Dec 7, 2016

Saudi Arabia had a bad 2016. Only in the second year of King Salman bin Abdul-Aziz Al Saud's rule, the kingdom faced low oil prices, deteriorating economic conditions at home, a quagmire in Yemen and a resurgent Iran. The US Congress accused it of complicity in 9/11. Now the kingdom faces the uncertainty of a new US administration unlike any of its predecessors.

Salman fired his labor minister in the beginning of December. The normally careful Saudi press castigated the minister for growing unemployment, which is reported to be over 12% now. That is probably an understatement. The media suggested that this rise in unemployment will undermine the chances for the success of the king’s much ballyhooed Saudi Vision 2030. Vision 2030 promises Saudi Arabia will no longer be dependent on oil revenues by 2030, an incredibly ambitious promise.

The OPEC agreement in Vienna to reduce the cartel’s oil exports is another implicit defeat for the kingdom. The Saudis had resisted any cut in oil exports that did not include an Iranian cut as well. In the end, OPEC agreed Iran can increase exports while the kingdom must bear the bulk of reductions. The Iranians have lauded and rejoiced in the Saudi retreat. Saudi reserves have been drawn down all year to fill the gap in income, and Saudi consumers have paid the costs. It is far from clear that the OPEC move will significantly change the oil price slump.

The war in Yemen has also been a major cost for the kingdom. Saudi border towns have suffered from missile and rocket attacks. The military has expended huge amounts of munitions that have had to be replaced at high prices. The costs in terms of worn-out aircraft and other weapons systems are a closely guarded secret, but they must be substantial and will only get higher the longer the war goes on. Rather than being able to cut defense spending — a key to Vision 2030 — it will have to rise to pay for the long-term costs of the war.

Of course the Yemenis have paid a much higher price. According to the United Nations, more than 3 million Yemenis have been displaced by the war. Almost 20 million have inadequate access to water, and 15 million are getting insufficient food. Child malnutrition is rampant. The long-term humanitarian consequences are likely to be staggering for the Arab world's poorest country. So, too, will be the long-term enmity for Saudi Arabia and its Gulf partners in the war.