v

B E L F E R C E N T E R PA P E R

Saudi Arabia
in Transition
From Defense to Offense,
But How to Score?
Karen Elliott House

SENIOR FELLOW PAPER

JULY 20 17
Belfer Center for Science and International Affairs
Harvard Kennedy School
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Cambridge, MA 02138

www.belfercenter.org

Statements and views expressed in this report are solely those of the author and do not imply

endorsement by Harvard University, Harvard Kennedy School, or the Belfer Center for Science

and International Affairs.

Design & Layout by Andrew Facini

Cover photo and opposite page 1: Deputy Crown Prince Mohammed bin Salman arrives at the

Hangzhou Exhibition Center to participate in G20 Summit, Sunday, Sept. 4, 2016 in Hangzhou,

China. (Etienne Oliveau/Pool Photo via AP)

Copyright 2017, President and Fellows of Harvard College

Printed in the United States of America

B E L F E R C E N T E R PA P E R

Saudi Arabia
in Transition
From Defense to Offense,
But How to Score?
Karen Elliott House

SENIOR FELLOW PAPER

JUNE 20 17
About the Author
Karen Elliott House is a senior fellow at the Belfer Center and author of
“On Saudi Arabia: Its People, Past, Religion, Fault Lines—and Future,”
published by Knopf in 2012.  During a 32 year career at The Wall Street
Journal she served as diplomatic correspondent, foreign editor and finally
as Publisher of the paper.  She won a Pulitzer Prize for International
Reporting in 1984 for her coverage of the Middle East. She is chairman of
the RAND Corporation.

Her April 2016 report on Saudi Arabia, “Uneasy Lies the Head that Wears
a Crown,” can be found at the Belfer Center’s website:
http://www.belfercenter.org/publication/uneasy-lies-head-wears-crown

The author, above, in rural Jizan Province in April 2009 with an elderly farmer and some of
his 35 children (from three wives) and 30 grandchildren.
Table of Contents
Introduction.................................................................................................................1

Two Big Unknowns..................................................................................................... 3

Reform Is Possible, If Only Because Necessity Makes it Inescapable.................. 8

Year One: Shock, But Not Yet Awe.......................................................................... 10

Year Two: Social Change Leads the Way................................................................ 13

Economic Reform is Lagging................................................................................... 19

Aramco: The Privatization of the Century?...........................................................24

Nasty Neighborhood, but the U.S. is Back............................................................. 27

Royals Resigned.......................................................................................................32

Conclusion................................................................................................................36
Introduction
Saudi Arabia is like an obese man disfigured from decades of gluttony
and idleness. Dieting is painful given his body’s cravings. Even the
small exertion of walking is more unpleasant. And the inability to
imagine that his sacrifice and suffering eventually will lead to good
health makes it easy to revert to old habits. If, however, he will just
push through the pain, good health and a better life are attainable.

This metaphor, offered by a senior Saudi minister, is the best way to

understand the titanic struggle Saudi Arabia confronts as it seeks to
wean itself off decades of dependence on oil wealth. It’s not the first
time the Kingdom has tried to diet. Promises to transform the Saudi
economy from oil are almost as old as its half century of dependence.
So, not surprisingly, the Saudi people continue to assume something
will turn up to extend their idle but ample lives. And, thus far it always
has. But almost surely not this time.

So, this latest government transformation plan known as Vision 2030

calls for nothing short of a societal revolution. Out with government
dependence; in with self-reliance. Out with conservative anti-modern-
ist Wahhabi dogma and in with moderation. “Our vision is a strong,
thriving and stable Saudi Arabia…with Islam as its constitution and
moderation as its method,” is how the plan was described in April 2016
when unveiled by its architect, Mohammed bin Salman, the 31-year-
old son of the Saudi King.

If, as promised, the economy is to be privatized, Saudi companies

and citizens will need to become much more nimble and efficient to
compete globally and survive. That suggests the elimination of conser-
vative religious constraints like forced closing of shops multiple times
a day for 45 minutes to observe prayers which require no more than
10 minutes, and the end to rigid segregation of men and women in the

Belfer Center for Science and International Affairs | Harvard Kennedy School 1
 workplace. The risk that conservative Saudis balk and then simply refuse to
change, precipitating social instability in the Gulf ’s most strategic nation,
is definitely there. But the regime launched Vision 2030 precisely because
it fears a prolonged fall in oil revenues that began in 2014 will lead soon to
precipitous declines in the livelihoods of Saudis who then, with nothing left
to lose, may destabilize this nearly three century-old monarchy. Pick your
poison.

So far, Saudis only have been forced to consume a little less—to diet. The
more difficult and painful phase of actually resculpting the national body
to build muscle and shed fat—to make citizens self-reliant rather than
dependent on government largesse—is still to come. Yet even a modest
amount of imposed dieting—reduced government subsidies for water, elec-
tricity and energy—has provoked citizen complaints. A tougher measure
to reduce salaries and benefits of government employees (60% of working
Saudis are employed by government) was reversed within six months after
persistent citizen protests on social media.

As the transformation plan enters its second year, much undeniably is

changing. But almost all the change is social, not economic—and surely
not political.

The government has sought to distract Saudis from the pain of change by
opening up a wide variety of heretofore banned entertainment events like
music concerts, wrestling matches and a Comic Con where young Saudis
dress as their favorite cartoon characters, something heretofore regarded
as frivolous and forbidden. A royal decree also has banned the religious
police, who long roamed streets enforcing Wahhabi restrictions on veiling
and separation of the sexes, from arresting citizens for such indiscretions.
But the hard work of privatizing the economy—and, equally hard, per-
suading citizens that privatization isn’t just a way to make the rich richer
and purloin the patrimony of the people—remains to be done. The existing
private sector in Saudi Arabia relies on cheap foreign labor: 90% of workers
are foreigners. Retooling to employ more expensive and often untrained
Saudi labor will require wrenching changes for both business and Saudi
citizens not accustomed to performing or losing their jobs.

2 Saudi Arabia in Transition: From Defense to Offense, But How to Score?

Relative to any of its neighbors or indeed to any other Arab country in
the Middle East, Saudi Arabia maintains a high degree of stability and,
even in reduced circumstances of lower oil prices, prosperity. The greatest
advantage the regime has going for it as it subjects citizens to the pain of
economic change is precisely that comparison. Saudis can merely look at
neighboring Yemen, Syria, or Iraq, all engulfed in bloodshed and chaos, to
count their relative blessings.

Still, like citizens of any other society, Saudis rue the change in their
pocketbooks more than they appreciate their relative good fortune vis a vis
neighbors. Thus, seeing benefits reduced and being asked to work harder
constitutes real pain for citizens who for generations have lived off govern-
ment dole and worked very little. Even worse for Saudis is the anxiety of
anticipating still further, as yet undefined, changes.

Two Big Unknowns

As the first anniversary of Vision 2030 passes, two big unknowns have
dominated discussion in the Kingdom: Will the government have the
courage to stick to its reform plans when the going gets tougher? After all,
a social media threat of a street protest in Riyadh quickly brought a royal
decree in April restoring those salary and benefit cuts imposed on govern-
ment workers last October. For some Saudis, this was a sign that reform
plans were poorly thought through and thus should be shelved; for others,
it was a sign that government listens to people—and thus can be pushed
further in the future. Either interpretation only deepens the Kingdom’s
inertia.

The second and even larger unknown was this: Would Prince Mohammed
bin Salman, the undisputed architect and chief cheerleader of Vision 2030,
retain power and thus the ability to push his reform plans once his 81-year-
old father, King Salman, died? That uncertainty has been removed by his
elevation in June to Crown Prince. Indeed, it is possible that the Crown
Prince soon will persuade his elderly father to step aside and install him as
King to assure the ascension takes place.

Belfer Center for Science and International Affairs | Harvard Kennedy School 3
 After all, the last two designated crown princes have been removed. And
once King Salman dies, his power over the fractious family dies too.
Although 31 of the 34 senior princes on the Allegiance Council, which
represents each of the direct male descendants of King Abdulaziz Al Saud,
acquiesced with the request of their king to elevate his son, many royals
remain unhappy with the young prince and could seek at the King’s death
to make MBS the third crown prince to fall short of becoming king. Other
royal family members oppose not only the ambitious reform agenda but
also his harsh treatment of Crown Prince Mohammed bin Nayef, 57, whom
he confined to suppressing terrorist threats in the Kingdom while MBS—
known as “Mr. Everything”—ran the economy, defense and Saudi Aramco,
the national oil company that funds the government.

Deputy Crown Prince Mohammed bin Salman waves as he meets with Philippine
President Rodrigo Duterte in Riyadh, Saudi Arabia, April 11, 2017 (Bandar Algaloud/
Courtesy Saudi Royal Court/Handout)

4 Saudi Arabia in Transition: From Defense to Offense, But How to Score?

Current Members of the
Allegiance Council
Sons of founder King Abdulaziz *
Abdulrahman bin Abdulaziz
Mutib bin Abdulaziz
Abdulilah bin Abdulaziz
Mamdouh bin Abdulaziz
Mashhour bin Abdulaziz
Mugrin bin Abdulaziz

Grandsons and Great Grandsons of Abdulaziz **

Abdullah bin Faisal bin Turki bin Abdulaziz
Bander bin Saud bin Abdulaziz
Khalid bin Faisal bin Abdulaziz
Badr bin Mohamed bin Abdulaziz
Faisal bin Khalid bin Abdulaziz
Mohamed bin Nasir bin Abdulaziz
Mohamed bin Saad bin Abdulaziz
Talal bin Mansour bin Abdulaziz
Mohamed bin Fahd bin Abdulaziz
Faisal bin Bander bin Abdulaziz
Bander bin Musaad bin Abdulaziz
Khalid bin Abdullah bin Abdulaziz
Saud bin Abdulmuhsin bin Abdulaziz
Khalid bin Sultan bin Abdulaziz
Khalid bin Talal bin Abdulaziz
Mohamed bin Mashari bin Abdulaziz
Fahd bin Badr bin Abdulaziz
Fahd bin Turki bin Abdulaziz
Abdulaziz bin Nawaf bin Abdulaziz
Saud bin Nayef bin Abdulaziz
Mohamed bin Salman bin Abdulaziz
Mishaal bin Majid bin Abdulaziz
Faisal bin Thamir bin Abdulaziz
Abdulaziz bin Sattam bin Abdulaziz
Nayef bin Ahmed bin Abdulaziz
Abdulaziz bin Hazloul bin Abdulaziz
Faisal bin Abdulmajeed bin Abdulaziz

* Four other surviving sons of Abdulaziz do not serve on the Council. They are King Salman, Bandar, Talal,
and Ahmed. Each of them is represented by one of their sons.

** This list lacks one member: a son of Prince Mishaal bin Abdulaziz who died in May 2017.

Reportedly, the three princes who voted against Mohammed Bin Salman becoming Crown Prince were:
Ahmad bin Abdulaziz, Mohammed bin Saad bin Abdulaziz and Abdulaziz bin Abdullah bin Abdulaziz
representing his brother Khalid bin Abdullah.

Belfer Center for Science and International Affairs | Harvard Kennedy School 5
 The New Generation of Rising Princes
Appointed by King Salman in June 2017
Mansour bin Mugrin bin Abdulaziz
Deputy Governor of Asir
Second youngest son of Prince Mugrin Bin Abdulaziz, former Chief of Saudi Intelligence
Agency and former Crown Prince removed by King Salman in 2015.
Prince Mansour is a grandson of the founder King Abdulaziz.

Saud bin Khalid bin Faisal bin Abdulaziz

Deputy Governor of Medina
Youngest son of Khalid Bin Faisal, who is the currently Governor of Mecca, appointed by
King Salman in 2015 and the former Governor of Asir and former Minister of Education.
Prince Saud is a grandson of the late King Faisal and a great grandson of King Abdulaziz.

Mohammed bin Abdulaziz bin Mohammed bin Abdulaziz

Deputy Governor of Jazan
Son of Abdulaziz bin Mohammed and a grandson of Mohammed bin Abdulaziz. 
Mohammed bin Abdulaziz was the older, full brother of the late King Khalid.  Mohammed
was passed over for succession, which he accepted as his brother Khalid became crown
prince (1965) and king in 1975 following the assassination of King Faisal. Mohammed is the
prince famous also for demanding the beheading of his granddaughter (immortalized by
the BBC in Death of a Princess) for an illicit love affair.
Prince Mohammed is a great grandson of King Abdulaziz.

Mohammed bin Abdulrahman bin Abdulaziz

Deputy Governor of Riyadh
Son of Abdulrahman, who is one of the Sudairi Seven and thus an older full brother of King
Salman. Abdulrahman served as Deputy Minister of Defense from 1978 to 2011, but was
removed by King Abdullah when Abdulrahman objected to the promotion of his younger full
brother Nayef as Crown Prince.
Prince Mohammed is a grandson of King Abdulaziz.

Ahmad bin Fahd bin Salman bin Abdulaziz

Deputy Governor, Eastern Province
Youngest son of the late Fahd bin Salman, King Salman’s eldest son who died in 2001. Fahd
bin Salman served as Deputy Governor of the Eastern Province from 1986 to 1993 and then
went into private business in 1993.
Prince Ahmad is a grandson of King Salman and a great grandson of King Abdulaziz.

6 Saudi Arabia in Transition: From Defense to Offense, But How to Score?

Fahd bin Turki bin Faisal bin Turki bin Abdulaziz
Deputy Governor of Qassim
This prince is a descendent of Turki bin Abdulaziz, the founder’s first son born in 1900 and died in
1919.  He is referred to as Turki I to distinguish him from another Turki bin Abdulaziz born in 1931.
Prince Fahd is a great great grandson of King Abdulaziz.

Abdullah bin Bandar bin Abdulaziz

Deputy Governor of Mecca
Younger son of Bandar bin Abdulaziz, the eldest surviving son of King Abdulaziz. Abdullah’s older
brother Faisal bin Bandar was appointed as Governor of Riyadh by King Salman in January 2015,
replacing Turki bin Abdullah, who was appointed by his father King Abdullah in May 2014.
Prince Abdullah is a grandson of King Abdulaziz.

Turki bin Hazloul bin Abdulaziz

Deputy Governor of Najran
Hazloul, also spelled Hathoul, was one of Abdulaziz’s younger sons, born in 1941. He died in
2012, having never served in government.
Prince Turki is a grandson of King Abdulaziz.

Abdulaziz bin Fahd bin Turki II bin Abdulaziz

Deputy Governor of Al-Jouf
Prince Abdulaziz is a grandson of Turki II, one of the Sudairi Seven and thus a younger full
brother of King Salman. Turki II died in November 2016.
Prince Abdulaziz is a great grandson of King Abdulaziz.

Abdulaziz bin Saud bin Nayef bin Abdulaziz

Minister of Interior
Eldest son of Saud bin Nayef, currently Governor of the Eastern Province since his
appointment by King Abdullah in January 2013. Prince Abdulaziz’ grandfather is former
Crown Prince Nayef, who served as Minister of Interior from 1975 until his death in 2012.
Prince Abdulaziz’ uncle is former Minister of Interior and former Crown Prince Mohammed
bin Nayef, removed by King Salman in June 2017.
Prince Abdulaziz is a great grandson of King Abdulaziz.

Belfer Center for Science and International Affairs | Harvard Kennedy School 7
 Reform Is Possible, If
Only Because Necessity
Makes it Inescapable
Despite these myriad obstacles, this report, based on two prolonged trips
to the Kingdom last fall and this May, will argue there is a real chance for
significant restructuring of the Saudi economy over the next decade. That
change surely will not unfold in the elegantly orchestrated way it is laid out
in Vision 2030, created with the help of some $1.3 billion in fees to consul-
tants. But significant change seems unavoidable if only out of necessity. Oil
prices which hovered around $100 a barrel for much of the decade before
their collapse to $20 in 2015 are a thing of the past, argues oil historian
Dan Yergin.1 Oil producers are growing ever more efficient, lowering the
cost at which they can profitably produce oil. “The entire business has been
recalibrated,” Mr. Yergin asserts, thus $100 oil is an “aberration that won’t
recur absent an international crisis.”2

The implications of this for Saudi Arabia cannot be overstated. For the
decade from 2005 to 2015 under the rule of the late King Abdullah, gov-
ernment revenues (90% from oil) averaged more than $300 billion a year
for five of those years before falling precipitously in 2015 to half that.3
During the decade, King Abdullah lavished money on his countrymen for
education, health, a minimum wage to help poor Saudis, and for construc-
tion of scores of megaprojects, many unproductive and billions of dollars
over budget. (Simply maintaining some of these megaprojects is now yet
another drain on current reduced revenues.) Budgets exploded; actual
spending ballooned far beyond budget every year. In a society where 70%
of the population is under 30 years of age, the great majority of Saudis
have never known anything but lavish largesse from their government and
strong economic growth. Indeed, in the decade from 2005 the economy
grew at an average of 5.5 % annually.4

1 “The Struggle Behind Oil’s Ups and Downs,” Dan Yergin, Wall Street Journal, May 16, 2017. https://
www.wsj.com/articles/the-struggle-behind-oils-ups-and-downs-1494976842.
2 Ibid.
3 IMF Cross County Macroeconomic Statistics https//www.quandl.com/data/ODA/SAU_GGR-Sau-
di-Arabia-General-Government-Revenue-USD-Billions.
4 World Bank Data, “GDP growth (annual%). http://data.worldbank.org/indicator/NY.GDP.MKTP.
KD.ZG?locations=SA.

8 Saudi Arabia in Transition: From Defense to Offense, But How to Score?

 Now, however, one year into reform efforts, economic growth has stopped.
Growth this year is forecast at .1%, declining from a meager 1.4% in 2016.5
In a country where 80% of all household income derives from govern-
ment—either through jobs or subsidies of all sorts—when government
spending shrinks, the economy shrinks.6 Indeed, the non-oil private sector
of the Saudi economy recorded an almost invisible growth of only .1% last
year, the lowest since 1990.7 As a result, unemployment among young
Saudis under 30 years of age is said to be as high as 40%. Having known
only the best of times makes today’s belt tightening seem all the more pain-
ful to young Saudis.

Oil Prices, 1991–2017

U.S. Dollars per barrel

Source: IMF, July 2017 / http://www.imf.org/external/np/res/commod/External_Data.xls

5 “Macroeconomic Update,” Jadwa Investment June 2017, p 1. http://www.jadwa.com/en/download/

saudi-economy-2017/research-13-1-1-1-1.
6 “Saudi Arabia Beyond Oil: The Innovation and Productivity Transformation,” McKinsey Global
Institute December 2015; Executive Summary page 2. http://www.mckinsey.com/global-themes/
employment-and-growth/moving-saudi-arabias-economy-beyond-oil.
7 The Saudi Economy 2017 Jadwa Investment, p 1; http://www.jadwa.com/en/download/sau-
di-economy-2017/research-13-1-1-1-1.

Belfer Center for Science and International Affairs | Harvard Kennedy School 9
 Year One: Shock, But Not Yet Awe
Vision 2030 was unveiled to Saudis in April 2016 at a nationally televised
press conference that essentially also unveiled its primary promoter,
Mohammed bin Salman, a prince largely unknown to the Saudi public at
the time. The young prince, then only 30, had been named deputy crown
prince a year earlier by his father, who shortly after becoming king in
January 2015 had initiated a palace shake up. The King removed his half-
brother Mugrin bin Abdulaziz as crown prince and elevated a nephew,
Mohammed bin Nayef to that slot vacating the role of deputy crown prince
for his young son. The previously unknown young prince quickly emerged
as the power behind the throne and the driving force behind Vision 2030.
A graduate of King Saud University, his previous government service had
consisted largely of working for his father at the defense ministry. But in
the past year, MBS as the deputy crown prince is known, has established
a reputation as an intelligent, dynamic force of nature willing to take bold
risks in a royal family long characterized by cautious consensus leadership.

Barely a year into the job he was promising nothing short of revolutionary
change: to make Saudis dependent upon themselves, to grow the number
of women in the Saudi workforce, to permit forbidden entertainment and
to make the price of oil “irrelevant” to the Saudi economy. The bedrock of
Saudi success, he promised, would be “moderation, tolerance, excellence,
discipline, equity and transparency”—all values largely absent in the cur-
rent Kingdom of Saudi Arabia.

Most shocking, he promised to privatize the national oil company, Saudi

Aramco, the crown jewel of Saudi Arabia; indeed, the golden goose that
is the patrimony of the people. By promising to put 5% of Aramco up for
sale to investors worldwide, the prince delivered and underscored his core
message: nothing is secure from change.

Who is this brash young man in such a hurry to change everything in a

society where so many still pride themselves on seeking to emulate exactly
the life of Prophet Mohammed 1400 years in the past? After at least the
past three decades of rule by geriatric kings—inert, listless figures largely
seen and not heard and ruling through royal decrees and courtiers—MBS

10 Saudi Arabia in Transition: From Defense to Offense, But How to Score?

is a shocking change. Tall, energetic and informal, working bareheaded and
without the dark draping cape royals wear over their long, white thobes,
MBS evokes the raw energy of his towering grandfather, Abdulaziz al
Saud, who at only 27 began a three-decade long civil war in 1902 to unite
disparate tribes into what is now the Kingdom of Saudi Arabia proclaimed
in 1932. Two previous Saudi states founded and ruled by the Al Saud
since 1744 had each collapsed only to be reconstituted after a short hiatus.
If MBS succeeds at his transformation plan, he essentially will found a
Fourth Saudi state, so different is his vision of the future Kingdom from
that created by his grandfather and perpetuated by six of the founder’s sons
who have ruled since his death in 1953. Because he is only 31, MBS should
have decades, perhaps a half century, to rule giving him a long runway to
remake the Kingdom.

For the majority of young Saudis, reared in times of plenty, often educated
abroad and all connected by social media, the prince’s promise to tear
up the Kingdom’s sclerotic economy and remake it into a more vibrant,
self-reliant one sounded appealing—at least at first. But within months, the
regime froze billions of dollars in government contracts, pending review
of their economic justification. Private companies no longer receiving pay-
ments for contracted work began to lay off employees, rather than become
the new source of jobs for young Saudis as promised in Vision 2030.

Already government had begun to reduce subsidies for energy, water and
electricity that essentially had made these family necessities gifts to citizens
while costing government an estimated $61 billion annually. 8 Even with
gasoline prices rising to 96 cents a gallon from 64 cents, Saudis still pay far
below market prices. 9 As a result, those initial increases caused little public
outcry. Then in September came the decision to cut salaries and benefits
to government employees who comprise a whopping 60% of all employed
Saudis. This meant that a majority of working people suddenly, without
warning or explanation, found their take home pay slashed by roughly 30%.

8 Saudi Arabia’s2016 Fiscal Budget, Jadwa Investment, 28 December 2015; p 6. http://www.jadwa.

com/en/download/2016-budget-2/gdp-report-15-6-2-1-2.
9 Ibid.

Belfer Center for Science and International Affairs | Harvard Kennedy School 11
 To add insult to injury, the head of the Saudi civil service took to television to
accuse Saudi government employees of working “only an hour a day.”10

Abruptly, eager anticipation for reform turned to anger. “We had Christ-
mas every day and now Grinch has stolen it,” is how one Saudi economist,
who supports reform, described the national mood after the salary and
benefit cuts.

“The government has now touched the social contract,” says a conservative
critic of the Al Saud, referring to a long pact between Saudi citizens and
their monarchy: loyalty to the regime in exchange for prosperity for its
citizens. “People don’t care about politics or human rights; only about their
pocketbook,” he explains. “What the government is doing is very danger-
ous.” Another Saudi put the same point this way: “The question is can
government tinker with subsidies and remain autocratic? If the economy
is growing at 5%, people accept repression. But if they think the next five
years will be worse then there is no reason not to act against government
even if it may destroy the country.”

Saudi Central Government Gross Domestic Debt

as a percentage of GDP
Percent, GDP

Observed
Projected

Source: IMF, September 2015

10 Saudi Gazette, October 25, 2016, “Saudis Angry at Accusations of Laziness”; https://english.alara-
biya.net/en/business/economy/2016/10/25/Saudis-angry-at-accusations-of-laziness-.html.

12 Saudi Arabia in Transition: From Defense to Offense, But How to Score?

Year Two: Social Change
Leads the Way
As Vision 2030 enters its second year, pressure mounts on the government
to show some wins for citizens from its ambitious reform strategy. A
skeptical, sullen public essentially is demanding “show me” or refusing to
budge. Wealthy Saudis, too, are hedging bets. Some $300 billion has fled
abroad in the past twelve months. That obviously is money not available
to help develop the private sector so vital to creating jobs for Saudis who
no longer can count on government. Moreover, the Kingdom’s foreign
currency reserves in May fell below $500 billion, the lowest level in four
years,11 as deficit spending has been funded in part by drawing down
reserves which stood at $750 billion in 2014.

Despite reversing the unpopular salary and benefit cuts to government

workers, the regime seems intent on continuing to press forward with its
economic reform agenda. “Society is split,” acknowledges Muhammad al
Tuwaijri, deputy minister of economy and planning, in an interview this
May. “A lot of people are undecided but we will win them through more
transparency and success.” 12

Meanwhile, government seeks to mask unpleasant economic news with

more social liberalization. While many Saudis scoff at the idea that social
changes are meaningful, they are far more important than generally
acknowledged. The reason: Saudis, long bound like mummies in the stric-
tures of religious dogma and tribal tradition, aren’t accustomed to thinking
or acting independently. And those Saudis who do think independently,
surely don’t let it show in public because society ostracizes those out of step
from the norm. Mohammed bin Salman clearly understands that to change
the Kingdom’s economy, he must change the mindset of its citizens. Baby
steps are beginning to occur.

To foreigners, it may seem insignificant that more and more Saudi women
these days, even in conservative Riyadh, are exchanging their flowing black
11 Saudi Chart Book Jadwa Investment, May 2017, page 1, shows March reserves at $508 billion; Saudi
Chart Book Jadwa Investment, June 2017 page 1, shows another $8.4 billion decline in April. http://
www.jadwa.com/en/researchsection/research/chart-books.
12 Author interview with Mohammed al Tuwaijri, May 7, 2017, Riyadh

Belfer Center for Science and International Affairs | Harvard Kennedy School 13
 American country singer Toby Keith, left, and Saudi legend Rabeh Saqer perform at the Green
Halls auditorium in Riyadh on May 20, 2017. (Arab News photo by Hussam Al-Mayman)

abayas for colorful ones often tied at the waist to reveal the body’s shape
or unsecured in front exposing tight tee shirts and jeans. Saudi fashion
expert Marriam Mossalli, founder of a luxury fashion consultancy, Niche
Arabia, acknowledges that a lot of young Saudi women underneath their
abayas “look like Kylie Jenner…. That whole sportswear, tights, crop top
and heels,” she explains. “It’s a whole globalization.” 13 Moreover, a growing
number of women are baring their faces and letting headscarves fall back
to reveal their hair. These aren’t insignificant. They are acts of both courage
and individuality in a society where until a year ago the so-called religious
police could have arrested a young woman for such brazen display. After
all, the very purpose of an abaya and veil in Wahhabi Islam is to obscure
completely a woman lest her visibility arouse “fitna” or chaos, in a man’s
heart—a sin that would be her fault.

Restaurants that once had rolling wooden partitions ready to wall off
women and families from single males, now increasingly resemble modern
restaurants anywhere else in the world. Groups of barefaced young Saudi
women dine in so-called “family sections” that are separate but often vis-
ible to single male diners. The young women laugh, talk, and snap selfies
they are free to share with whomever they choose. Music, once forbidden,

13 “What’s Trending Under the Abaya? A Saudi Fashion Expert Weighs In,” Pret-a-Reporter, June 19,
2017; http://www.hollywoodreporter.com/news/whats-trending-under-abaya-a-saudi-fashion-ex-
pert-weighs-1014864.

14 Saudi Arabia in Transition: From Defense to Offense, But How to Score?

wafts through most Saudi restaurants in the Kingdom’s major cities.
Asian-fusion, French and Italian cuisine are increasingly popular—and
pricey. A woman dining solo is a common site as more and more women
with jobs are self-sufficient enough to shun marriage. In sum, there is a
palpably more relaxed mood in the Kingdom than even six months ago.
One single professional Saudi woman describes relaxing with her brother
at a university, listening to music among a gathering of relaxed Saudi men
and women. “I felt I was in Dubai,” she gushed. Dubai is the tiny tourist
mecca next door with alcohol, movies, beaches and wonders like indoor
snow skiing where many Saudis escape to relax.

Even very conservative Saudis seem to be loosening up—another sign

social norms are changing. At a private family gathering I attended of the
wife, mother and six sisters of a Saudi Imam of a decade’s acquaintance, a
score of young children celebrated around a birthday cake decorated with a
likeness of Mickey Mouse. More shocking, the children’s faces were painted
to resemble cats. Both the birthday cake and the cat faces are strongly at
odds with the teaching of this very Wahhabi Imam. Birthday celebrations
are considered by traditional Wahhabis a forbidden imitation of Western
infidel practices and portraying any human or animal likeness is seen as
a sinful effort to usurp Allah, the creator of all things. “The people who
will receive the severest punishment from Allah will be the image makers,”
warns one of the hadith, a collection of thousands of sayings, attributed to
Prophet Mohammed. 14 Yet these young children were experiencing a very
different message.

A far bigger change is the growing role of women in the Saudi economy.
Within the past year, a female has been named chairwoman of the Saudi
stock exchange. Another woman leads a major bank; while yet another
serves on the board of the new General Entertainment Authority, created
to bring once-forbidden entertainment to the Saudi public. (Conservative
Saudis have labeled the GEA the General Evil Authority.) Most surpris-
ing, a woman has been appointed to lead women’s sports, an activity

14 Fatwas of Ibn Baz Volume 4 Ruling on Images and statues Part No. 4; Page 224. http://www.
alifta.net/Search/ResultDetails.aspx?languagename=en&lang=en&view=result&fatwaNum
=&FatwaNumID=&ID=330&searchScope=14&SearchScopeLevels1=&SearchScopeLev-
els2=&highLight=1&SearchType=exact&SearchMoesar=false&bookID=&LeftVal=0&Right-
Val=0&simple=&SearchCriteria=allwords&PagePath=&siteSection=1&searchkey-
word=104117109097110032105109097103101115#firstKeyWordFound.

Belfer Center for Science and International Affairs | Harvard Kennedy School 15
 previously forbidden by the religious authorities as “following in the devil’s
footsteps.”15

Princess Reema bint Bandar, the new head of women’s affairs at the
General Authority of Sports, is seeking to make sports facilities quickly
available to Saudi women at little or no extra cost by persuading univer-
sities to share their existing sports facilities after hours with both men
and women, separately of course. Her major obstacle isn’t the willingness
of women to participate but rather the endless Saudi bureaucracy that
requires each sport’s facility to register with myriad government entities
including the ministries of interior, labor and trade as well as governors of
their local province before such activities can take place. All that is taking
time. Still, she observes to me in May, “The aperture of comfort by women
has widened in recent years. Women are willing to do many more things.
My focus isn’t on what’s new or first but just getting people to accept all this
as normal.”16

Of all the goals laid out in Vision 2030, meeting the target of growing the
percent of females who work to 30% from 22% by 2030 17is almost surely
one of the easiest—and yet one of the most significant. Women constitute
60% of university graduates. Both men and women agree that women are
not only better educated but also more motivated and productive employ-
ees than their male counterparts. Beyond a boon to Saudi productivity, the
larger role of women in the economy seems likely also to have significant
social impact. Already, working Saudi women are less inclined to marry
or to do so at a later age than more traditional women. Because of the
discrimination they have faced, they also say they are more nurturing with
young employees.

All these social changes are just beginning to plant the seeds for a more
tolerant society. Fathers, familiar with rude treatment endured by their
daughters, are becoming more cooperative with young female employees.
“When I started as a research analyst in the financial world sixteen years

15 Underground Sport: Saudi women shed veils to play basketball,” Associated Press, May 8, 2008;
https://usatoday30.usatoday.com/news/world/2008-05-08-saudi-sports_n.htm.
16 Author interview with Princess Reema bint Bandar, May 2, 2017, Riyadh
17 Vision 2030, “Placing the Kingdom on a Prosperous Path,” p. 3; Jadwa Investment, May 2016.
http://www.jadwa.com/en/download/saudi-vision-2030/gdp-report-16-6-2-1-3-3-2-1-1.

16 Saudi Arabia in Transition: From Defense to Offense, But How to Score?

ago men would hang up on me when I called with questions about their
company,” recalls Sarah Al Suhaimi, chairwoman of Tadawul, the Saudi
stock exchange. Today, she says, young female hires generally are wel-
comed by the companies they study. “Fathers in these companies are proud
to meet with women like their daughters.”18

The general counsel of a leading financial institution describes her own

father’s changing attitudes. A few years ago, when she was invited to do a
television interview, her father agreed but with trepidation at the prospect
of his daughter appearing unveiled so publicly inviting criticism. This year
when she was invited to be among a group of accomplished Saudi women
meeting with a high level female political leader, her father again asked if
she would be seen on television. “He wanted to be sure not to miss me,” she
says.

While it is easy for Saudis—and surely Americans—to diminish social

changes in Saudi Arabia, both groups have only to look at how much
American attitudes have changed on tolerance of differences—whether
religious, racial, gender, or sexual preferences—since women began to
enter the U.S. workforce in large numbers in the 1970’s. It is increased
moderation and tolerance that the deputy crown prince seeks in his coun-
trymen to make way for a more modern, competitive economy that can
utilize the talents of all citizens as well as make foreign investors and talent
comfortable in the Kingdom.

Prince Mohammed is presenting change for women as an economic neces-

sity, not a feminist luxury. This approach makes it harder for the religious
conservatives to object and mobilize public opposition. He similarly is
seeking to reshape young Saudis to take risks and be the foot soldiers in his
revolution.

Almost monthly, the prince’s personal foundation, MISK, funds and

orchestrates large gatherings of young Saudis—male and females mixed—
from all across the Kingdom usually also blended with a minority of other
Arabs, Americans, Asians and Europeans. While these gatherings osten-
sibly are focused on topics like entrepreneurship, UNESCO or the impact

18 Author interview with Sarah Al Suhaimi, May 7,2017, Riyadh

Belfer Center for Science and International Affairs | Harvard Kennedy School 17
 of social media (recently featuring Ivanka Trump as a speaker) essentially
they are designed to help young Saudis connect across regional, tribal and
gender isolation that long have kept most Saudis suspicious of one another
rather than cooperative. Indeed, some believe the prince is seeking to
create a collective patriotic fervor among the young that can replace—or at
least complement—the role Islam traditionally has played in holding Saudi
society together under the Al Saud. MBS is seeking to reduce the influence
of conservative Islam in the Kingdom by among other things limiting the
role of the so-called religious police and promoting more moderate Islamic
scholars to the Council of Senior Ulema.

Encouraging youth to engage each other and to take risks is essential to

change a society where few individuals dare take a risk: stepping outside
societal consensus exposes one to criticism from family and the risk of
shame. In a shame-honor culture like Saudi Arabia, “honorable behavior
is that which strengthens the group…while shameful is that which tends
to disrupt, endanger,” the group, wrote David Pryce Jones in his book
explaining Arab societies.19 Interestingly, MBS seems determined to break
that code not only with his foundation’s work but by his personal example.
Despite criticism from his royal relatives, religious conservatives and ordi-
nary Saudis, he unapologetically charges forward with his plans to revamp
both society and the Saudi economy.

Undeniably Saudi Arabia has far to go to attain the moderation the Crown
Prince proclaimed. But, as seventh-century Chinese philosopher Laozi
famously said, “A journey of a thousand miles begins with a single step.”
Saudi Arabia is clearly on the long road of its journey of transformation.

19 David Pryce Jones, The Closed Circle: An Interpretation of the Arabs, p. 36.

18 Saudi Arabia in Transition: From Defense to Offense, But How to Score?

Economic Reform is Lagging
If social change is accelerating, the government’s ambitious goal of privat-
izing the Saudi economy is proving much harder. Throughout government
ministries, officials are steeped in the new jargon acquired from reliance on
consultants—“a number of enablers that will ensure a smoother workflow”.
Activity abounds: workshops on increasing local content, on creating a
more welcoming work environment for women, and on how to allocate
200 billion Saudi riyals, or some $53 billion, earmarked for private sector
development just to name a few.

Still, the economy is stalled. As noted earlier, economic growth is forecast

at .1 percent in 2017; non-oil private sector growth is expected to accelerate
from .1 percent, the lowest since 1990, to an anemic 1% this year. 20 While
the Kingdom did reduce its budget deficit in the first quarter of 2017—a
step toward achieving its goal of a balanced budget by 2020—most of that
reduction came because of higher oil prices, not spending cuts or growth
in non-oil revenues. Indeed, non-oil revenue grew only 1.3% or $8.5 billion
and spending fell a tepid 2.5%. Both statistics underscore that despite
ambitious talk of reform, government actually is proceeding cautiously.
More revealing is the continued huge role oil revenues play in the Saudi
budget: The bulk of the $38.4 billion increase in Q1 revenue this year came
from oil as higher prices produced $29.8 billion additional revenue, more
than double oil revenues a year earlier.21

To successfully privatize the economy obviously requires the engagement

and support of Saudi businessmen who remain passive and skeptical—
almost as skeptical as the society at large. “What we have done so far is
positive,” says one senior businessman, “but it isn’t hugely significant.” Real
change, he says, would require government to “cut corruption by mowing
down fences around public property seized by princes” and reforming edu-
cation which continues to propagate Wahhabi hatred of Jews, Christians

20 “The Saudi Economy in 2017,” Jadwa Investment, February 2017. www.jadwa.com/en/download/

saudi-economy-2017/research-13-1-1-1-1.
21 Bloomberg, May 11, 2017; “Saudi Quarterly Budget Deficit Narrows With Oil Income Surge”
https://www.bloomberg.com/news/articles/2017-05-11/saudi-reports-quarterly-budget-deficit-of-
26-2-billion-riyals.

Belfer Center for Science and International Affairs | Harvard Kennedy School 19
 and Shia Muslims. “We are still educating Saudis for the next life, not this
one.”

Abdulrahman Zamil, a former head of the Riyadh Chamber of Commerce

and dean of Saudi businessmen, divides the business community into three
groups—pessimists, realists and optimists. Pessimists, he says, include
those accustomed to getting rich off real estate deals or agent commissions
who now see that easy money threatened by reform. Realists are bankers
and industrialists waiting to see if government sticks with announced
reform plans. Mr. Zamil says he is an unabashed optimist. “Since 1975 the
goal has been to diversify the economy but with high oil revenues gov-
ernment always said, ‘Oh let the people be happy.’ But this government is
serious.”

“The biggest advantages of the vision 2030 are restructuring and diversify-
ing the economy through effective public-private partnership programs,”
says Mohammed Abunayyan, Chairman of Abunayyan Holding and
ACWA Power International, a giant in power generation and water desali-
nation.  “We have a dynamic private sector.  The key is how to enhance
their engagement and reap the full potential.”

His answer: Stop talking and act.  And do not focus on ARAMCO, the
national oil giant, but on other sectors of the economy as well.  Indeed,
the government is promising to privatize a desalination plant, at least
one power plant and a sports club within the year and by 2020 to have
government assets fully privatized.  “We need a roadmap.  What?
When? How?” says Mr. Abunayyan. “Transforming a company takes
years, “ he adds.  “Restructuring government is a herculean task but not
insurmountable.”

In the meantime, the government’s goal is to capture and keep as much

government spending as possible at home in the domestic economy by
requiring all companies that receive government contracts to buy local
content. Local content is defined as the “total spending of the Kingdom
that benefits the national economy through participation of Saudi labor,
goods, services, assets and technology.”22
22 Interview with Fahad Al Sukait, President Local Content and Private Sector Development Unit, May
8, 2017, Riyadh.

20 Saudi Arabia in Transition: From Defense to Offense, But How to Score?

The biggest opportunities for this are obviously the areas where Saudis
or their government spent large amounts of money on imports. Weap-
ons spending leads with an estimated $70 billion a year spent on arms
purchased overwhelmingly from the U.S., but also from Britain, France,
Germany and Russia. Similarly, the Kingdom spends $30 billion a year
on autos, and another $20 billion a year on travel and entertainment
abroad. Almost everything Saudi Arabia consumes other than oil and gas
is imported. But creating the businesses and industries to capture that
spending at home will take considerable time. Riyadh is requiring weapons
manufacturers to begin plans to make spare parts, armored vehicles and
basic ammunition in the Kingdom. In the short run, however, while this
may create work for some Saudis, the costs of these items likely will be
higher than production abroad. Expanding to create higher value more
sophisticated equipment such as aircraft is far off. Similarly, with no auto
industry, launching joint ventures between international auto makers and
local Saudis will be an expensive process to create local content in basic
items like auto parts.

Saudi Arabia’s Labor Force Demographics

Labor force (shown, right)

Saudis: 7,537,694
Non-Saudis: 8,834,330
Total: 16,372,064

Total population
Saudis: 20,427,357
Non-Saudis: 12,185,284 Sources: Population Mid-Year 2017, Saudi General Authority for Statistics
Total: 32,612,641 Employment as Percent of Population Q3 2016, Saudi General Authority for Statistics

Creating a travel and entertainment industry that could capture Saudi

spending on tourism and leisure activities won’t be easy but may prove
easier than some other areas the government has identified. At least the
Kingdom already attracts 1.5 million worldwide visitors to the annual
weeklong Hajj and another eight million for Umrah, a non-mandatory
pilgrimage to Mecca, Muslims may perform anytime during the year.
Creating high quality tourism and entertainment options in the Kingdom
could not only retain a larger share of Saudis’ $20 billion annual spending
but also capture money from these Muslim visitors.

Belfer Center for Science and International Affairs | Harvard Kennedy School 21
 What is clear is that any and all of these promised changes will require
time and investment to truly impact the Saudi economy. Meanwhile
businessmen tired of declining profits and citizens angry about reduced
incomes are restless. The government has stepped up consultation with
the business sector and communication with the public. Fahad Al Sukhait,
who runs the government’s newly created Local Content and Private Sector
Development Unit, says he has met with more than 300 business executives
to seek ideas on how most effectively to spend the $53 billion government
has earmarked to incentivize and stimulate private sector participation.
“Business people were angry, even panicked,” he says, because they saw
demand declining when government froze large contracts for much of
2016 and consumer spending freeze up when government workers’ salaries
and benefits were cut. “Some remain skeptical but they are engaged now,”
he says. While he has held scores of meetings with groups of businessmen,
he also did something unusual for a Saudi government official: he went to
meet major Saudi business titans rather than waiting for them to seek him.

The Crown Prince Mohammed bin Salman, too, has begun to confront skep-
ticism with communication. He recently sat for a long nationally televised
interview to explain Vision 2030, his first since unveiling the plan a year
earlier. While the interviewer was friendly, the crown prince, to his credit,
didn’t try to sugar coat the pain involved in reform. While explaining the
government’s decision to restore the slashed salaries and benefits of workers
(a larger than expected decline in the budget deficit) he said clearly that if
needed in the future to plug budget gaps, such cuts would be quickly re-im-
posed. “There is no doubt that if we go through a critical stage again, we will
turn to the austerity measures.” He also gave Saudis the unhappy news that
government programs to build more housing almost surely would be delayed
at least to the end of 2017. Housing is a sensitive topic in the Kingdom as a
majority of Saudis cannot afford a home. Even the data on home ownership
is disputed with a private investment bank putting the number at 30% while
Vision 2030 claims 47% of Saudis own homes. 23 Regardless, MBS has prom-
ised by 2020 to raise the number by 5%. 24

23 “Only 30% Citizens own house in KSA,” Arab News, December 23, 2015. http://www.arabnews.
com/saud ai-arabia/news/854636.
24 “Caring for our Families,” Section 1.3.1, Full Text of Saudi Arabia’s Vision 2030, Al Arabiya. https://
english.alarabiya.net/en/perspective/features/2016/04/26/Full-text-of-Saudi-Arabia-s-Vi-
sion-2030.html.

22 Saudi Arabia in Transition: From Defense to Offense, But How to Score?

Such candor in delivering negative news to the public is something new
for Saudi rulers. As important, it is also reflected in a growing number of
government officials who also will acknowledge that the courage to stick
with the reform plan is perhaps the Kingdom’s biggest challenge. While this
may seem glaringly obvious, a willingness to acknowledge that simple fact
seems at least mildly reassuring. Asked what is needed to succeed, Mr. al
Tuwaijri, the deputy minister of economy and planning, responded, “Polit-
ical will, which the prince provides; money, which we have; and human
capacity, which we can hire.” Reform is aided, he added by a young pop-
ulation which can be convinced of the necessity for change and continued
low oil prices “which gives us a lot of ammunition to show why change is
needed.”

To enhance prospects for socioeconomic stability as government contin-

ues to reduce subsidies to citizens to achieve a balanced budget by 2020,
the regime is creating a Unified Citizens Account Program to protect the
most vulnerable low and middle-income households from the impacts of
market prices for energy, water and electricity. Already some 12 million of
the Kingdom’s 20 million citizens have registered for these accounts. The
crown prince said on television that perhaps as many as 10 million citizens
will qualify for monthly payments intended to cover the higher costs of
energy, water and electricity. The impact of market prices thus would be
felt only by well-off Saudis and foreigners. Indeed, the government hopes
that by providing a set monthly payment to low income households, cit-
izens will be encouraged to reduce energy consumption in order to have
money left over for other household expenses. The less energy Saudis use,
the more there is for government to export even if it no longer commands
the high prices it once did.

There are signs that austerity is breeding small examples of individual

initiative that will be essential if Saudis are to become self-reliant as the
crown prince hopes. One Saudi family confronted with higher water bills,
initiated an extreme solution: drilling for water in the family’s front yard.
Despite shelling out $10,000 to drillers, no water was found. Another Saudi
father explained with pride having trimmed his water bill from 300 Saudi
riyals to 30—roughly $26 to $8. A small act of individual responsibility.

Belfer Center for Science and International Affairs | Harvard Kennedy School 23
 Aramco: The Privatization
of the Century?
All these myriad details of economic reform in many ways are dwarfed by
the Kingdom’s plan to sell 5% of Saudi Aramco, the national oil company.
Aramco is the golden goose that has funded the Kingdom since Americans
discovered oil there in 1933 and created California Arabian Standard Oil
Company. In 1944 to better reflect the ownership, CASOC was renamed
Arabian American Oil Company or Aramco. Since Saudi Arabia bought
out American interests in 1980, the company has been known as Saudi
Aramco.

With the price of oil down sharply in recent years and a worldwide com-
bination of conservation and technological breakthroughs in oil recovery
creating the possibility of a prolonged imbalance in demand and supply,
the deputy crown prince seeks to monetize the value of Aramco now and
invest the proceeds to produce a new and lush stream of revenue to fund
Saudi Arabia’s future. By floating only 5% of the company, which he insists
will fetch $100 billion from investors, he hopes to establish a $2 trillion
value for Aramco. Proceeds of this IPO would go into a Public Investment
Fund, or PIF, which would serve as a Sovereign Wealth Fund for the King-
dom. Proceeds from PIF would be invested both at home to develop new
industries and abroad in high yielding assets with the hope of emulating
the investing success of much older sovereign funds in countries like the
United Arab Emirates or Norway. Details of precisely who would manage
this fund and how it would be invested have yet to be disclosed.

Despite the crown prince’s enthusiasm for marketing Aramco, obstacles

abound that raise questions whether this can be, as promised, accom-
plished in 2018. Failure to do so—or a failure to achieve the $100 billon
valuation for 5%—would be a big blow to Vision 2030 and personally
to Mohammed bin Salman, who has made it the centerpiece of plans to
privatize the economy and create a new source of wealth for Saudi citizens.
Continuing low oil prices obviously makes more difficult securing a high
valuation for Aramco.

24 Saudi Arabia in Transition: From Defense to Offense, But How to Score?

One important set of opponents is the Saudi royal family who long have
lived lavishly on the nation’s oil wealth. The King is said to receive a 20%
royalty from oil sales which he parcels out to key members of the sprawling
thousands of Al Saud princes. A tax imposed on the remaining revenue
goes to the Finance Ministry to fund government and its largesse to Saudi
citizens. Aramco from its inception has been a sacred possession to the Al
Saud. “We know Aramco better than others do,” the late King Abdulaziz
al Saud told a visiting writer for The American Magazine in 1947. “I shall
protect it as if it were my most valuable subject.” 25

That Abdulaziz’s grandson seeks to sell even part of that precious asset lit-
erally horrifies not only many in the royal family but also the Saudi public.
Saudis regard Aramco, which manages the Kingdom’s oil, as the nation’s
patrimony. Not surprisingly, many of them fear that the sale of shares in
Saudi Aramco to investors worldwide will transfer their national patrimony
into the private hands of a few wealthy princes and foreigners, leaving the
Saudi people with nothing but the sands of Arabia. Prince Mohammed bin
Salman has dismissed such criticism as “close to the socialist, communist
approach where everything is owned by the state.” 26 Selling 5% of Aramco,
he told a national television audience, will allow the government to develop
more quickly other sectors of the economy such as mining or logistics that
will create jobs for citizens and revenues for government. “And all this will
happen while Aramco is still in Saudi Arabia,” he said.27

Beyond these political challenges, listing a stake of Saudi Aramco also involves
technical and legal challenges. Before any valuation can be established, the
Kingdom has to be able independently to certify the level of Aramco’s oil
reserves and production and the way that production will be taxed. Without
this, investors can’t judge the value of what they are being offered.

Energy Minister Khalid Falih has promised to provide before 2018 inde-
pendent confirmation of the Kingdom’s claim that reserves total 260 billion
barrels. To make Aramco more appealing to investors, the government
25 “Our Partner in Oil,” American Magazine, October 1947, the Crowell-Collier Pub. Co., New York, New
York; condensed in Readers Digest, December 1947 by Gordon Gaskill, page 11.
26 Al Arabiya English, “Watch and Read: Mohammed bin Salman’s full interview,” May 3, 2017; p. 7.
https://english.alarabiya.net/en/features/2017/05/03/Read-the-full-transcript-of-Mohammed-
Bin-Salman-s-interview.html.
27 ibid p. 8

Belfer Center for Science and International Affairs | Harvard Kennedy School 25
 already has announced it will cut the tax rate on Aramco to 50% from 85%.
28
A lower tax rate obviously leaves more money in Aramco for investment
or dividends to shareholders and thus makes its shares more attractive.
Since government will remain a 95% shareholder of Aramco, it will receive
95% of dividends. To the Saudi government, whether its revenue comes
from dividends or taxes is immaterial.

Where to list Aramco, the largest IPO ever, also is complex. While Riyadh
has made clear it will be listed on the Saudi exchange, that market is far too
small to absorb what is hoped to be a $100 billion offering. To lure investors
capable of purchasing that large an IPO will require a deep market like New
York or London. Yet lawyers for the Kingdom have warned that the New York
exchange is risky because the U.S. is litigious. Deep concerns already exist in
the Kingdom about a law Congress passed in 2016 allowing relatives of those
who died in the World Trade Center attack on September 11, 2001, to sue
Saudi Arabia, home for 15 of 19 hijackers. Whether Donald Trump could per-
suade Congress to overturn or limit this law is an open question. Beyond that,
Aramco could face class-action litigation should it be seen not to comply with
strict rules from U.S. regulators for transparency on reserves and data disclo-
sure. Moreover, U.S. shareholder lobby groups are another threat.

All this focus on obstacles to a New York listing has put the spotlight on
London. A “premium” listing on the London Stock Exchange, however,
requires by its rules a float of 25% of a company’s shares. Obviously, Saudi
Arabia wants nothing less than a “premium” even though it wants to sell
only 5% of its crown jewel; The United Kingdom Investment Association is
insisting on no bending of the rules. One big concern of the London Stock
Exchange: a listing there would put the Saudi oil company into the FTSE
100 index, making an arm of the Saudi state automatically a holding for
millions of pension funds. To ease that concern, Saudi Arabia has stated it
will not seek inclusion in the FTSE.29

Regardless of the obstacles at home or on foreign exchanges, the Deputy

Crown Prince seems absolutely determined to sell a 5% share of Saudi
28 “Saudi Arabia Drops Tax Rates for Oil Firms Ahead of Aramco IPO,” Wall Street Journal, March 2,
2017; https://www.wsj.com/articles/saudi-arabia-drops-tax-rates-for-oil-firms-ahead-of-aramco-
ipo-1490623271.
29 Financial Times, “Boost for London bid to Land Saudi Aramco IPO,” June 8, 2017; https://www.
ft.com/content/c3300f5c-4c16-11e7-919a-1e14ce4af89b.

26 Saudi Arabia in Transition: From Defense to Offense, But How to Score?

Aramco in 2018. He isn’t likely to be deterred even if, as increasingly spec-
ulated by market experts, the offering values Aramco at $1 trillion, only
half the $2 trillion he has touted as its value. “He will find a way to spin it,”
says a disgruntled Saudi.

Nasty Neighborhood,
but the U.S. is Back
If transforming Saudi Arabia is a herculean task, taming its nasty neighbor-
hood is even more challenging—and far less amenable to regime control. Over
the past year tensions in the region have only deepened with Syria, Yemen and
especially Iran, which the Kingdom sees as a threat to its very existence.

Two things have changed, however, and they are interrelated. First, the U.S
which tilted toward Iran under Barack Obama—with the former president
urging Saudi Arabia to “learn to share neighborhood with Iran”—these
days is boldly backing Saudi Arabia’s bid for leadership of the Islamic world
and hegemon of the Gulf. To the administration of President Trump as to
the Saudis, Iran is an enemy.

Second, Mohammed bin Salman has become markedly more assertive

against Iran—and seems certain to notch that up now that he is crown

President Donald Trump shakes hands with Saudi Deputy Crown Prince and Defense
Minister Mohammed bin Salman during a bilateral meeting, Saturday, May 20, 2017, in
Riyadh. (AP Photo/Evan Vucci)

Belfer Center for Science and International Affairs | Harvard Kennedy School 27
 prince and Donald Trump’s ally. The assemblage of 50 Islamic leaders
during President Trump’s May visit to Riyadh wasn’t just about combatting
terrorism, but also about confronting Iran. Prior to President Trump’s
arrival, the crown prince provocatively (and accurately) accused Iran of
targeting the Saudi regime. “We will not wait until the battle is in Saudi
Arabia but will work so the battle is there in Iran…” he said. Iran immedi-
ately warned against such “stupidity” and threatened that if Saudi Arabia
acts, nothing will be “left in Saudi Arabia except Mecca and Medina,” the
two holy cities of Islam.

Then, within days of the Trump visit, Saudi Arabia organized Egypt and
several Gulf countries in a diplomatic and economic boycott of the neigh-
boring statelet of Qatar citing its cozy relations with Iran and its support
of regional terrorist groups including Hezbollah, Hamas and the Muslim
Brotherhood. Qatar has stood firm against accepting any of the 13 max-
imalist demands belatedly issued By Saudi Arabia, Egypt and their gulf
allies raising the risk of an embarrassing back down by the Saudi Crown
Prince and his allies or a rupture in the Gulf Cooperation Council if Qatar
chooses to exist rather than compromise. So far Iran has backed Qatar
not only rhetorically but by airlifting food to the blockaded nation and
by allowing Qatar’s airline, blocked from overflying Saudi, to use Iranian
airspace to stay in service. All this has further raised the temperature of
the Saudi-Iranian dispute. Additionally, the June terrorist attacks on the
Iranian parliament and the tomb of Ayatollah Khomeini have been blamed
by Iran on the Saudis. Whether this is true or not, it indicates that Iran
increasingly is viewing the Saudis as an assertive rather than supine pres-
ence in the region. Indeed, just as the Iranians support anti-al Saud actors
across the Mideast, the Saudis are beginning to try to encourage potential
opposition to the Iranian regime from tribal groups in Iran’s Khuzestan
region which borders Iraq and also from those along the Iran-Pakistan
border. Whether the Saudis can succeed at this remains to be seen, but it is
at least an effort to go on offense by playing tit for tat.

President Trump has tweeted his support for the Saudi-led confrontation
with Qatar and his voice matters most. Others in his administration,
however, prefer to deescalate the confrontation to protect the continuity of
America’s airbase there which is critical for air operations against terrorists

28 Saudi Arabia in Transition: From Defense to Offense, But How to Score?

throughout the region. From the Saudi perspective, if that airbase needs to
be moved, the government has assured the U.S. President the base would
find a welcome home in Saudi Arabia where it was located until 2003. The
relocation of that base back to Saudi would be the most visible possible
signal of the strengthening U.S.-Saudi relationship.

It appears that the Saudis have been emboldened by Trump Administration

support while that U.S. support may reflect, at least in part, a growing sense
in Washington that the Saudis are willing to stand up for themselves and
stand against Iran. It is chicken and egg, but it does represent a significant
shift in appearances in the region. Is this a change in rhetoric only or in
U.S. strategy toward the Mideast? It remains to be seen if the U.S. is actu-
ally changing the Obama administration’s strategy of arming Gulf nations
to take care of their own security rather than expect the U.S. to engage
adversaries on their behalf. So far, Trump has offered only supportive rhet-
oric and more arms. The last time the U.S. sought to build up a regional
hegemon to reduce its own role in the Mideast, it chose the Shah’s Iran.
Huge weapons purchases coupled with declining oil prices bankrupted
Iran and led to the Islamic revolution and Iran’s current anti-American
theocracy. Is this possibly deja vu?

Appearances are one thing. Realities on the ground are another. The reality
is that nothing yet has changed for the better in Yemen, where the Saudis
remain bogged down in what can best be described as a costly and stale-
mated conflict with the Iranian-backed Houthi rebels. That war, now nearly
two years old, is increasingly unpopular in Saudi Arabia and is taking a toll
on the reputation of the deputy crown prince and defense minister who has
been unable to win it. “Time is on our side,” he insisted in an April national
television interview. But the large financial cost (estimated at $200 million a
day) and the deaths of Saudis along its border with Yemen from attacks by
missiles said to be supplied by Iran, are straining Saudi patience. Mohammed
bin Salman seeks increased U.S. help—not just intelligence sharing and
logistics but more special forces on the ground—to win the conflict. So far,
the Trump Administration has hesitated even though it has agreed to resume
selling the Kingdom precision guided munitions curtailed by President
Obama after a number of strikes—accidently according to the Saudis—killed
Yemeni civilians. Comparisons to America’s negotiated withdrawal from

Belfer Center for Science and International Affairs | Harvard Kennedy School 29
 Vietnam aren’t apt. As one Saudi analyst notes, “Yemen is not our Vietnam.
Vietnam was far from you. Yemen is our neighbor. We do not have the
option of leaving without victory.”

Similarly, nothing positive has changed in the charnel house of neighbor-

ing Syria where ISIS continues to wreak havoc while Bashar Assad seems
to be solidifying his supremacy in at least part of that ravaged nation. Pres-
ident Trump’s one-day air offensive against a single Syrian air base from
which chemical weapons had been launched was popular in both the U.S.
and Saudi, but changed nothing on the ground. In Syria, the U.S. and Saudi
aren’t entirely on the same page. For the Americans, the primary villain is
ISIS because, as a terrorist group with international tentacles, it can launch
attacks in the U.S. and Europe. To the Trump Administration, Assad is
an evil tyrant but not one who threatens the U.S. The view from Riyadh is
rather different. Yes, ISIS has openly proclaimed its intent to one day topple
the Al-Saud and reclaim Islam’s holy cities of Mecca and Medina. But it is
Assad who serves as Iran’s ally and it is Iran and its proxies such as Assad
who are the primary threat to Saudi Arabia.

Meantime, nothing has changed for the better in neighboring Iraq either
where despite some military successes against ISIS, the Iraqi regime con-
tinues its inexorable slide into the Iranian orbit. The Saudis have reopened
diplomatic relations with Iraq in an attempt to reestablish some influence
there. But to largely Shia Iraq, Iran and its ayatollahs are the 500-pound
gorilla next door.

Altogether then, the new Saudi assertiveness is visible and that in itself is
somewhat significant. However, it hasn’t translated yet into any new real-
ities on the ground. As always, Mohammed bin Salman seems to believe
that the best defense is relentless offense. This is true of his ambitious
domestic reform agenda and it is similarly true of his aggressively anti-Iran
foreign policy. While the results of that policy remain to be seen, it is of
some domestic benefit to the prince. The more that Saudi citizens focus on
the threatening regime in Tehran, the less likely they are to actively oppose
belt tightening at home. The more they can take some pride in an assertive
Saudi foreign policy, the less they may complain about lagging results on
the home front.

30 Saudi Arabia in Transition: From Defense to Offense, But How to Score?

In short, difficult realities notwithstanding, the dynamics of the region
have changed significantly over the past year. Only a year ago, the Saudis
were in a defensive crouch, lacking any sign of U.S. support while watching
Iran, emboldened by a nuclear deal with Washington and enriched by
the payoff of $150 billion in unfrozen assets, make further mischief in the
region. Today, the Saudis are out of that crouch, standing upright with
the U.S. behind them and are at least shadow boxing with their Iranian
nemesis and its proxies. It is a very different posture, and in a region where
appearances matter more than anywhere else, it is a significant change.

Of course, there is a risk that the escalating Saudi-Iran hostilities could

spill into a military confrontation with implications for oil shipments and
global economic stability. If Iran’s Revolutionary Guards conclude, as their
leader asserts, that Riyadh is behind the attacks inside Iran, it isn’t difficult
to imagine a retaliatory attack inside the Kingdom to punish Riyadh.30 A
military clash between these two has the potential to drag the U.S. into
hostilities that likely would be unpopular among Americans. This could be
reason enough for Iran to seek to disrupt the new U.S.-Saudi harmony and
once again put the Kingdom in a more vulnerable position. Undeniably,
the Saudi government is so thrilled with Donald Trump’s visit, it will be
hard for him not to disappoint as his presidency continues and Congress
gets more involved in second guessing U.S. policy there.

30 “Rising Tensions: Iran Again Links Saudis to Terror Attack in Tehran,” New York Times, Thomas Erd-
brink, June 13, 2017; https://mobile.nytimes.com/2017/06/13/world/middleeast/iran-saudi-ara-
bia-terrorism.html?_r=0&referer=.

Belfer Center for Science and International Affairs | Harvard Kennedy School 31
 Royals Resigned
If much of the Saudi economic transformation is making only halting
progress and if Saudi confrontation with Iran is at best stalemated, fractious
relations within royal family have been smoothed over—at least for the
present. Power is being passed to a whole passel of young princes in what
amounts to the greatest generational power shift in modern Saudi history.

King Salman’s recent decision to fire Crown Prince Muhammed bin Nayef,
57, and replace him with Muhammad bin Salman was anticipated, though
the timing was earlier than many Saudis expected. The move eases two
years of tension between the two princes. In formal settings, such as the
visit of President Trump to the Kingdom, the Crown Prince obviously had
outranked the deputy. But when it came to wielding power and influence
within and beyond the Kingdom, it is MBS who was—and is—totally in
charge and who had gradually sliced his cousin’s portfolio to internal secu-
rity only.

While Saudi citizens do not get a vote on their future King, those who
favored reform and those who opposed it both had speculated that should
King Salman die suddenly, Mohammed bin Nayef as the next King would
fire his younger cousin, ending his rule and with it Vision 2030 reforms.
That uncertainty is now gone. He and his reform agenda are here to stay.
Thus, unlike elderly kings of recent decades, MBS isn’t likely to kick
economic reforms down the road hoping oil prices will recover. His long
runway in power means the problem will still be his.

As always in this century of Al Saud rule, power has passed peacefully—at

least on the surface, though royal family tension is said to remain high.
Once the King made up his mind to depose the Crown Prince, the 34
princes of the Allegiance Council representing the direct male descen-
dants of King Abdulaziz were polled one by one on the phone. Only three
opposed: granting the monarch his wish is Saudi royal family tradition. So
Mohammed bin Nayef, like Mugrin bin Abdulaziz before him, bowed from
power with the acquiescence of most of his relatives. A resistant Crown
Prince, in Mecca for Ramadan, the month of fasting, was held incommu-
nicado all night while the polling of the Allegiance Council took place.

32 Saudi Arabia in Transition: From Defense to Offense, But How to Score?

At dawn he agreed to resign and emerged to congratulate his younger
cousin.31 “I shall rest now, and may god be with you and guide you.” MBS
was shown kneeling before his deposed cousin and is said to have replied,
“Your advice shall remain indispensable.”32 Mohammed bin Nayef has been
confined to his palace since that night.

What brought this long simmering issue to resolution now? Mohammed

bin Nayef has been said for years to fall asleep in meetings and was often
absent from the Kingdom for extended periods. Some said he suffered
from wounds received in 2009 when he met with what he thought was a
reformed terrorist who sought to kill the prince by exploding himself as
they sat together. Others said he had narcolepsy, which made him uncon-
trollably fall asleep at all hours. Whatever his health issues, the family
agreement to remove him now likely was driven by other issues entirely.

Most important, the Kingdom faces a host of external threats—Iran, war

in Yemen and a dispute with Qatar that require assertive action best taken
with at least the appearance of unity within the ruling family. The King
seems to have persuaded his relatives that in the aftermath of Donald
Trump’s strong embrace of Saudi Arabia in May, now is the time to present
a united royal front in tackling these issues.

To secure support from royal opponents of his son, the King promised that
no future king and crown prince will be from the same branch of the family.
This eased royal family fears that King Salman in elevating his son to crown
prince was seeking to establish his own lineal monarchy and disenfranchise
all the other sons and grandsons of the founder. That fear, coupled with royal
opposition to MBS’ youth and brashness, had up until June blocked the King
from elevating his son despite his clear desire to do so.

Now that he has won backing to make his son crown prince, it isn’t clear
if that promise will hold. As of July no one had been named to fill the
position of deputy crown prince. Obviously even if the king keeps his word
and names a prince from another branch to that role, once MBS is King,

31 New York Times, June 28, 2017; https://www.nytimes.com/2017/06/28/world/middleeast/

deposed-saudi-prince-mohammed-bin-nayef.html
32 Al Jazerra, June 21, 2017; http://www.aljazeera.com/indepth/features/2017/06/saudi-arabia-
mohammed-bin-nayef-170621122951195.html.

Belfer Center for Science and International Affairs | Harvard Kennedy School 33
 he could try to vacate his father’s promise by removing that prince and
naming his own son as his crown prince. MBS eldest son is said to be only
seven years old.

There are a variety of views in the royal family about MBS. Some grudg-
ingly see the substance of his reforms as necessary but are offended by his
youth, brashness, and rashness. Others are unhappy with both his pro-
posed reforms and his style. That didn’t mean, however, that critics of MBS
automatically were supporters of his older cousin, who has his own detrac-
tors and who was filling a role that at least several other senior princes felt
should be theirs. Almost all royals who will talk agree on one thing: As
Crown Prince and Minister of Interior, Mohammed bin Nayef did an out-
standing job for more than a decade keeping Saudi Arabia largely safe from
terrorist attacks. Some royals—and many Saudi citizens—fear that strip-
ping him of his role may endanger domestic security, leading to a return of
the terrorist attacks Saudi Arabia suffered in 2003-2006.

The new Interior Minister is a 34-year old nephew of the outgoing minister
of interior. Abdulaziz bin Saud bin Nayef bin Abdulaziz, will follow in the
footsteps of his uncle and his grandfather in handling the internal security
portfolio. His lack of experience is comparable to nine other young royals
who recently were named deputy governors, all princely young contem-
poraries of MBS, and each representing an important branch of the royal
family. These young princes each are placed in one of the Kingdom’s 13
provinces where they are being groomed for larger leadership roles in the
very near future. Meanwhile, in family councils, it seems this move may
have helped win the gratitude of their fathers to the King for giving their
sons this opportunity. At a minimum all these young princes in their 30’s
make young MBS look like the leader of a new generation of young Al
Saud princes, not a generational oddity.

All of these recent changes do not mean the royal family is united behind
MBS; only that they have acquiesced to the wishes of their all-powerful
king out of respect. Any number of senior princes who expected to play
major roles in ruling Saudi Arabia over the next decades now are essen-
tially powerless. Some Saudis now believe MBS, realizing his opponents
could seek to reverse this once his father dies, will persuade King Salman

34 Saudi Arabia in Transition: From Defense to Offense, But How to Score?

to step aside in the near future to assure his son becomes king. As for Saudi
citizens, they deplore uncertainty so clarity is a positive for them regardless
their views on MBS. Asked the hypothetical question which prince would
win were Saudis allowed to vote, most citizens 40 years old or above
claimed victory for Mohammed bin Nayef; younger Saudis tended to proj-
ect the youthful MBS as the winner. Now he is. It is he who must literally
remake Saudi Arabia’s society and economy even as he fends off external
enemies. The whole world has a stake in his success.

King Salman, right, and Defense Minister and Deputy Crown Prince Mohammed bin Sal-
man wave as they leave the hall after talks with the British prime minister in Riyadh, April
5, 2017. (Saudi Press Agency)

Belfer Center for Science and International Affairs | Harvard Kennedy School 35
 Conclusion
The Kingdom of Saudi Arabia clearly confronts unprecedented problems
at home and abroad. While confrontations with Iran, Yemen, Iraq and
Syria all help buy government some greater public patience for the painful
adjustments beginning to be imposed to reform the national economy, that
patience is likely to have limits. Nor will more entertainment options mask
discontent from the 60% of Saudis who can’t afford a home or the 70%
who live below the government’s definition of self-sufficiency of $2000 a
month, and surely won’t appease the estimated 40% of young Saudis who
are jobless. Hanging over the nation is the uncertainty of reforms, albeit
less than before MBS was named crown prince, and an untested new gen-
eration of leaders. But after eight years of tilting toward Iran, the U.S. once
again is firmly behind Saudi Arabia. Whether Riyadh will use this renewed
friendship to try to settle scores with Iran or see an opportunity to reduce
tensions abroad to allow more and faster progress on its reform agenda is
unclear. As serious as the Iranian threat is to the Middle East, Saudi Arabia
should give priority to its domestic problems as the best way to safeguard
the home front from the instability Iran has spread to Saudi neighbors. The
U.S. would do well to use its considerable influence to keep Saudi Arabia
focused on essential economic and social reform and to help the Kingdom
achieve those reforms. Nothing else has a better chance of moderating
extremist Islam in Saudi Arabia, advancing Saudi human rights and stabi-
lizing this most strategic of Arab nations.

36 Saudi Arabia in Transition: From Defense to Offense, But How to Score?

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