Saudi rulers learn to live with fewer millions

The German company executive in the hotel lobby was only on his third orange juice but he was holding forth with the repetitive emphasis of a saloon-bar drunk.

"Seven months we have been waiting for payment from the government and every time I come to Riyadh I get nothing but promises," he complained. "It's like doing business with those people in Eastern Europe."

A senior banker in the Kingdom, who, like the businessman, did not want to be named, described the problem in a lower key. "The government needs to achieve a 20 percent cut in budget. So there are no new projects and they have applied the simplest cash-book principles: namely, they've simply stopped payments while they build reserves."

Khaled al-Maeena, a Saudi newspaper columnist, complains about the reporting of his country's economy by the Western media, which he defines as"liberal in outlook, left-wing in leaning . . . the self-appointed guardians of political correctness . . . oblivious to the truth . . . inaccurate and mischievous." And so on. "One fails to understand their logic," Mr Maeena wrote last week. "How can a country that controls 25 per cent of the world's oil be going broke?"

How indeed? The city of Riyadh is not, perhaps, the most obvious place in which to demonstrate the truth of the works of a Marxist historian of Jewish parentage. Yet - with apologies to Mr Maeena - Saudi Arabia's importance to the global trading system is best defined by Eric Hobsbawm's recent book on the short, violent twentieth century. Hobsbawm argued that the Arab oil embargo of 1973 ended a golden age of liberal capitalism that had stretched all the way from the peace of 1945 through the 1960s, an era of optimism based on $2-a-barrel oil, low inflation, jobs for life and cheap housing. By 1974 the West had entered an era of crisis, which is not yet closed.

Saudi Arabia still plays a critical role in Opec, and the booming economies of Asia depend heavily on Gulf supplies. But the Kingdom itself is having to come to terms with the end of the vast surpluses run up after the oil shocks of the 1970s. These cul

m inated in earnings in 1980 of at least $100bn, or $300m a day. Due to lower oil prices, in 1994 the Kingdom will be lucky to earn much more than $40bn, and must borrow to cover spending of some $10bn more. During the early 1980s Saudi Arabia held officia l reserves of about $150bn. Almost all has been spent.

"There were two main causes for this crisis," said Prince Nayef bin Abdul Aziz, brother of King Fahd and Minister of the Interior."First there was the Iran-Iraq war. Our loans to Iraq cost the budget $25bn and we have not received a cent back. Then ther

e was the Gulf war, which cost the Kingdom $70bn - all of which came from the treasury. Any nation faced with such commitments would have a strain on its budget."

A senior official familiar with oil policy.said: "Over the next few years it is a question of management, not a structural problem. Oil prices were expected to rise steadily as Western demand picked up and developing countries sought more supplies. The fundamentals are sound," he insisted.

King Fahd, 73, has so far avoided painful economic restructuring, preferring to temporise and to annoy German businessmen rather than Saudi citizens.

The King hates confrontation. He is an absolute monarch, but his power is underpinned by complex tribal loyalties and restrained by family consensus. The rule of 6,000 princes is insured by prodigal generosity to their 12 million subjects.

There is no representation in Saudi Arabia, but there is no personal taxation either. Freedom of assembly is denied, but anyone may seek a hearing in the King's majlis, or audience chamber.

The economic crisis, the upheaval of the 1991 Gulf war, widespread anger over corruption and the rise of an articulate Islamist opposition to the House of Saud have undermined the certainties of royal rule. "Make no mistake about it," said a Western ambassador in Riyadh, "a fundamentalist takeover in this country could have drastic effects on oil policy and it would no doubt be hostile to foreigners. But we are a long way from that yet."

Perhaps the clearest indication of both change and uncertainty can be found in the Majlis Al-Shura, a consultative body which functions as the nearest equivalent to a parliament in the Kingdom. Accommodated within a lavish purpose-built palace clad in white marble, the 61 members of the Majlis Al-Shura, all appointed by King Fahd, pursue their deliberations amid a surreal calm. No hue and cry of debate echoes to the vast dome of the assembly chamber. The padded comfort of the committee rooms would hush the timbre of any argument. A handful of dedicated functionaries pass along pristine carpeted corridors to empty reception rooms as splendid as Versailles.

"Our committees are at this moment working on elements of economic policy to formulate recommendations to the King and to the council of ministers," explained Abdullah Omar Nasseef, vice-chairman of the Majlis. "We are certainly having an effect, but th

e ordinary people do not realise it."

The Majlis has engaged a broad spectrum of worthy individuals in what seems to be a genuinely consultative process - Dr Nasseef is former Dean of King Abdul Aziz University in Jeddah. But the public remains in ignorance of its efforts because the Saudi media makes no mention of it. "People do not know what is taking place," said Dr Nasseef. The ingrained conservatism of an absolutist information system, it seems, cannot yet cope with political change, even that ordained and approved by King Fahd himself. Such are the contradictions eagerly seized on by radical Islamist opponents of the House of Saud.

But the Islamic opposition does not hold a monopoly on criticism. Dr Nasseef, who hails from an influential Jeddah family, was not afraid to address issues once deemed unmentionable. "Society has become corrupted in the last 20 years," he said. The vast

majority of Saudis were loyal to the King, he said, but there was a need to adapt to rapid, dislocating social change. The issue of "commissions" paid to leading Saudis on foreign contracts was, without doubt, politically important. Dr Nasseef, however,

said firmly that while most Saudis were devout Muslims, very few supported the fundamentalist campaign waged from London by the exiled dissident Muhammad Al-Masari.

"We receive Masari's faxes here at the Majlis," he disclosed. "There are one or two good points in them, but people realise there is a lot of nonsense there." Emphasising the Islamic tradition of consensus - a verse from the Koran enjoining consultation adorns the chamber wall - Dr Nasseef speaks for the merchant and middle classes in hoping for a gradual process of reform. "Our government is very conservative," he said, "they need to take time."

Mr Masari denounces such gradualism as fraud, insisting that only a return to a pure Islamic state can eradicate princely corruption, share the oil wealth more widely and create a government worthy of its custody of Mecca and Medina. Cuts in generous Saudi subsidies and blithe talk of Western-style privatisation in a society based on tribal patronage strengthen his arguments. The economic crunch, therefore, harbours grave political implications for the House of Saud.

On the side of the ruling dynasty are precedent, entrenched authority and foreign support. It has weathered financial troubles before: a budget crisis in 1944, consistent deficits between 1946 and 1953 and an improvident lurch to the brink of bankruptcy in 1958. It has seen off numerous challenges from the forces of severe religious obscurantism: a fight with the Ikhwan tribal levies in the 1920s, fundamentalist demonstrations in 1963, an armed assault on the television station in 1965 by fanatics opposed to television and, in 1979, the capture of the Great Mosque at Mecca by a group of zealots.

The House of Saud represents one of the most remarkable examples of political longevity on Earth. The arrangement of power at the top between King Fahd and his brothers is still broadly the same as provided for by King Faisal in 1962. The rulers of SaudiArabia outlasted radical Arab nationalism and have long outlived the Russian and Chinese politburos of King Faisal's time. Their downfall was predicted after the Iranian revolution of 1979, but to little effect.

None the less, there are signs of worry among foreign governments, keenly aware of Saudi Arabia's role within Opec as a moderator of price and supply. And while Mr Al-Masari speaks the reassuring language of human rights to his Western interlocutors, th

e effects of his Islamic programme in Saudi Arabia would be twofold at least. First would come the imposition of a fundamentalist agenda: even sterner restrictions upon women, a crackdown on the modest liberalisation allowed to the middle classes and a re treat into xenophobia and righteous isolation.

A second effect would be to break up the tribal structures which have bound the kingdom together since 1932 and, almost certainly, to hasten its dissolution. Strict Wahhabi fundamentalists abhor Shia Muslims, who make up most of the population around Saudi Arabia's oilfields. A conflict would be almost inevitable, with the attendant risks of involving Shia Iran and disrupting the flow of oil from the Gulf. Western governments could then feel compelled to intervene. That would be enough to bear out Eric Hobsbawm's observation that the third millenium , too, is likely to be one of "violent politics and violent political changes".

Tomorrow: Security, arms deals and Iran