When the Well Runs Dry: How cheap oil threatens Saudi Arabia’s political stability

Fearing the repercussions of plummeting oil prices at home and the war in neighboring Yemen, Saudi Arabia is taking precarious measures to maintain the House of Saud’s political stability.

Saudi Arabia commenced the new year by executing Sheik Nimr al Nimr, a prominent Shia figure. Sheik Nimr, who demanded free elections and the upholding of Shia rights, was accused of taking up arms against security forces. Al Nimr’s execution symbolizes the House of Saud’s latest effort to stifle political opposition both in and around the desert kingdom, especially from its historically persecuted Shia minority. It also coincided timely with Saudi Arabia’s announcement ending a ceasefire in the war in Yemen. And oil subsidy cuts.

With al Nimr’s execution and the continuing war in Yemen, Saudi Arabia aims to goad Shia-powerhouse Iran, exacerbating Sunni-Shia sectarian tensions across the Middle East. Saudi Arabia is using sectarian lines to bolster support from its domestic Sunni majority and its neighboring Sunni majority states, augmenting monarchical loyalty and distracting the population from the kingdom’s economic and geopolitical challenges. As the grievances of the disenfranchised Shias and citizens disgruntled with the failing war and waning economy materialize, the House of Saud is rallying around the flag to buy some time.

Saudi Arabia relies predominantly on Sunni Islam to maintain its authority. Home to the birthplace and two holiest sites of Islam, the legitimacy of the royal family depends foremost on its ultra-conservative Wahhabi credentials. In the oil-rich eastern and southern provinces of Saudi Arabia, however, several Shia majority areas resent the monarchy.

The Shia minority has maintained the same umbrage for decades. The Saudi government excludes them from the top levels of the economy and partaking in state affairs. There has never been a Shia minister in Saudi Arabia. With the monarchy preaching that Shias are non-believers and continuously marginalizing Shia regions, it is no surprise that the execution of al Nimr has perturbed the ostracized Shia minority.

If religion does not silence opposition, money does. The Saudi royal family has often used its sizeable oil revenues to mute political opposition through economic incentives. Most notably, substantial oil subsidies have maintained oil prices at 49 cents a gallon at the pump, and the Saudi royal family has displayed its aptitude for investing in public works and welfare programs. During the Arab Spring uprisings in 2011, then-King Abdullah even conferred citizens with an extra $130 billion to subdue civil unrest. But as the price of oil now sinks to a 12-year low at $30 USD, forcing the oil dependent monarchy to run abudget deficit at $87 billion this year, King Salman has decided to implement a risky austerity measure: eliminate energy subsidies.

By cutting subsidies to combat the massive oil supply glut in the global market, Salman aims to prevent the exhaustion of Saudi Arabia’s considerable reserves, which are currently being used to protect its exchange rate regime. Central Bank reserves dropped from 735 billion to 635 billion last year alone – a pace that could dissipate the monarchy’s fiscal buffers in five years. As both Shia opposition and royal dissenters begin to lose their subsidies, and the future of oil prices remains in question, the House of Saud’s credibility and political stability may be in jeopardy.

Saudi Arabia’s struggle for influence in neighboring countries also presents an obstacle for the stability of the monarchy. The Sunni kingdom’s brutal military bombardment in neighboring Yemen against the Houthis, an Iran-backed Shia rebel group, has done nothing more than create a humanitarian catastrophe and soil the Arabian Gulf Markets. With the geopolitically-inspired expedition demanding increasing costs, dissenters of the royal family are expressing their displeasure with King Salman’s spending spree during the oil price plunge.

Saudi Arabia’s continuous involvement in the Yemeni War resembles its fear of a Shia presence on its borders, or in other words – Iran’s influence. If Houthi forces establish themselves on Saudi Arabia’s southern border, not only would Iran be in Saudi Arabia’s backyard, but fighters and arms could also spill over into the kingdom and incite rebellion in adjacent Shia majority provinces. Similarly, in Bahrain, nighttime clashes between Shia protestors and anti-riot police echo the uprisings in 2011 that Saudi Arabia helped quell in Bahrain’s capital using tear gas, rubber bullets, and birdshot. Saudi Arabia fears that the end of a Sunni kingdom in Bahrain could create a similar spillover. A rebellion in Shia-majority Eastern Province, which borders the archipelago Kingdom of Bahrain, could disrupt Saudi Arabia’s oil production, placing the monarchy on the brink of internal collapse.

It is no coincidence that the slash of oil subsidies timely coincided with the execution of Al Nimr and the end of a ceasefire in Yemen. But by further polarizing the rival sects of Islam to strengthen Sunni loyalty to the ancestral monarchy, Saudi Arabia is failing to address the real problem: its economy. Sectarian rhetoric will only infuriate the Shia minority in Saudi Arabia, and the encumbering costs of war in Yemen will only exasperate the citizens who see the monarchy prioritizing war over their livelihoods. Sunni loyalty is a strong defense, but may not be sustainable. If low oil prices continue to exhaust Saudi Arabia’s reserves and the monarchy continues to aggrieve the Shia minority, the House of Saud may soon witness the resurgence of resistance similar to that of the Arab Spring uprisings. As long as the monarchy fails to address its economic problems, the wane of the House of Saud will continue.