The crumbling House of Saud Unrest: Saudi Arabia's rulers sit atop the world's largest family business. But the business is shaky and the pie it has to split up is shrinking.

June 30, 1996|By Jim Rogers

WE'RE ALL IN LUCK: Late last year the scholarly United Nations published "World Economic and Social Survey 1995," a learned paper that confidently predicts that the supply of the world's most important commodity will meet demand precisely during the next 15 years and that prices will remain comparable to today's levels -- and may even decline.

We're talking, of course, about oil.

If it comes to pass, the U.N. forecast is certainly welcome news for the West. We'll be able to buy gasoline at today's prices -- lower than they were in the 1950s when adjusted for inflation -- through the year 2010.

We can continue snapping up Chevy Suburbans without going bankrupt at the pump. And we can put off fretting about things like alternative fuels and hand-pushed lawn mowers.

So what if the United States imports 8 million barrels of oil a day out of the 20 million it consumes? The stuff is cheap -- dirt cheap.

Before we celebrate, though, let's consider a place where much of the world's black syrup comes from. What about Saudi Arabia, the world's largest oil producer?

The size of the United States east of the Mississippi, Saudi Arabia sits on 25 percent of the world's proven oil reserves -- 260 billion barrels.

Yet for all of its strategic importance, we only hear about this mysterious place when there is trouble: the oil shocks of the 1970s and early 1980s, the Persian Gulf war and now, terrorism aimed at U.S. troops, the most recent incident occurring last week when a truck bomb exploded outside a housing complex in Dhahran, killing 19 Americans.

What might happen to this critically important country if oil prices are flat or decline during the next 15 years?

Back in 1981, it was as if the whole of Saudi Arabia -- all 10 million of the nation's inhabitants -- had won the lottery. The gross national product reached $16,010 per resident that year, up from $2,130 in 1973.

Saudis began receiving unlimited free telephone service and free medical care. Water, electricity, gasoline (naturally), and domestic air fares were all subsidized by the government.

Each Saudi prince got a minimum monthly allowance of $20,000, even as the number of princes swelled to 6,000. King Fahd bought scores of M-60 tanks, Patriot missiles, and F-15 fighters, C-130 transports, and AWACS planes.

At the time, Western scholars proclaimed that a permanent shift in the world's wealth was under way. Oil would soar to $100 a barrel, and shortly we, who import half our oil, would be forced to drive vehicles the size of bumper cars.

The take on Saudi Arabia: incredibly rich, incredibly stable (because the royal family was in complete charge), a huge ally of the United States (our most valuable ally in the Middle East), and soon to be our largest creditor.

Winning the lottery isn't always a blessing. If you're a self-made entrepreneur who's put a business together brick by brick, friends and relatives don't necessarily assume they deserve a share of the spoils.

But work a modest job, win $20 million in the lottery, and the world feels as though it's as entitled to your oysters as you are. After all, you didn't sweat for the money, did you?

All of King Fahd's friends and family arrived with their hands out. The 6,000 princes (a bunch of whom were unemployed) had wives and children, aunts and uncles, nieces and nephews. Could Fahd forget that King Faisal had been assassinated by a nephew in 1975?

There was so much money it was easy to try to appease all of the demands for handouts -- and for over 12 years, Saudi Arabia has run a budget deficit trying to meet those demands.

Forgotten in the hysteria over hydrocarbon, however, were the laws of supply and demand. Westerners began to drive smaller cars, adjust their thermostats, and buy energy-efficient appliances and equipment. So the demand for oil slowed.

Meanwhile, high prices triggered an exploration and drilling boom. So the supply increased. There was only one possible outcome: lower prices.

Now, 15 years later, the pressure on Saudi Arabia is severe. Per capita GNP is less than half of what it was in 1981. The budgets of the Ministries of Education and Health have been cut. The water shortage is a disaster in the making.

According to Said K. Aburish's "The Rise, Corruption and Coming Fall of the House of Saud," the kingdom's real international debt, including off-balance sheet items, now totals more than $60 billion.

At the rate Saudi Arabia is sinking into the sand, that figure could rise to $100 billion by 1997.

To my amazement, even the religious ulemas, long silent, have begun to protest the corrupt and profligate ways of the monarch and his huge and overgrowing family. They were particularly galled in 1987 when Fahd gave $300 million in spending money to his 14-year-old son.

To service its debt, Saudi Arabia must now do what it and many other OPEC countries don't want to do: pump more oil at ever-declining prices, thereby creating more supply, which will yet again drive down prices.

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