Summary: In our age some of the greatest conflicts see no shots fired, such as the oil price “war” begun by the Saudi Princes. Opinions differ about the eventual outcome. I say bet on the Saudis to win. But nothing is simple. Here regional expert Vijay Prashad sees the Saudi Princes making a foolish and serious mistake amidst the economic stress of the oil war and the pressure of running a theocratic monarchy in the 21st century.
A report forces Saudi Arabia to consider a future without oil
By Vijay Prashad from AlterNet, 4 May 2016
Reposted with his generous permission
Saudi Arabia is in serious trouble. The Binladin Group, the kingdom’s largest construction company, has terminated the employment of fifty thousand foreign workers. They have been issued exit visas, which they have refused to honor. These workers will not leave without being paid back wages. Angry with their employer, some of the workers set fire to seven of the company’s buses.
Unrest is on the cards in the Kingdom. In April, King Salman fired the water and electricity minister Abdullah al-Hasin, who had come under criticism for high water rates, new rules over the digging of wells and cuts in energy subsidies. The restructured ministry was to save the Kingdom $30 billion — precious money for an exchequer that is spluttering from low oil prices. Eighty-six percent of Saudis say that they want the water and electricity subsidies to continue. They are not prepared to let these disappear. They see this as their right. Why, they say, should an energy rich country not provide almost free energy for its subjects?
When King Salman took over last year, he inherited a kingdom in dire straits. Saudi Arabia’s Treasury relies upon oil sales for over 90% of its revenue. The population does not pay tax, so the only way to raise funds is from oil sales. As oil prices fell from $100/ barrel to $30/barrel, oil revenues for the Kingdom collapsed. Saudi Arabia lost $390 billion in anticipated oil profits last year. Its budget deficit came to $100 billion — much higher than it has been in memory. For the first time since 1991, Saudi Arabia turned to the world of private finance to raise $10 billion for a five-year loan. That this country, with a vast sovereign wealth fund, needs to borrow money to cover its bills is an indication of its fragile fundamentals.