Need the Saudis prepare for a real war?

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Last week, I attended an event between senior officials of the Gulf Cooperation Council (“GCC”) and members of the Slovenian government.

During his opening remarks, Abdel Aziz Abu Hamad Aluwaisheg, Assistant Secretary General of the GCC, candidly discussed Saudi Arabia’s central economic problem, which is that energy consumption in the Kingdom had averaged over 8 percent, while economic growth had averaged under 4 percent, for the last few decades.

In other words, energy consumption has outstripped economic growth in the Kingdom by over 2X. With the result being that the Kingdom is now being forced to take increasingly drastic measures to keep its position as a leader in the world and maintain domestic stability.

Even though Mr. Aluwaisheg suggested that Saudi’s consumption problem could, hopefully, be resolved through strong economic reforms, the Kingdom’s buildup of arms over the last six years, and lack of specifics regarding its touted “Vision 2030”, suggests that more hawkish portions of the Saudi political establishment may be preparing for war as a hedge against state failure.

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To understand why Mr. Aluwaisheg was so concerned about Saudi energy consumption, or why hawks within the Saudi political establishment may be preparing for war, it’s important to understand just how badly the Saudi economy is doing right now. The above chart is the value of Saudi exports over the last five years, with exports projected to be nearly a quarter of what they were in 2012 by the end of the year.

The last time that exports were this low was during Saudi’s financial crisis in 2009. However, back then, the country was 23 percent smaller. (26 million people then vs. 32 million people now.) In other words, the Saudis currently have far less money coming in, but far more mouths to feed.

This downward trend in Saudi’s economy is not part of some normal or temporary cycle. It’s endemic of a much larger issue that threatens the Saudi state. Namely, energy consumption.

The Saudi economy isn’t at risk because it is running out of oil, it is at risk because the Saudi domestic consumption of energy (i.e. oil) will soon exceed their export of energy (i.e. they will soon consume over 50 percent of the energy they produce).

In normal economies, rising energy consumption isn’t a problem. In fact, it’s often a sign of positive economic growth. China, for instance, historically consumes more energy every year. But that’s because they use that energy to produce more manufactured products for export.

As pointed out by Mr. Aluwaisheg during his opening remarks, Saudi’s increase in energy consumption is not the result of producing more value-added goods for sale abroad. Rather, it is the unfortunate result of decades of government-subsidized consumption. The consequence of people moving from the desert into A/C controlled houses, with big fridges and cars.

The result is that up to 90 percent of Saudi’s exports are still from oil & gas. All Saudi exports is, basically, oil. If more is consumed at home, there is less to export, and the country makes less money as a whole.

Saudi has tried, multiple times, to diversity & fix its economy (particularly to deal with their youth bulge) but has failed partially due to religious restrictions that keep half the country’s workforce (i.e. women) stuck at home.

The result is that Saudi is starting to fail economically. It’s canceling $20 billion of public projects, eliminating energy subsidies (e.g. gas, etc.) for its people, and its Princes are starting to stash their money in places like Panama and multi-billion dollar funds in other countries.

For the country to save itself, it should have started diversifying its economy 10 years ago.  Not now. And senior members of the political establishment are understandably concerned about reaching a “J-Curve” point of revolution as a result.

The J-Curve is when a state has a period of sustained economic growth, followed by a sudden downturn. The J-Curve theory is that revolutions start, not because the economy or living conditions are terrible for a long time (or revolutions would be occurring constantly) but when you have a long period of growth, where people start to believe that things will get better (and take out larger mortgages, loans, etc.) only to have their expectations dashed when the economy suddenly drops and they can no longer afford the things they have bought. (If you graph this trend, it looks like a “J” – long growth, sharp downturn – hence the name “J-Curve.”)

In short, the idea is that people get upset when they expect life to get better, but life gets worse instead. Which is exactly what is happening in Saudi. People have gotten used to growth, and now exports are dropping to a quarter of what they were a mere four years ago.

Moreover, the country faces a huge problem from its youth bulge. Specifically, nearly half the population is under the age of 25. Thus, over the next 5-10 years, an increasing number of young Saudis will enter the workforce. However, since the Kingdom has been unable to diversify or grow its real economy, many of these workers will be unable to find jobs. Meanwhile, the Kingdom already has a youth unemployment rate of 28 percent. Young people often get angry when left jobless for long periods. And youth anger can lead to revolutions like the Arab Spring.

If the Saudi economy fails, few factors could prevent the young (84 year-old) Al Saud monarchy from being overthrown:

A) Instating a populist “Strong Man” (Dep. Crown Prince Moh’d Bin Salman, “MBS”);

B)   A strong internal security/police state;

C) Apathy of the people in Saudi and/or blaming America, and;

D)   Attacking or invading neighboring countries.

The result is that the Al Sauds have spent the last six years taking the corresponding precautions:

1) They’ve positioned MBS as a strong man by having him bomb Yemen, talk tough towards Iran in popular media, and execute a record number of prisoners in Saudi;

2) They’ve bought a gigantic quantity of offensive weapons (i.e. jets, long-range missiles, cluster bombs, etc.) whose primary use is to launch attacks outside the Kingdom, and;

3) They’ve massively increased their spending on electronic surveillance, Command & Control Centers, and other means of maintaining control of the state should rebellion occur. (Including reinforcing the budgets of the feared Religious Police.)

Additionally, by suggesting that they would pull $750 Billion worth of Treasury Bills from the US should JASTA pass, the Al Sauds may be preparing a propaganda strategy of “blame the US” for their pending economic problems. Simply, the Al Sauds may tell their people that the reason for their hardship is because they “stood up” to US attempts to persecute Saudi with JASTA.

However, simply blaming America is unlikely to be enough to stabilize the Kingdom. King Salman is the last of his generation and there is a considerably rivalry between his son (MBS) and the rightful Crown Prince (Mohammad Bin Naif) on who will take the throne next. Consequently, it may be very difficult for whomever takes power next to maintain legitimacy. Especially as there have already been rumblings in the family of a potential coup.

Regardless, of the strategies listed above, it is Option D (war) which is the most concerning. Invading or attacking other countries is, generally, bad for “regional stability.” Especially since the Saudis currently lead the world in arms expenditures on a per capita basis.  Specifically, Saudi spends nearly 4X more than the United States, Israel, or Russia does per capita. Unleashing their armaments on another country would be devastating for regional peace.

Some may assume that Saudi has no offensive ambitions and build-up is purely due to a sense of paranoia about Iran. This assumption involves a basic misunderstanding of Middle East politics. Iran has been through too many wars and revolutions to want to invade Saudi. Nor would they attempt to attack Saudi through conventional warfare. Moreover, Prince Turki Bin Faisal, the former head of Saudi’s intelligence service, recently stated that he was in favor of the US-Iran nuclear deal and wished to see it continued by the Trump administration.

Additionally, Saudi military spending moves independently of Iranian military spending. The Saudis are not responding to the Iranians either in form or amount in their buildup. And there is simply no reason to spend 4X more than the US per capita on weapons in the middle of severe economic contraction, unless you are preparing to go to war to stave off domestic discontent.

More importantly, the Saudis have been building up for a long time. While Chinese medium-long range missiles were secretly purchased by Riyadh in 2007, stockpiling really began in 2010 – a full year before the Syrian civil war and 4 years before Houthi rebels took Yemen. In short, the Saudis started preparing for war during a period of time in which they had relatively normal Shiite relations.

Essentially, the Saudis really started stockpiling weapons immediately after their financial crisis in 2009, because the real impetus behind their military buildup may be fears of their own economic instability, not the publicly portrayed fears of “Iranian aggression.”

Specifically, Saudi’s military spending has been over 2X Iran’s for the last 6 years as percentage of GDP (Saudi spends about 13 percent of its GDP on weapons, Iran spends 6 percent) and nearly 5X as much in gross terms. And, again, Saudi’s military spending moves entirely independently of Iranian spending.

I will not say that fears of Iran have nothing to do with Saudi foreign policy or their military buildup. However, I have spent a great deal of time and worked extensively in the Middle East with members of Saudi’s security establishment, and very few ever mentioned concerns about an Iranian invasion. The assumption was that, if Iran ever did try to invade Saudi, it would be dealt with in the same way that Iraq was dealt with during the first Gulf War, with a coalition of Western forces.  But that such a coalition would probably go further than they initially did in Iraq, since the West would be eager for the opportunity to create regime change in Iran.

Consequently, Saudi’s behavior under MBS towards Iran this last year – including executing a prominent Shiite cleric, crucifying his son, and bombing Yemen – may be part of a larger policy of provocation to hide Riyadh’s accelerating buildup of weapons and to develop reasons for going to war if the economic situation in Saudi declines far enough. Which it may very well continue to do, as a very possible Russian-backed peace deal in Syria and Northern Iraq could mean increased Iraqi oil and gas exports, further undermining the value of Saudi oil.

In other words, Saudi’s six-year buildup is motivated by increasing fears of internal instability. And, if the country becomes too economically unstable, hawkish portions of the Al Sauds may feel that their best option to deal with the situation is to engage in total war with a neighbor. Especially since Saudi is still trying to purchase $1.15 billion worth of (primarily) tanks, which suggests that portions of Saudi’s military establishment may wish to not only bomb targets from afar, but also have the capability to invade and hold territory. [For more on potential Saudi military strategy, see Part II, “Why Saudi’s Military Expansion Should be Taken Seriously.

Source: thehill.com

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