Shuji Hosaka: What is Happening in Saudi Arabia Now?

In June last year, King Salman of Saudi Arabia dismissed his nephew, Crown Prince Muhammad bin Nayef (MbN), and promoted his own son, the young Deputy Crown Prince Muhammad bin Salman (MbS), born in 1985, to the position of Crown Prince.

One could simply call it doting parenthood, but in fact, rumors had been circulating plausibly within the industry since immediately after Salman's accession to the throne that this would eventually happen.

MbS is also known as "Mr. Everything." This reflects the fact that he holds almost all power. To name just the main ones, he is the Crown Prince, Deputy Prime Minister, Minister of Defense, Chairman of the Council for Political and Security Affairs, Chairman of the Council for Economic and Development Affairs, Chairman of the Supreme Council of the state-owned oil company Saudi Aramco, Chairman of the Public Investment Fund, and Chairman of the MiSK Foundation, a private foundation.

Of course, Saudi Arabia is an autocracy with the King at its apex, and no one can go against the King. However, the King is over 80 years old, and it is said that his physical and mental decline has become noticeable. MbS is the King's favorite son, and it could be said that, in effect, the King has moved into a supporting role for the policies being rolled out one after another by the young Crown Prince.

MbS first drew significant international attention when he inherited the position of Minister of Defense from his father. Just to the south of Saudi Arabia, in Yemen, the Houthi Shia armed group had ousted the legitimate government from the capital, and chaos was mounting. The young Minister of Defense, acting on a request from the legitimate government, collaborated with the United Arab Emirates (UAE) and others to organize an Arab-Islamic coalition and launched military attacks against the Houthis and the supporters of former President Saleh, who were backing the Houthis.

However, far from improving, the situation has only become more chaotic since then, with no sign of a solution in sight. Late last year, a clash occurred between the former President and the Houthis, who were supposed to be fighting together, and the former President was killed by the Houthis. On the side of the legitimate government, the Southern Transitional Council, which had been in a coalition, defected and seized control of Aden, a major southern city that was the base of the legitimate government. With terrorist organizations like Al-Qaeda and the "Islamic State" also joining in, Yemen looks like a scene from the Warring States period.

Saudi Arabia believes it has a just cause, as it is conducting military attacks based on a request for support from the legitimate government and in accordance with UN Security Council resolutions. However, it has also faced international condemnation because the Arab coalition's attacks on the Houthis have resulted in many civilian casualties.

Militarily, it is a seesaw battle, but in reality, it is a quagmire. Amid low oil prices, the military attacks in Yemen have become a serious financial burden for Saudi Arabia.

The chaos in Yemen is often described as a proxy war between Saudi Arabia and Iran. The view is that Saudi Arabia and the UAE support the Sunni-centered legitimate government, while Iran supports the Shia Houthis.

While this view is not incorrect, emphasizing only the sectarian conflict of Sunni versus Shia within it risks being misleading. Fundamentally, it should be seen as a struggle for hegemony between Saudi Arabia and Iran in the Middle East. For both parties, sect is a card that can be used relatively freely, but it is by no means absolute.

The situation is no different in Syria, where chaos continues. While Iran supports the Assad regime, Saudi Arabia supports anti-Assad forces, excluding terrorist organizations. And in Syria as well, as the superiority of the Assad regime supported by Iran becomes clear, the forces supported by Saudi Arabia are clearly at a disadvantage. Here, too, Saudi Arabia is being pushed back.

It is surprisingly little known, but from the 1990s to the early 2000s, Saudi Arabia had good relations with Iran. However, when a Shia government was established in Iraq following the 2003 Iraq War and Iran's influence gradually expanded in the Arab world, relations between the two countries began to tense. When suspicions about Iran's nuclear program came to light, the confrontation deepened further, and the media of both countries began exchanging accusations. Ultimately, in January 2016, the two countries severed diplomatic ties following the execution of a Shia cleric in Saudi Arabia.

At that time, the United States was under the Obama administration, which had begun to adopt a conciliatory policy toward Iran. This was also a factor that irritated Saudi Arabia. However, when the Trump administration came to power in the U.S. and shifted policy toward an anti-Iran stance, Saudi-U.S. relations entered a new honeymoon period, despite Trump having criticized Saudi Arabia during the presidential campaign.

Though perhaps not exactly a byproduct, one often hears rumors that Israel, which similarly takes a hardline stance against Iran, is approaching Saudi Arabia. While the possibility of unofficial contact cannot be denied, official relations would carry too much risk for Saudi Arabia. In fact, when President Trump recognized Jerusalem as the capital of Israel and announced the relocation of the embassy, Saudi Arabia harshly criticized the U.S. decision.

Even more complicated is the relationship with Qatar. Qatar is a member of the GCC, just like Saudi Arabia, and is an ally. However, four countries, including Saudi Arabia and the UAE, suddenly severed diplomatic ties with Qatar in June last year. The reasons cited include Qatar's support for "terrorist organizations" such as the Muslim Brotherhood, its proximity to Iran, and its use of the satellite broadcaster Al Jazeera to attack neighboring countries, but the exact details remain unclear.

In any case, from Saudi Arabia's perspective, the Qatar crisis is a trivial matter and is currently being left on the shelf. However, from the perspective of Japan, which imports more than 60% of its oil from Saudi Arabia and the UAE and nearly 20% of its natural gas from Qatar, the conflict between the two is a major headache. Foreign Minister Kono has been actively trying to mediate, but there are no signs of a resolution.

Saudi Arabia is a so-called "rentier state," where income from oil exports accounts for the majority of national revenue. Based on vast oil revenues, many Saudis are high-paid civil servants or employees of state-owned enterprises; fuel costs like gasoline and basic food items are heavily subsidized; and public schools are free from elementary school through university. Various other government services are also provided for free or at low cost.

All of this is possible only because of oil. If oil runs out, this country, which has no significant industries, would collapse instantly. Furthermore, because revenue depends on oil prices, if oil prices fall, it immediately leads to a fiscal deficit. Moreover, in recent years, rivals such as shale have appeared, and oil, which emits CO2, already has a bad reputation due to global warming. With the shift to EVs progressing mainly in developed countries, oil might stop being used even before it runs out.

A few years ago, the theory of "peak oil" was a hot topic in the industry, but this was purely a concern about the peak of supply. What is being questioned now is the peak of demand. The age of oil is about to end with vast amounts of oil still left underground.

Furthermore, Saudi Arabia is facing a time bomb of population growth. If the population increases and domestic energy consumption expands, the oil available for export will decrease. There are even estimates that if the population continues to grow at this pace, Saudi Arabia will fall to the status of an oil importer by 2038. Moreover, if oil prices fall and spending is cut, it is inevitable that employment for the younger generation will shrink. Breaking away from oil dependency is now an urgent matter.

Based on this recognition, MbS announced a new socio-economic reform project, "Saudi Vision 2030" (hereafter abbreviated as SV), in 2015.

As the name suggests, SV targets the year 2030, but its seriousness can be seen in the fact that it sets goals with specific figures, such as lowering the unemployment rate, increasing the employment rate for women, raising the private sector's share of GDP, and significantly expanding non-oil revenue.

While it aims to become a normal country that does not depend on oil, it is not possible to suddenly throw Saudis, who are used to a comfortable environment, into the jungle. For the time being, the goal of becoming an "investment powerhouse" has been set. However, funds are needed for this, and to raise them, plans have been revealed to list Saudi Aramco. It is said that only 5% of all shares will be listed, but even so, optimistic figures like a total of 100 billion dollars are being touted.

However, there is a strong religious and emotional allergy to foreign capital entering oil, which is the foundation of the nation. In fact, SV includes many "reforms" that are incompatible with traditional Saudi Arabian values.

Even without this, there are many members of the royal family who oppose MbS, who leaped over many older princes to reach the position of the next King. There are likely a considerable number of people dissatisfied with his policies. At present, MbS is suppressing such potential opposition by force, including arresting and detaining them. It is not just the royal family. To realize SV, MbS is expanding investment in the entertainment sector and actively promoting the expansion of women's rights. This includes holding festivals for anime and manga (Comic-Con), holding concerts, lifting the ban on women driving, and allowing women to watch sports matches in stadiums. The fact that such obvious things were not allowed would be a surprise to most people. However, in this country, the conservative religious class had effectively banned these based on their own interpretation of Islam.

MbS's policy of cultural liberalization has overwhelming support from the younger generation and has so far suppressed the counterattack from the conservative class. However, if the situation in Yemen worsens or if the structural reforms under SV do not go well, criticism of MbS will likely intensify. Yet, if those reforms fail, the very survival of Saudi Arabia as a nation will be at risk. For Japan, which relies on Saudi Arabia for oil, the chaos in this country is not someone else's problem.

*Affiliations and titles are as of the time of publication.