Saudi Arabia in 2004: Can it survive the terrorist threat?

Saudi Arabia in 2004: Can it survive the terrorist threat?


This paper reviews Saudi Arabia’s socio-political structure and attempts to assess whether it can cope with the joint stresses of unemployment among the young, the call to jihad by the extremists and the rift between the US and Saudi Arabia at a time of uncertain leadership in the country.


The kingdom of Saudi Arabia, which is of such vital importance to the world economy, is facing the threat not only of terrorist extremists but also of youth unemployment and a deteriorating relationship with the US. Caught between the need to crack down on all forms of dissent and the necessity to open up society to bring the country into the 21st century, the Saudi leadership is itself in a state of uncertainty about the future, unsure whether to hold on to its privileged position or to adapt and introduce some form of power-sharing. Faced with these challenges, the coming year will be critical for the Saudi regime. The country requires changes, but these should be made from within and not be imposed by terrorists or by a foreign power.


The kingdom of Saudi Arabia holds 260 billion barrels of proven oil reserves, about 25% of the world’s total, and it produces over 9 million barrels per day, or around 11% of total world demand. It is the only country in the world that has the ability to produce an extra million and a half barrels per day in the event of an emergency. Until 2003, Saudi Arabia was one of the most stable countries in the world. Except for 35 years, the al Saud have controlled the Arabian Peninsula in one form or another since 1744. The regime was founded as an alliance between the al Sauds and a highly puritan and fundamentalist movement in Islam, known in the West as Wahabism, but known in Arabia as Salafism (1). The Saudi regime has spent considerable efforts and funds to provide support and dissemination of this Salafi school of Islamic thought. Unfortunately, younger Salafis, taught in schools established by the regime, are calling for the actual implementation of a totalitarian (2) interpretation of Abdel Wahab’s thought, for a violent take-over of the world by jihad and for the overthrow of the Saudi regime which originally fed them.

Today the kingdom of Saudi Arabia, so vital to the world’s economic health and until now so stable, is under severe stress from the call to revolt of the Jihadis, while also being under assault from three other directions: (1) it has one of the world’s fastest growing populations (40% aged under 15) and a very high rate of unemployment among those aged under 25; (2) the kingdom’s relations with its traditional ally, the US, are at their lowest ebb ever; (3) the country’s present leadership is unstable, the king is very ill and the charismatic and popular Crown Prince is not only 81 years old but also being challenged by other senior princes jockeying for position.

This paper attempts to present a view of the kingdom’s socio-political structure and to assess whether the present system can cope with the joint stresses of youth unemployment, the call to jihad by the extremists and the rift between the US and Saudi Arabia at a time of uncertain leadership.

The Economy
The Saudi leadership is caught between the need to crack down on all forms of dissent and the necessity to open up society to bring the country into the 21st century, without which unrest would spread even further.

An independent survey of Saudi public opinion carried out in late 2003 (3) showed that the main concern of 79.6% of the population was not security or terrorism but jobs. Indeed, unemployment for young men between the ages of 18 and 25 is officially 15% but probably actually around 30%. At the same time foreign workers have 90% of the jobs in the private sector. The government is striving to create jobs for its citizens outside the public sector, but the employment of Saudis is hampered by structural societal problems.

In the 1970s Saudi Arabia was trying very hard to modernize rapidly, using the new wealth generated by the increase in oil prices. The Saudi government spent over US$400 billion in creating a modern infrastructure suitable for the country. To do so as quickly as possible, the state allowed local and foreign contractors and industrialists to bring in as many foreign workers as were required. The economy became rapidly addicted to cheap, pliable and when necessary highly qualified personnel from India, Egypt, Yemen, Thailand, the Philippines and other countries. The labour laws (and their enforcement) are highly favourable to local employers, while foreign workers cannot leave the country or change jobs and even in egregious cases cannot win in court [Lawrence Wright, New Yorker]. Consequently, local employers find it very convenient to employ foreigners rather than local labour, which can be less compliant, more expensive and more difficult to dismiss.

Until now the government has allowed this reliance on foreigners to continue in spite of publicised efforts to Saudi-ise. There are 8 million foreigners in Saudi Arabia today, more than there were five years ago. The large state-owned companies and most banks have been successful in pushing for Saudi-isation, with 86% of Aramco’s employees now being Saudi (4); Sabic, the large petrochemical, steel and fertilizer manufacturer, is 85% Saudi [2002 Annual Report]. But the private sector has relied on the instant skills provided by imported workers. Ghazi al Gosaibi, reputed for his ability to resolve state problems, has been appointed Minister of Labour to force the private sector into a true process of Saudi-isation. He is presently exerting intense pressure on industries requiring minimally-skilled labour, such as gold shops and travel agencies, to hire Saudis only. Of course these industries are complaining that they are being unfairly treated and are trying to change the Minister’s orders. Whether Mr al Gosaibi will be successful in reducing unemployment is still hard to tell, but if he does not succeed tensions will rise further, as the booming younger population starts entering the labour market.

However, the longer-term solution to the unemployment problem is a substantial increase in industrialization and related services, with large-scale resources being devoted to training both male and female Saudis. Today, society cannot rely on the state to create the 200,000 new jobs needed each year (5). According to Ministry of Labour statistics, it appears that each job requires an initial capital outlay of around US$200,000 (6). Thus, to employ 200,000 new entrants to the labour force would require an investment of around US$40 billion per year. This amount could come quite easily from the private sector, which is reputed to hold between US$200 and US $400 billion overseas.

Large investments could also come, in part, from foreign energy-based industries attracted by Saudi Arabia’s low cost of oil and gas and its newly revised investment law (7). However, the state has not yet opened the system to free local enterprise, not having loosened the restrictions on the use of the financial markets. It is difficult for both local and foreign companies to float shares on the stock market, even though demand for local shares is huge. There are 72 companies listed on the Saudi stock exchange but most of them are entirely dependent on the state for their sales, raw materials or both. The state still controls who can establish a corporation and for what purpose, which limits the ability of private firms to raise capital easily. In the same vein, purely private firms have only limited access to the highly-regulated banking sector and rely mainly on family-owned financial resources. Most bank lending is to either para-state affiliates of Aramco or Sabic or to the government in the form of development bonds.

This highly controlled environment is frustrating to most Saudis and many, including the leadership, lay the blame on bureaucracy. However, the barriers to economic development imposed by bureaucracy do not exist in a vacuum. Since the mid 1970s the civil service, under the leadership of the Ministry of Finance and the Central Bank, has been trying to ensure that growth is fostered in sectors that are deemed to be useful for the kingdom, such as energy-based industries. It has also tried to maintain the stability of the kingdom’s current socio-economic structure.

It is remarkable that in Saudi Arabia, where oil is so important, the royal family has only minimal influence on the running of this sector. Until 2000 there was only one prince involved in the entire sector and that in a minor position. Aramco itself has no royal members on its staff or on the board. Policy on oil production was decided solely by the King and the Oil Minister, who has always been a commoner. After 2000, the direct policy link between King and Minister was altered by the creation of a Supreme Oil Council headed by the King, as chairman, and by his brothers Sultan and Abdullah as co-chairmen, although in practice the council is directed by Prince Saud al Faysal, who is very close to Prince Abdullah. From this structure, one could surmise that due to King Fahad’s illness, Prince Abdullah has reorganized the oil sector to take over the ultimate policy-making functions from the King. However, the actual management of the oil sector is still removed from the royal family.

A similar pattern of control exists in the petrochemical industry where until 2004 there was not a single member of the royal family involved in the management and control of this US$11 billion industry on which the kingdom hopes so much for the future. Even the financial sector remains apart from the royal family. Until Prince al Waleed bin Talal’s take-over of Saudi American Bank in 2003, the royal family had only limited representation in the financial sector, which remained under the tight regulatory control of the commoner-controlled Saudi Arabian Monetary Agency.

Thus, the kingdom’s socio-economic structure seems to be based on a binary control system. Most of the economic levers are held by the civil service while all the security and military levers are held by the royal family. The budget ensures that at least US$15 billion per year end up in the defence and security sectors controlled by the royal family, while the rest of the budget (between US$25 and US$45 billion) is used to run the economy, develop new industries and build infrastructure.

The system, in place since King Faysal’s reign in the early 1970s, has worked well. It has managed to keep the royal family away from interfering too much with the businessmen and using their privileged position to impose their presence on the economy. On the other hand, keeping the royal family at bay has required a very strong bureaucratic structure which has hindered private initiative. Such control of the economy by the civil service seems to have had the blessing of Kings Faysal, Khaled and Fahad. One could speculate that the kings established the system with the help of highly-sophisticated commoner ministers in order to limit the risk of tension between a royal family which is above the law and the rest of society. It did create a kind of golden Bantustan for royal members who could receive funds from allowances from the treasury and substantial commissions on defence and security contracts, while the rest of the country went about the business of establishing infrastructure and creating industry.

However, keeping the princes at bay also meant limiting free enterprise. Most growth has derived from government-owned or controlled institutions. On the other hand, population growth has been enormous. In 1974, the Ministry of Finance was using a working figure of 4.5 million Saudis, but UN statistics put Saudi Arabia’s population at over 24 million (including foreign residents and workers).

Saudi planners are well aware that liberalization is necessary for job growth. However, since the fundamental problem which gave rise to the bureaucracy can be traced to the need to prevent privileged royal family members from taking over the economy, any efforts to bypass the bureaucrats are bound to fail until everyone, including all princes and princesses, become equal under the law. The law itself, which is based on the Shari’a, should ensure that everyone is treated fairly. However, in practice the law has been applied in such a way that royal family members get preferential treatment.

One way to bring the royal family under the law would be for the kingdom join the World Trade Organization (WTO). Indeed, one of the key conditions of the WTO is that legal practice must be transparent and applied fairly to all, including princes. Perhaps one of the reasons why the civil service is pushing for admission to the WTO is that a new WTO-based legal practice would curb royal privileges and allow the bureaucracy to slacken its tight control over the financial markets and the economy, thus promoting free enterprise.

The conundrum is that jobs cannot be created without economic liberalization, while there cannot be economic liberalization without the royal family accepting an equal status to the rest of society and agreeing to share power. However, it is difficult for the family to accept sharing power when it is under threat from terrorists.

The Jihadi Uprising
Today, many Salafis, especially the Jihadis who want to impose their truth on the world by force, feel that the al Saud and their supporters have renounced the original pact between them and the visionary puritan reformer of Islam, Abdel Wahab. Thus, many of the younger Salafis, raised and educated in the schools and universities funded by the al Saud, feel that the royal family must be overthrown, foreigners must be thrown out and Moslems must be forced to follow their true interpretation of the faith.

The Minister of the Interior, Prince Naif, a contender for succession, has led the battle against terrorism. However, it seems that his effort have also focused on gaining the support of the old-school Salafis. The logic appears to be to revitalise the old Abdel Wahab/al Saud alliance in order to undercut the support which the Salafis could be giving the Jihadis. A consequence of Prince Naif’s efforts has been the rapid undermining of the Crown Prince’s efforts to develop and modernize the country to ease the pressure of unemployment and neutralise its potential for fostering a social upheaval.

In 2002 and 2003 the Crown Prince actively promoted socio-political liberalisation. He increased participation in decision-making by the appointed parliament (the Majlis as Shura). To the dismay of some Salafis, he promoted a national dialogue between conservative clerics and merchants, women, Shi’as, Sufis and liberals. He has encouraged the press to be bolder. He promoted the discussion of controversial topics, such as the validity of the extensive segregation of men and women, the tolerance of non-Muslims and non-Wahabi Muslims and so forth. He even made a commitment to holding municipal elections. None of the changes implied actual divestiture of power, but at least they pointed in the right direction.

Unfortunately, after the Riyadh bombings of May and November 2003, the security forces, under the jurisdiction of the Minister of Interior, Prince Naif, halted the press’s strident criticism of the old-school Wahabis in mid-2003, arrested 14 leading liberals in March 2004 and allowed the conservatives to hijack the national dialogue between the traditionalists and women, liberals, Shi’a and Sufis. Hence, the liberalisation which gave hope to many Saudis that the royal dictatorship would gradually evolve into a more democratic monarchy has been thwarted by the conservatives with the excuse of fighting against terrorism. However, this indeed might help Prince Naif’s claim to be the true heir of the Abdel Wahab/al Saud agreement.

One of the perverse results of the present violence is that most Saudis appear to be appalled by the Jihadis’ tactics. The indiscriminate bombing of housing compounds and the slaughtering of foreigners is shocking to a society which is in touch with the rest of the world.

Therefore, perhaps the royal family’s policy of placating the old-school Salafis while the population as a whole is turning away from the Jihadis might limit the growth of terrorism. On the other hand, it endangers the development of a modern society and economy, which in the long run is likely to increase the support for the Jihadi movement.

Leadership Issues
Saudi Arabia could be described as a dictatorship managed by a democracy: the royal family works by consensus but its rule is absolute. However, this implies that without a charismatic leader, the royal family is unable to make tough choices that might reduce its overall power but protect it in the long term. For instance, power sharing with an elected national assembly would undoubtedly remove many of the royal family’s prerogatives, but it would allow it to limit the tensions with the rest of the population.

King Fahd is very ill but only he can deal with the various family interest groups and reach a consensus. Prince Abdullah, who has influence and charisma, is not yet King and cannot promote his own agenda without obtaining the full support of the other leading princes in the family, namely Prince Naif and Prince Sultan, who would like to ensure that they are guaranteed their next turn in power.

Most Saudi observers feel that Prince Abdullah is sure to be acclaimed King when King Fahd dies (if he dies before him). The main race among the senior members of the family is for the position of next Crown Prince. It appears that before Jihadi violence erupted Prince Abdullah’s goal was to promote economic growth through political participation, albeit on a very limited scale. Hence he had the full support of both liberals and elites. However, Prince Abdullah’s priority is to ensure that that the unity and primacy of the family is preserved at all cost. Thus, rather than risk a major rift with the royal family, Prince Abdullah has let Prince Naif and his followers court the Salafis at the expense of the liberals, the educated elites and the more liberal senior princes.

It seems that the royal family has decided that the ‘liberals’ will fall in line for fear of the Jihadis and the potential chaos they represent. However, they are also alienating the increasingly large and sophisticated part of the population which can help to bring the country into the 21st century. Undoubtedly, without decisive and charismatic leadership to unify the country and move it forward, the courting of the Salafis by senior princes such as Prince Naif could spell disaster for the country and its current leadership.

Relations with the US
One of Saudi Arabia’s main concerns today is its relationship with the US. Since the days of President Roosevelt, the US has been the kingdom’s main foreign diplomatic and military supporter. Of course, oil has always been a key component of the relationship, but a common interest against the old communist threat as well as numerous close personal relations between US-educated Saudi elites and American citizens, universities and companies have also played a part. However, the increasing weight of pro-Israeli neo-conservatives in Washington, the killing of 3,000 Americans by 15 Saudi attackers on 9/11, the growth of al Qaeda, the Al-Khobar tower bombing, among other factors, have led the US political establishment and much of the press to turn against Saudi Arabia. Some members of the US Congress actually wondered if ‘we had invaded the wrong country’ by attacking Iraq, when perhaps it should have better to aim for Saudi Arabia.

In return, the vast majority of Saudis have become strongly anti-American. They complain bitterly, in public and in private, from princes to taxi drivers, that the US supports the enemies of Islam, oppresses the Palestinians and the Iraqis, violates the basic human rights of Moslems in Guantanamo and elsewhere, stops innocent students from studying in the US and prevents Saudis from obtaining medical treatment in the US.

Cooperation still exists at the government level. The Saudis, under intense US pressure, have made great efforts in limiting the funding of terrorist activities. They have issued and enforced drastic banking regulations on fund transfers and they have brought the activities of Saudi Islamic charities under strict control. However, the relationship is a ‘strictly business’ affair based on what the Saudis consider their best interests, with no efforts being made to favour an old friend.  The US can no longer count on Saudi Arabia increasing its oil production to ease the stress of high oil prices and US firms cannot expect special advantages as regards large-scale arms or supply contracts.

The Saudis today do not see any threats that would require US help. They have established good working relations with Iran. Iraq has not been perceived as a threat since the invasion of Kuwait and its subsequent defeat. Its other neighbours, such as Syria and Yemen, are too weak or preoccupied to be of any worry. On the other hand, vocal criticism of the kingdom in the US Congress and the Wall Street Journal, the large US presence in Iraq, Bahrain and Qatar and the criticism in early 2004 of Saudi management of its oil reserves has given rise to fears of American intervention in the kingdom. In other words, the Saudis fear their former ‘protector’ more than they fear any potential outside threat. As a result, the Saudis are improving their relations with Iran and developing relationships with India, China, Japan and the European Union. Furthermore, the US would be very unlikely to help the present leadership overcome an uprising against it.


The Saudi leadership is undoubtedly suffering from age-induced sclerosis. It seems to be unable to react rapidly and efficiently to the challenges of unemployment and terrorism. It seems to have sacrificed the first hopes of power-sharing and socio-political modernisation to ensuring the royal family’s cohesion. Furthermore, it can no longer count on being bailed out by the US; on the other hand, it fears the risk of being overthrown by some of the elements now in power in Washington.

Still, the senior princes have always managed to retain their position as arbiters of the various trends in the kingdom. They still control very large security apparatuses. They have been blessed by unusually large oil incomes which provide them with great power of co-optation in society.

To survive the present leadership must adapt. Certainly, the present generation of senior princes and the King will rapidly be replaced, if only because of their age. However, for the sake of the country’s stability, and indirectly for that of the world’s economies, the change should be made from within and not be imposed by terrorists or by a foreign power.

The royal family needs to continue the process initiated by Prince Abdullah in 2002. It must allow the civil service and the educated elite to develop a modern and stable society, which can lead to the development of a vibrant Saudi-dominated economy. This is likely to happen only if the family is willing or able to limit its own power and accept equality under the law.

Time, however, is the key in the present situation. The terrorist threat can only increase if the basic aspirations of the people are not met. The present regime has lost its friends among the educated elite, it has lost the support of the US and is unable to provide jobs for the country’s youth. Hence, the coming year will be critical for the Saudi regime. Should it not act now to organize its leadership and start sharing power with society it might face insurmountable challenges with major consequences for the rest of the world.

Jean-François Seznec
Georgetown University
Columbia University

(1)Salafi means ancestor of Islam [Eickleman and Piscatori, Muslim Politics, Princeton University Press, 1996 p.34]. Hence, Salafism is the school of Islamic thought which follows the teachings of the direct followers of the Prophet.
(2)  The word totalitarian is used here in the sense of a take-over of a person’s entire being. Salafi ideology, similarly to the communist and fascist ideologies of the 20th century, seeks the complete surrender of one’s personality to the cause: in this case the cause of establishing a puritan form of ‘true’ Islam in the world.
(3) Survey by the Saudi National Assessment Project, reported in The Herald Tribune, Paris, 28/VI/2004.
(4) Speech at the World Affairs Council by Salim Al-Aydh, Senior Vice-President and Board Member of Aramco, 23/VI/2004.
(5) Saudi Arabia’s population of 16 million, excluding foreigners, is growing at 3.2% per year, ie, 512,000 new Saudis are born every year. Growth is actually skewed towards the very youngest generation, so we can estimate that only 200,000 young Saudi males come into the labour market each year.
(6) This figure is deduced from statistics from the Ministry of Labour, according to which US$60 billion were invested in industry in Saudi Arabia, creating directly and indirectly 300,000 jobs, ie, US$200,000 per job.
(7) The new law permits 100% foreign ownership, has cut taxes on foreign companies’ profits to 20% from 50% and allows foreign companies to own property in the kingdom.