanctions, coupled with ongoing protests spurred by Tehran’s diverting billions of dollars from domestic development to foreign adventurism, will finally force Iran to become more state than revolution.

A prosperous, moderate, and secure kingdom is the surest safeguard against instability and extremism. And while the new Saudi Arabia has made missteps and experienced reversals, supporting MBS’s push for socioeconomic reform and his opposition to Sunni and Shia revolutionary radicalism serves Washington’s interests. Critics of the crown prince also need to consider the cost of failure. History shows that the collapse of heavily centralized Arab countries with enormous oil wealth, underdeveloped institutions, and regional, tribal, and sectarian cleavages yields near-perpetual conflict among myriad armed militias and fiefdoms. Considering that Riyadh also provides essential strategic depth to the smaller Gulf states, an unstable kingdom would yield almost incalculable ramifications for global stability and economic prosperity. 

Published by the Hoover Institution of Stanford University on June 19, 2018.