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Saudi Arabia is an oil country. You already knew that, of course, but have you thought about what it means? You probably only notice the ups and downs of crude prices when filling up a car with petrol. But for two generations of Saudis, the vicissitudes of the oil market are a force that reorders society.

As late as the start of the 1970s, Saudi Arabia was still a poor desert kingdom, largely populated by disparate tribes and other groups who held the weakest of allegiances to the state. But after the 1973 Yom Kippur War, it joined an oil embargo against those countries that had supported Israel. Oil prices quadrupled and a gold rush began, one that transformed everything it touched.

It was only a small minority of Saudis who were suddenly driving Rolls Royces and Cadillacs on the streets of Riyadh, the capital. Yet the change could not be missed. Mud-brick houses were abandoned for Italian-style villas in the mushrooming suburbs of cities like Jeddah. Perfumeries stocked the latest French scents; shops supplanted the old souqs and flea markets; and young men donned sunglasses, one of the small personal comforts that seems to symbolise consumerism and modernity. The recently built Riyadh Water Tower, a blue-and-gold striped funnel shooting into the sky, became a totem of the new affluence.

The small elite who grabbed much of the revenue shored up its position by spreading a little of the spoils around. Before long, almost 70 per cent of Saudi nationals were employed in the cossetted public sector. Meanwhile, much of the real labour was done by the ever-swelling ranks of foreign workers.

Nearly 90 per cent of Saudi Arabia’s GDP is directly or indirectly linked to oil. Its price touches every aspect of day-to-day life and plays a huge part in both domestic politics and foreign relations. So when the price of oil shot down like lubricated lightning amid a great glut in 1986, Saudi society went in reverse. Riyadh’s pristine office blocks were emptied. Half-built developments were put on hold or scrapped. City centres became ghost towns.

It took nearly 20 years for the price of oil to rebound but as recently as 2008, barrels of crude were trading at a high of $147. Then they fell again—till they hovered around $40 for most of this year. They recovered somewhat after an Opec effort in September to force prices up by restricting production, but only modestly—to something around $50, still two-thirds down on a few years ago.

This latest slide has sunk the kingdom into one of its worst-ever slumps, opened up a gaping budget deficit—$98bn in 2015—and is placing it under perhaps unsustainable pressure. In September, for the first time ever, the government cut bonuses and allowances for public sector workers. Can the Saudi state manage a more constructive response to its troubles than the lashing, beheading and stoning for which it is notorious?

The fortunes of any government in its position would be tied to the ebbs and flows of the oil price, but the regime in Riyadh has exacerbated its vulnerability, spending lavishly when it can, and indulging in corruption and displaying a complete lack of accountability at all times. To understand the way in which it operates, and the way that it responds to economic pressure, we need to go back to the very beginning.

The House of Saud rose to pre-eminence on the Arabian peninsula in conjunction with the Wahhabist branch of Sunni Islam. Founded by the 18th-century cleric Muhammad ibn Abdul-Wahhab, Wahhabism is an ultra-conservative ideology that intends to restore the faith to its “pure” original state, shorn of centuries of interpretation and cultural accretion. In 1744, Abdul-Wahhab made a power-sharing agreement with Muhammad ibn Saud, emir of the town of Diriyah (now on the outskirts of Riyadh), formalised by the marriage of the cleric’s daughter to the emir’s son.

Ibn Saud and his descendants came to dominate Arabia, as did Wahhabism. An alliance saw their lands becoming part of the British empire from 1915 to 1927, before Saudi Arabia was founded in 1932. The country is a hereditary monarchy with no political parties or national elections. In theory, the king has absolute power—but he has to comply with Islamic law.

The House of Saud remains the ruling royal family. They now number in the thousands, but power lies with the smaller group who are descended from Abdulaziz, the first king of Saudi Arabia. The crown does not pass automatically to the eldest son; instead, a male relative is designated as crown prince. So far, all of the country’s kings have been sons of Abdulaziz—he had 45, from polygamous marriages. And the House of Saud is still intertwined with the Wahhabi religious establishment.

Saudi Arabia’s rulers now describe their approach as “modernisation within an Islamic framework.” Putting this into practice has brought controversy and, on occasion, armed conflict. In the early 1960s, King Faisal introduced television over religious objections that producing images of people was immoral. Clerics protested and found an ally in Prince Khaled ibn Musaid, the king’s nephew. The prince led an assault on a television station and was killed in a police shootout; in 1975 his brother assassinated King Faisal in his palace, apparently in a revenge attack.

Even today, Saudi rulers have to offer concessions to clerics to get their support: the continuing ban on women drivers is one example. All of this shows the extreme and enduring difficulty that Saudi Arabia faces in managing social change. But, given the shock that has now hit the economy, change is inevitable.

Riyadh’s response to its financial crisis came in April. The government launched Vision 2030, a programme containing a mix of economic and educational reforms with the principal objective of ending the state’s hopeless dependence on oil. It’s a welcome start. But opening Saudi Arabia to global financial markets will bring political scrutiny—and people who gain economic freedom will soon want social freedom to go with it. Cultural liberalisation, however, is still absolutely resisted by the chief clerics. In short, the country must now undergo economic reform, without making any political concessions. It’s a fraught path to tread.

Searching for a model, Saudi rulers looked at China, where economic prosperity has been combined with autocracy. But the Chinese example offers false hope: Beijing’s communists simply made state capitalism more competitive. Unlike the Saudis, they did not have to contend with a radical religious tradition that proscribes women from working alongside men. There is, in sum, little reason to expect that modernisation can be happily blended with theocratic despotism. Yet if reform doesn’t occur, the problems of Saudi Arabia could reverberate far beyond its shores.

L ocal difficulties in Saudi Arabia have spiralled outwards before. In 1990, after Saddam Hussein invaded Kuwait, the Saudi government overrode objections and invited American troops into the country to help with its defence. Resentment simmered and then—later in the decade, after years of low oil prices­—the Islamist opposition gathered momentum. Saudi-born Osama bin Laden cited the presence of foreign troops in the kingdom as one of his justifications for the 9/11 attacks.

Saudi Arabia’s bitter rivalry with Iran also has knock-on effects. Sunni Islam has long dominated the Middle East, but the Iranian revolution of 1979 installed a militant Shia government. In recent years, the invasion of Iraq and the Arab Spring have inflamed sectarian tensions. Riyadh is anxious about what it sees as Iranian dominance in four Arab capitals: Beirut (Lebanon), Damascus (Syria), Baghdad (Iraq) and Sana’a (Yemen). The Iranians claim that they are defending their co-religionists from al-Qaeda and Islamic State. They accuse the Saudis of spreading Wahhabi intolerance and of sponsoring terrorist groups who want to exterminate the Shia.

The culmination of this rivalry is both countries’ involvement in the Yemen civil war. Over a year ago, Saudi Arabia launched an offensive against the Houthis, Shia-led Yemeni rebels who it regards as an Iranian front group. Yemen is the kingdom’s southern neighbour but the war is less about defending the country’s borders, as the king claims, than placating the Islamists, who have been agitating against Shia expansion in the region.

In Syria, the Saudis have supported the rebels against Bashar al-Assad, whom they see as an Iranian client. The kingdom hopes to emerge from these conflicts having clipped Tehran’s wings and established itself as the arbiter of Arab affairs. Unfortunately, this is an unrealistic aspiration—and an expensive one.

The economic pinch came at the worst possible time for King Salman ibn Abd al-Aziz, as he only took over in January 2015. His predecessor King Abdullah ruled during the oil boom, and his popularity surged along with his citizens’ incomes. But King Salman cannot afford to buy hearts and minds. A 2015 International Monetary Fund report predicted that, without a change in spending habits, Saudi Arabia would be bankrupt by 2020.

Constrained by his age—he is 80—the king has entrusted his youngest son, 30-year-old Muhammad bin Salman, with the task of solving the country’s fiscal problems. The prince is now Chair of the Council of Economic Development Affairs, Deputy Crown Prince, Second Deputy Prime Minister, Minister of Defence and Chief of the Royal Court. No prince in history has ever held so many key positions at such a young age.

The prince must tackle a fiscal crisis in a context of delicate balances, not only between the people and the clerics, but also among various demographic groups. Around 27m people live in Saudi Arabia, but up to 10m are foreign workers, ranging from poorly treated manual labourers from the Indian subcontinent to well-paid westerners. In the absence of any political representation, people’s loyalty and acquiescence have been bought, with benefits including generous welfare payments and free education and healthcare. Yet despite this beneficence, and the $1.4 trillion or so held by the House of Saud, up to a fifth of Saudis are thought to live in poverty. Vulnerable groups include the oppressed Shia minority, 10 per cent of all Saudi nationals.

Successive kings have left social, educational and judicial matters in the hands of their partners in government: the puritanical clerics. The 3,500-strong religious police impose strict dress codes, prohibit women and men from socialising in public and ban much western media and customs such as Valentine’s Day. Education is poor, with an emphasis on the Koran and Islamic tradition that extends to universities. The judicial system is a byword for harshness, with severe penalties not only for serious crimes but more minor transgressions too.

But no longer can the rulers count on being able to distribute largesse to the people and the religious establishment. The prince has been forced to draw on the country’s foreign reserves, estimated at $654.5bn before the crisis. He has had to borrow more than $10bn to cover the budget deficit. And he has had to cut state spending—even though the erosion of government budgets equal the erosion of the House of Saud’s control over the country.

Vision 2030 is the prince’s plan to escape this trap. It was first revealed in the Economist and on the Bloomberg news website—a move which disgruntled Saudis, who are fed up with being the last to hear about their own affairs. Eventually, the prince appeared on Arabic television to explain his programme, which is now government policy. Other states, such as Bahrain and the United Arab Emirates, had already put through proposals for modernisation. It was time for Saudi Arabia to follow suit.

Vision 2030 combined old promises and new. The familiar elements included moves to replace foreign workers with Saudi citizens; the privatisation of some state assets; and promises to curb budgets and expand the non-oil sectors of the economy. Since the 1970s, Saudi Arabian policy has been expressed in a string of five-year plans, each promising a variation of these items.

But there are also genuinely novel aspects, including the development of a $2 trillion sovereign wealth fund, paid for by oil revenues. Most surprising was the decision to float 5 per cent of Aramco, the huge Saudi Arabian state oil company, which provides around 10 per cent of the world’s oil. It is a highly secretive company—but that will have to change if its shares are to be sold in global stock markets. Investors will want to know how much oil is still in the ground, and who ultimately controls the company. At present, the answers to these questions are state secrets.

B ut if Saudi Arabia does open up, who is it going to open up to? The United States has been a close ally, but relations between the countries have never fully recovered from 9/11 (15 of the 19 hijackers were Saudis). Prince Bandar, the country’s ambassador to the US from 1983 to 2005, became so close to George W Bush that he was nicknamed Bandar Bush. But under President Barack Obama the relationship has soured more decisively.

The chief sticking point has been Iran. When it became clear that Iran was developing a nuclear weapon, the Saudis pressured the US to bomb its weapons installations. Instead, the US conducted secret meetings that resulted in the 2015 agreement and the lifting of many western sanctions. The Saudis were furious.

Britain’s relationship with Saudi Arabia has long been more complicated. In the 1980s, the Saudis broke off diplomatic relations after the documentary Death of a Princess, which concerned the execution of a Saudi royal and her lover, was shown on ITV. More often, however, London has bent the knee. In 2006, Tony Blair halted a Serious Fraud Office investigation into corruption allegations over the al-Yamamah arms deal. The multi-billionpound deal was Britain’s largest ever export agreement and was approved by Margaret Thatcher. Blair’s pretext was that Britain could not afford to lose the kingdom’s intelligence capabilities in pursuing the war on terror. His meddling was, however, a departure from the ordinary requirements of the rule of law.

Saudi Arabia has continued to buy British arms—but how long can it remain a reliable customer? There is no disguising the crippling cost of the wars in Yemen and Syria, the sale of foreign reserves, and the recourse to borrowing from the international markets, once unthinkable for a country awash with petrodollars.

Recently, the kingdom’s abysmal human rights record has been given fresh attention. Last year, Labour leader Jeremy Corbyn used his party conference speech to highlight the plight of Ali Mohammed al-Nimr, a 17-year-old Saudi threatened with beheading and crucifixion (in that order) for taking part in a pro-democracy protest during the Arab Spring. He returned to the subject of British arms sales to Saudi Arabia during his recent party conference speech saying, “when there are credible reports of human rights abuses or war crimes being committed British arms sales will be suspended. Starting with Saudi Arabia.” It has also emerged in recent months that, while he was Justice Secretary, Michael Gove overrode the objections of the Foreign Office and cancelled a prison contract with a Saudi company, circulating a cabinet memo on ethics for good measure.

International publicity has been given to the case of blogger Raif Badawi, sentenced to 1,000 lashes for creating the forum Free Saudi Liberals Network. A social media campaign, #TogetherToEndMaleGuardianship, has publicised the plight of Saudi Arabian women: each is required to have a male guardian, usually her father or husband, but perhaps a brother or son, who has the power to decide whether she can marry, work or travel.

A recent report by a UK parliamentary select committee was close to proposing a halt on arms sales to the kingdom after reports of indiscriminate bombing raids on Yemeni civilians.

Yet overall, the west now seems to be eyeing Saudi Arabia less forgivingly. The kingdom stands in the way of all sorts of diplomatic objectives, such as a resolution to the conflicts in Yemen and Syria, where the Saudi insistence on deposing Assad risks putting virtually any agreement beyond reach. Saudi Arabia has long used its wealth to spread Wahhabism, exporting imams and funding mosques and madrassas abroad, practices that have come under increasing fire for promoting extremism and terrorism.

Reconciliation with the US looks remote. In September, Congress gave families of the 9/11 victims the ability to sue the Saudi government in American courts for any role in the terrorist plot. President Obama opposed the move, which could be the last nail in the coffin of US-Saudi relations, but Congress has pushed back. Saudi Arabia’s vast US assets (it owns $117bn of US government debt) could be frozen by legal proceedings. In early October, a 9/11 widow initiated legal proceedings against the Saudi government. It is remarkable that the issue has got this far.

“Is there a place in the modern family of nations for a country that stones, beheads and lashes?”

There is, then, a real danger that Saudi Arabia will lose its most vital international alliance. And it looks like it will be facing the phenomenal challenge of adapting to cheap oil on its own.

Even the Sunni establishment seems to be tired of Saudi religious teachings. The Grand Mufti of Egypt, Muhammad Ahmad al-Tayeb attended an international Islamic conference in August. Under the sponsorship of the UAE and the patronage of Russian President Vladimir Putin, the conference took place in Grozny, the capital of Chechnya. The 100 Islamic clerics attending the conference surprisingly decided that the Saudi religious brand of Wahhabiyya is excluded from Sunni Islam. The country’s global religious reach is being eroded by Muslims tired of being at the receiving end of literal interpretations of Islam that undermine their communities’ cultural diversity and religious harmony.

T o the casual observer, Saudi society exhibits few signs of change. Life in Riyadh appears dull, restricted and dry. Many public places such as restaurants are segregated, cinema is largely banned and pastimes such as the game Pokémon GO are prohibited. Time is punctuated by successive calls for prayers, during which shopping centres close their doors.

But under the surface change is happening. Last year, women voted and stood as candidates in municipal elections for the first time. The religious police lost the power to make arrests in April. And the strongest tide pushing for change could well be demographic. Around 60 per cent of Saudi nationals are under the age of 30 and, unlike previous generations, they have never experienced austerity. They have grown up in a consumer economy with gadgets, the internet and social media. And their expectations that the state will pay for their education and then provide them one of those cushy public-sector posts are about to be dashed.

Without political parties or independent civil society, Saudis meet to discuss their country’s problems at informal salons known as diwaniyya, hosted in the houses of intellectuals. Days after Vision 2030 was announced, a group of young professional men gathered to listen to Abdul Aziz al-Dakhil, an economist and former Deputy Minister of Finance. He criticised the proposed Aramco flotation, saying the only way to lessen dependency on oil is to develop human resources. His central point, however, was the one that is most threatening to the regime—that economic changes will not work without political reforms which lead to real accountability, representation and transparency.

It is a view shared by many of Saudi Arabia’s intelligentsia and particularly its young. This generation is not fixated on the identity of the state and whether it becomes more Islamised or westernised. They are worried about jobs, schools and homes.

This same rising generation of Saudis witnessed the Arab Spring. Riyadh’s response was to distribute $130bn worth of benefits and tell the clerics to issue fatwas against peaceful demonstrations, dubbing them a sin against God, the Prophet and King. Yet pockets of protest sprung up, and Shia in the east of the country took to the streets. There was unrest, too, in the Central Province—the heartland of Wahhabism and the House of Saud—by those demanding freedom for dissidents. All of these protests were crushed soon enough, but young Saudis took note.

And if Vision 2030 fails to deliver, or if oil prices continue their downward slide, discontent will stir again. A stark warning was provided by developments at the Saudi Binladin Group, the largest construction company in the kingdom (and founded by Osama bin Laden’s father). The company’s state contracts had dried up and the workers had not been paid for several months. Since January, up to 70,000 foreign workers have been laid off; they retaliated by setting fire to company buses at Mecca.

Saudi Arabia’s predicament, then, is set to worsen—and it will have global effects. Any turbulence will push oil prices up at a time when cheap petrol is one of the few things keeping the European economy moving. More trouble will follow if Vision 2030 opens up a Pandora’s box. The corruption, the despotism, the cruel and unusual punishments will become more contentious at home, and harder for the world to overlook. The question as to whether there is a place in the modern family of nations for a country that stones, beheads and lashes will become more urgent.

The world cannot afford to ignore Saudi Arabia. The kingdom is bound up with our most pressing problems: the place of Iran in the international community, the civil wars in Syria and Yemen, and the future of energy. It is essential that the country manages the transition to a more open society. Sadly, it is far from certain that the Saudi regime is capable of achieving this.