The Doomsday Predictions Are In

The U.S. Energy Information Administration released its Short Term Energy Outlook yesterday. There’s a bombshell on page 4. EIA now forecasts that total Iranian oil production is set to decline by 850,000 b/d by the end of 2012. Here it is word-for-word:

EIA expects Iran’s crude oil production to fall by about 850 thousand bbl/d by the end of 2012, and by an additional 200 thousand bbl/d in 2013, from its previous output level of 3.55 million bbl/d at the end of 2011. Iran’s output decline began to accelerate during the last quarter of 2011 and has continued. EIA believes that this acceleration reflects a lack of investment, which is needed to offset natural production declines. A number of foreign companies that were investing in Iran’s upstream have halted their activities as a result of previous sanctions against Iran that have made it difficult to do business with the country. EIA expects that the forecast decline in Iran’s output will be offset by increased production in other OPEC member countries.

Just this morning, the International Energy Agency released its monthly assessment. It too has a bombshell. IEA now thinks Iranian oil exports have already declined by 1 million b/d this year. Overall production is said to be 3.3 million b/d, down from 3.5 million b/d at the end of 2011. Exports have shrunk to only 1.5 million b/d. And where are all those extra barrels of oil going? Tankers supposedly took on 10 million more barrels last month, according to the IEA. Total oil now held at sea could be as much as 42 million barrels, says Bloomberg’s IEA report summary. “About 17 supertankers and seven Suezmaxes are holding crude, with another estimated 25 million barrels being kept in onshore tanks, the report showed.”

Taken together these assessments are considerably worse than my grim survey for Tehran Bureau. Overall production has only declined 200,000 b/d, meaning Iran is on track to face the shut-in dilemma mentioned yesterday on this blog. But a loss this big–and this early in the year–suggests sanctions are locked in ahead of the deadlines set by the U.S. and EU. The EU ban is already in place. Asian customers are buying less Iranian oil in order to avoid U.S. sanctions.

It’s hard to overstate what this means for Iran, the market, and the sanctions regime. For Iran, additional field declines could ultimately push exports below the 1 million b/d mark unless the regime starts rationing oil at home. Oil fields have a shelf life, remember. They need new tricks like technology or more drills in order to keep pumping at a sustained rate. Iran has neither. Even if the EIA’s doomsday estimate doesn’t materialize in full–and Iran loses only 400,000 b/d in overall production–we’re still talking about a serious loss not including the pending reinsurance ban, which could force South Korea and other countries to halt imports entirely.

Market fundamentals also look to be easing at the worst possible moment for Tehran. Global demand growth is now expected to rise by ~810,000 b/d this year. Europe’s unresolved economic crisis, China’s slowdown, high gasoline prices, and uncertainty about the U.S. recovery have all sucked some optimism out of growth forecasts. At the same time, North American production is surging. Non-OPEC output is on pace to match this year’s rise in demand. Elsewhere, Saudi Arabia remains committed to balancing the market and replacing Iranian crude if necessary. Saudi production declined slightly last month but, with inventories swelling around the world, there’s little doubt the market is well supplied. “The second half of the year could see a further easing in fundamentals, despite seasonally higher demand,” OPEC said this week.

Ideally, Iran’s losses will change the atmosphere of ongoing nuclear talks, just as they were designed to do. New incentives should be tabled if a lack of investment slashes Iran’s oil production. Lifting sanctions would permit new investment inside the country; revoking the threat of being cut off from the U.S. financial system would allow foreign companies to return to Iran’s aging fields. The U.S. and others could also offer greater access to advanced oil recovery technologies. That should be more appealing than the airplane parts currently on offer.

Iran would still have to come clean on the nuclear file, of course. But–for the first time–we might see the P5+1 offer deal sweeteners rather than just relief from further punishment. A comprehensive settlement would naturally make Iran more attractive for businesses since the threat of war would subsequently recede. If all sides act with the positive intentions, it could even become a springboard for normalizing Iran’s economic relations with the world.

This post probably rings triumphant or too optimistic for some readers. This isn’t my intent. Even if sanctions prove “crippling,” we don’t know yet whether it’s enough to change minds in Tehran. We can add up barrels and dollars and estimate what Iran stands to lose. But we don’t know for sure what the nuclear program is actually worth to the Supreme Leader. In only a few more months, the trajectory of negotiations should tell us.

Can Saudi Arabia Flood the Market?

Saudi Aramco Headquarters in Dhahran

The second part of Andrew Scott Cooper’s Tehran Bureau series is now available (click HERE). It’s worth a second look. His statements are in quotes.

Fast forward to May 2012 and oil is still priced at over $100 per barrel, Iran’s nuclear program is moving forward, and the Saudis have not moved against the oil markets.

The Saudis haven’t moved against the oil markets? Last year they pumped about 8.5 million barrels a day (b/d). Because of disruptions and anxiety surrounding a possible strike on Iran, they are now pumping 10 million b/d, all in an effort to push down prices. Cooper says the Saudis might flood the market in order to turn the screws on Iran. But the Saudis are already flooding the market: according to the International Energy Agency, supply is now outpacing demand by 1.5 million barrels on a daily basis–roughly the number by which Riyadh increased output this year.

They’ve also promised to keep producing at this rate for the near future. And Iranian authorities aren’t happy about it. On May 29, Iran’s OPEC Governor Mohammad Ali Khatibi blamed Saudi Arabia for producing too much. “Increasing production by some OPEC members, especially Saudi Arabia, will create instability in the market and will likely lead to a serious decline in oil prices which undermines OPEC’s goals,” he said.

We can’t give the Saudis all the credit. Oil prices are declining because the global economy is sputtering. But where would prices be without Saudi Arabia’s additional 1.5 million barrels a day? Brent–the European benchmark that Saudi oil prices are tied to–now sits at $98. The Saudi target price might be $100, according to Oil Minister Ali Naimi, but there’s no indication Riyadh will cut back production soon.

Iran, and not Saudi Arabia, was OPEC’s preeminent power broker [in the mid-1970s]. Although the Shah was a U.S. ally, he had antagonized Washington by engineering the 1973 oil shock that led to the swamping of Western economies with debt, unemployment, and inflation, and sparked fears of banking collapses and the bankruptcy of NATO allies in southern Europe.

Iran was not the “preeminent power broker” of OPEC in 1973 even if it was a major producer. Saudi production was still higher that year. And the Shah did not “engineer” the 1973 oil shock. King Faisal of Saudi Arabia, who was known for being preoccupied with the Palestinian condition and a staunch opponent of Zionism, led the embargo effort after the U.S. sided with Israel in the Yom Kippur War (see Daniel Yergin’s account in Chapter 29 of The Prize).

The Shah joined OPEC members in hiking the posted price of oil in October 1973. But he kept production high, sold to the U.S. and Israel, and did not join the embargo. Washington was certainly disappointed with the Shah because he refused to push down prices. But it was the embargo—combined with the devaluation of the dollar in 1973—that shook the market, hurt Western economies, and drove inflation. The Shah cashed in. He did not create the crisis.

In the wake of the Arab Spring unrest across the Middle East, the Saudi government announced that it planned to increase state spending by at least one third and pump more than $130 billion back into the domestic economy. This raises the risks of monetary overheating and inflation. An estimated $6 billion will be spent on foreign study scholarships alone. Anxious to stabilize the emerging regional order, the Saudis have poured at least $5 billion in loans and grants into Egypt to prop up that country’s foreign currency and military government. Billions more are being spent to combat Iran’s vaulting ambitions in Lebanon and Iraq. Then there is the $60 billion arms deal concluded with the U.S. in 2010 — the biggest of its kind.

Who will pay for the billions in welfare subsidies and high-tech weapons?

The Saudis aren’t facing a massive budget crunch. The $130 billion package announced by King Abdullah last year, for instance, includes housing and other projects that will take the better part of a decade to complete. Monetary aid given to foreign countries is also a slow-going process (if it is ever delivered). Just ask the Egyptians, who only recently secured a Saudi aid package of $1.5 billion, even though it was promised last summer. The arms deal is another example of gradual spending mistaken for splurging. The deal may be worth $60 billion but that covers the life-cycle of the equipment sold. That sum will be spread out over the next decade.

In the meantime, Saudi coffers will only grow. Last year they posted a budget surplus of $81 billion even though the King’s expanded welfare programs had already increased wages and benefits for many Saudis. I can’t guess what Saudi Arabia’s budget surplus will be this year. But for the first six months of 2012, they pumped 10 million b/d when the market’s asking price hovered well over $100. I bet the 2012 surplus will be significantly higher than 2011.

Iran should be more worried about declining prices than Saudi Arabia. The IMF now estimates that Tehran needs $117 a barrel in order to balance its budget. Reuters, citing national authorities and the IMF, says Saudi Arabia’s break-even price per barrel is only $71.

As I noted in my column earlier this month, the Saudis are not only producing oil at full capacity, they are also stockpiling much of their surplus production. Until they decide whether to hold on to it or flood the market with it, the Saudi oil sword remains sheathed for now and the global game of risk continues.

The Saudis are not producing at full capacity by anyone’s measure. They insist their max capacity is 12.5 million b/d. Many think this is too generous. Critics say 11.9 million b/d is probably more accurate. As of today, they’re only producing 10 million b/d, which means the Saudis could still ramp up production by nearly two million b/d if we stick with the pessimistic assessment.

The Saudis are stockpiling oil in order to calm the market and prepare for the seasonal rise in demand that comes with the summer air conditioning season. But they can only flood the market if they have buyers. Since the market is already well-supplied, buyers have little reason to buy more, and so the only way to manipulate supply-demand dynamics and push down prices would be to offer discounts which make unwanted oil more appealing. There’s little reason to believe the Saudis are preparing for a fire sale, however. Discounting is tricky business because other customers may demand the same treatment.

Iran is in a very different position. They now appear to be stockpiling because they lack other options. The Islamic Republic is reportedly storing millions of barrels of oil offshore on crude tankers because they cannot find customers. Domestic storage must be nearing capacity if it is not already maxed out. Iran may ultimately sell those distressed cargoes at a discount in order to make room for future production which they are afraid to shut in.

Iran will probably flood the market with cheap cargoes before the Saudis do.

Surprised by Saudi Arabia

The New York Review of Books posted a brief overview of U.S.-Saudi counterterrorism cooperation on May 21. “Saudi Arabia and the New US War in Yemen,” by Hugh Eakin, is worth reading if you aren’t already familiar with the partnership or the fact that Yemen has become the new “front line” between the U.S. and Al Qaeda. Judging by the popular reaction to Al Qaeda’s most recent plot, which was foiled by a Saudi agent, this relationship is still news for some. Many don’t realize just how close cooperation is today and how we got here. Eakin fills in those blanks.

In the last month I’ve repeated many of Eakin’s points when speaking with those who were surprised that the Saudis were responsible for ­thwarting terrorists—rather than supporting them. I’m talking specifically about people who follow the news but not the Middle East. The Kingdom continues to suffer from a reputation deficit 10 years after 9/11. Some  may remember Osama bin Laden was born in Saudi Arabia, for instance. Americans might still recall that 15 of the 19 hijackers were Saudi (as Eakin points out, Saudi hijackers were probably selected in order to harm U.S.-Saudi relations). And, even if those details were forgotten, the bitter taste of the 1973 oil embargo lingers. High oil prices are still blamed on “greedy” Arabs and OPEC, which are both synonymous with Saudi Arabia.

From an American perspective, these negative experiences are made worse by a general ignorance of Saudi culture, governance, people, and faith. Saudi traditions are quite the opposite of America’s in many respects: the country is run by an absolute monarchy, gender segregation is strictly enforced, and freedom of opinion and assembly are not protected. Islam also remains suspect in the U.S., unfortunately, thus turning Saudi Arabia’s faith into another obstacle.

Crudely speaking, Saudi Arabia is frequently dismissed by commentators as an unreliable ally—another Pakistan playing a double-game with Washington and our enemies. Though false and easily disproven, this narrative persists. Americans still find it hard to trust Saudi Arabia although it shares the same enemies (Al Qaeda) and interests (Iran’s nuclear program, energy market stability, etc.). Unlike relations with the U.K. or Israel, familiarity and empathy do not bolster the relationship.

Ignorance goes both ways, of course. Many in Saudi Arabia are not eager to give Americans any benefit of the doubt after witnessing multiple U.S. invasions in the Middle East and zero improvement in the Palestinian condition. The official Saudi response to 9/11 was also inexcusable: Crown Prince Nayef, for instance, blamed the Jews for the attacks; in general the Kingdom’s immediate response was terribly sluggish. As Eakin points out, Saudi Arabia really only addressed the threat after a bloody Al Qaeda campaign killed hundreds inside the Kingdom from 2003 onward. (See Thomas Hegghammer’s authoritative account, Jihad in Saudi Arabia.) Al Qaeda’s vicious and indiscriminate campaign in Iraq further alienated Saudis who saw the group kill more Muslims than Americans.

I admit Eakin’s overview is not extensive and Yemen-watchers will find it incomplete. But it highlights a few issues that I think are worth repeating. It’s also well-written which counts for a lot in my book. Here are a few selections that stuck with me:

The story begins in the decade after 9/11, when two key figures, both Saudis, emerge in the confrontation between counterterrorism agencies and al-Qaeda-inspired groups. One is Prince Mohammed bin Nayef, the head of Saudi Arabia’s counterterrorism force and son of the country’s Interior Minister and heir apparent, Crown Prince Nayef. The other is Ibrahim Hassan al-Asiri, a young former chemistry student, who became radicalized and went to Yemen, where he has emerged as the talented and dangerous chief bomb maker of AQAP [Al Qaeda in the Arabian Peninsula].

[…]

Why is AQAP intent on attacking Saudi Arabia, a country that adheres to one of the most conservative forms of Islam in the world? Saudi Arabia holds special significance to as the seat of Islam’s holiest sites; and its close ties to Western governments—before and since 9/11—have rankled fundamentalists. According to Saudi officials, AQAP is upset with Riyadh’s renewed alliance with the United States, which Saudi officials believe the 9/11 attacks were designed to destroy. Indeed, the wave of terrorism that swept Saudi Arabia in 2003 and 2004 was largely aimed at Western targets within the Kingdom, though hundreds of Muslims were killed as well.

[…]

Paradoxically, AQAP’s recent offensive seems to have led instead to greater collaboration between Saudi and US officials—and, if reports are to believed, reliance on the Saudi rehabilitation approach. Saudi counterterrorism agents helped investigate the Christmas Day bomb plot, and in 2010 they discovered the AQAP plot to put bombs designed by al-Asiri on cargo planes—intelligence which they shared with the US and other “friendly countries” (Saudi officials apparently even gave US officials the tracking numbers of the bomb packages). Moreover, the Saudi rehabilitation center may have been a key asset in uncovering the 2010 plot: According to Yemeni officials, the tip about the cargo bombs came from an Saudi national, Jabir al-Fayfi, who had been released from Guantanamo and gone through the rehabilitation center in Riyadh before joining AQAP in Yemen, apparently as a plant.

[…]

One conclusion, then, may be that the Saudi government has not only been able to use the country’s vulnerability to extremist movements to gain new insight into al-Qaeda and the recruiting process; it can also draw on rehabilitated former jihadists to further its intelligence efforts. Moreover, Saudi Arabia has long cultivated ties with various Yemeni tribal leaders, and with deep historic connections between southwest Saudi Arabia and Yemen, Saudi agents are well placed to penetrate the deep tribal networks in which AQAP is said to be embedded.

[…]

Perhaps most important for the Saudi government, a successful counterterrorism policy carries enormous political value amid the upheavals of the Arab Spring. Even more than democratization or regime change in the region, the Saudi rulers seem to fear instability and unpredictability: though they have reluctantly supported the transition of power in Yemen, they are particularly nervous about the kind of extremism that has emerged in neighboring countries like Iraq, Yemen, and now Syria, when uprisings turn into violent conflict or authority breaks down entirely—places where Saudi jihadists have often found new causes. “Syria will be tempting to al-Qaeda,” Abdulrahman Alhadaq, a Saudi counter terrorism official, said in a briefing in Riyadh. “We need to avoid another Iraq.”

The U.S. and Saudi Arabia worked closely last year to remove Yemen’s president of 33 years–Ali Abdullah Saleh. Saudi Arabia recently pledged $3.5 billion in aid to the country also. This year, the Saudis are reportedly giving Syrian resistance fighters equipment, weapons, and cash, as they fight to end the rule of President Bashar al-Assad, Iran’s closest ally in the Middle East. Although the U.S. is still only supplying humanitarian aid and rhetorical support to Syrians, U.S. officials have not criticized Saudi Arabia’s  bold moves, presumably because they approve. The Saudis are just now finalizing a massive aid package that will allow post-revolutionary Egypt to acquire a bigger loan from the IMF. List that as another example of Riyadh and Washington sharing and securing interests–by design or default.

Regarding Yemen, U.S.-Saudi cooperation is essential, as Eakin suggests–but it cannot be limited to counter-terrorism operations. Yemen’s problems are bigger than Al Qaeda but they also enable Al Qaeda. Riyadh and Washington must work closely with leaders in Sana’a to get Yemen’s economy back on the rails. In order to do this, democracy must also be encouraged, so that a leader invested with legitimacy can act with the boldness required in a country so desperate. A comprehensive approach is necessary. If the last 10 years of cooperation are proof, Riyadh and Washington are positioned to make a difference together.

All this begs the question: How wrong was the recycled wisdom of 2011? Last year we were told that U.S.-Saudi relations were in free-fall after the White House abandoned Hosni Mubarak of Egypt.

Cooper’s New Article: Saudi-Iranian Oil Policies Then and Now

I promise this will be my last post on Iranian oil for a while (maybe a week?). But I want to point you in the direction of a new article on Tehran Bureau that dovetails with my 2012 Iranian Oil Survey, also published by PBS. The author is Andrew Scott Cooper, who recently wrote The Oil Kings: How the U.S., Iran, and Saudi Arabia Changed the Balance of Power in the Middle East. His book was well-reviewed but I haven’t read it yet. Unfortunately, my stack of must-reads is tall enough that it could tumble over late one night and smother me in my sleep.

Cooper’s Tehran Bureau article, titled “Iran’s Economy: Once More to the Precipice,” suggests that today’s theocrats are in danger of repeating the Shah’s economic mistakes and losing oil revenues at a critical time. I (mostly) agree with him that Saudi policy will make or break Iran; Saudi remains the world’s only swing producer and Saudi-Iranian tensions remain high. Former Iranian president and current head of the Expediency Council, Ali Akbar Hashemi-Rafsanjani, agrees too. In March he said, “If we had good relations with Saudi Arabia, would the West have been able to impose sanctions? […] Only Saudi Arabia could fill the void left by Iran.”

But a few of Cooper’s points deserve a second look. His statements are in bold:

The last time the Saudis intervened in the oil markets was in 2008. Fearing the collapse of U.S. banks and financial networks, President George W. Bush appealed to King Abdullah to open the spigots and offer price relief to Western consumers. In the last six months of 2008, the price of a barrel of oil plunged from $147 to under $35, dealing a massive and unexpected financial blow to Iran.

Cooper gives way too much credit to Saudi Arabia for driving down the price in 2008. The sequence of events that year is revealing. A cursory timeline shows that the Great Recession destroyed the price structure that year by decreasing demand. Cooper, however, gives sole credit to Bush’s appeal and the Kingdom’s willingness to “open the spigots.”

Let’s rewind. Bush visited King Abdullah twice in 2008, once in January and again in May. In order to satisfy the White House, Riyadh raised production by a modest 300,000 b/d in June. Critics and market analysts dismissed the increase as too little, too late. In truth, Bush’s appeals failed. The Kingdom did not ramp up production enough to make a dent in the price.

Prices continued to rise in spite of Saudi Arabia’s modest production increase. Brent, the European benchmark that Saudi oil is tied to, reached a record high of $147 a barrel in July. Saudi officials, for their part, did not think increased production would correct the price because they believed speculators were to blame—not supply-demand dynamics.

July oil prices settled into the $120-$140 range after reaching their historic high. In August, prices hovered around $115. Lehman Brothers collapsed in September and with it the global economy entered its free fall. Brent sold for $105 on September 1, two weeks before Lehman Brothers filed for bankruptcy. It bottomed out at $35 in late December, as the recession dragged economies down.

The Saudis did not ramp up production and drive down prices. It was the recession that slashed prices and temporarily ruined oil’s appeal as a traded commodity.

Although Ahmadinejad’s government absorbed the losses, the outbreak of anti-regime protests the following year suggests a causal link between turbulence in the oil markets, economic distress, and social and political unrest. It was a lesson the Shah learned to his bitter regret 35 years ago. To paraphrase economist Jahangir Amuzegar, the Islamic Republic — like the monarchy it succeeded — still rests on “oily legs.”

I can’t remember any protests against Iranian oil policy or the low price of crude in 2009. Oil politics did not consume Twitter that summer. No Iranians carried signs claiming the regime was wasting its crude oil inheritance. Instead, hundreds of thousands of people turned out to protest the regime because they believed Ahmadinejad’s re-election was rigged. We can safely assume that many protested because Iran’s economy is in bad shape. But overlapping grievances and causation are not the same.

The Green Movement championed dignity in the face of arbitrary, pervasive oppression and the denial of fair elections. There is no “causal link” between oil and unrest in this case.

Stockpiling oil when prices are high is “economically counterintuitive,” observes the Financial Times. So what is going on here [now that Saudi and U.S. inventories are growing]? If the Saudis do not intend to take the oil to market, and if the Americans do not intend to consume it, what do they intend to do with it?

Yes, stockpiling oil when prices are high is stupid. But how high was the price of Saudi crude in the first half of this year, when American inventories began growing? I ask because, since the last quarter of 2011, U.S. imports of Saudi crude have climbed above those from Venezuela and Mexico, two countries in the same neighborhood that normally vie for second or third place in total exports to the U.S. (behind Canada). Saudi Arabia now stands as America’s number two source of imported oil, a position they have not held for roughly a decade.

Multiple sources confirm the Saudis discounted crude in order to increase sales to the U.S. and push down the price everywhere. The article cited by Cooper says as much: “Data shows that the Saudi crude has been priced advantageously for U.S. buyers. Official selling prices (OSPs) for U.S. buyers, which are set by the state oil firm Saudi Aramco, have fallen to a deep discount versus Asian and European refiners, according to Reuters data.”

Sitting on oil makes sense if you’re getting it cheaper and prices are expected to stay higher.

The Kingdom’s Many Layers

Bloomberg Markets Magazine published a good survey of Saudi Arabia on April 2. The article, titled “Saudis Skip Arab Spring as Nation Pours Money Into Jobs,” explores the unemployment crisis in the Kingdom and the absence of a unified opposition. Donna Abu-Nasr’s report is lengthy but well worth your time. She offers some great statistics bolstered by good interviews with the broader public.

Saudi Arabia, I think, might be the least understood country in the region for a number of reasons. First, of course, is the country’s conservative streak, as seen in culture and religious observance. Second, Saudi Arabia is an absolute monarchy so there is very little political space open for debate or self-criticism. Saudis and others around the Gulf are happy to talk politics but those discussions take place at home. Without open debate, however, Saudi Arabia seemingly lacks a diversity of opinion, no matter how false that conclusion is. Regrettably, media restrictions prevent this fact from openly challenging assumptions made by outsiders. According to Reporters Without Borders and their 2011-12 Press Freedom Index, Saudi Arabia ranked 158 out of 179 countries. (The US ranked 47th because so many journalists were arrested while covering the Occupy movement in 2011.)

The Kingdom’s conservative and autocratic tendencies lead outsiders to judge the country rather than explain it; few can tolerate the thought that the monarchy may enjoy some measure of legitimacy, for example. The end result is a superficial understanding of Saudi Arabia and its people, as well as their history and future–obscured by foreign expectations. This lack of empathy is also partially explained by how difficult it is to travel to the Kingdom if you’re not doing business. Non-religious tourism just doesn’t exist. And few academics are tripping over themselves to spend months or years in Saudi Arabia (though the few who do are outstanding). The end result is cartoonish representations found in foreign media.

It’s also often assumed that Saudi Arabia is artificial. According to this argument, conservativism and the monarchy are imposed by the royal family–they are not organic. But King Abdullah’s reputation as a reformer–in the slow-motion Saudi sense of the word–enhances the royal brand. Successive kings have brought tremendous wealth and higher standards of living to the Kingdom. It is hard to disassociate the global rise of Saudi Arabia’s economic, political, and spiritual profile from the royal palace. While a democratic election may be the gold standard for legitimate rule, the royal family’s authority is buoyed by the nation’s speedy development, as well as its custodianship of Islam’s holy sites.

Conservative attitudes are not wholly dependent on government decrees. In fact, religiosity can be explained as a “bottom-up phenomenon,” reinforced by the will of many–even though agents of the state are responsible for compliance. Abu-Nasr captures this fact neatly: “Though men wear identical white robes in public and women wear the black abayas, Saudis aren’t as homogenous as they first seem. Some are liberals who want more freedom, while others are conservative, pushing for more restrictions.” I don’t know what the liberal-conservative breakdown is in Saudi Arabia. Without party politics or national elections, there are no platforms to dissect, or poll results to reference. But is it so hard to believe that Saudi Arabia today is a product of its people–not just the monarchy?

While the above comments may be contrarian, they are no excuse for sanctioned violence, abuse, corruption, or sectarian discrimination. Indeed, these failures, along with systemic unemployment, pose the greatest threat to Arab sheikhdoms because they sap legitimacy from monarchies. The Gulf Arab states generally would benefit from more open political spaces, even though royal power would be contested as a result. But when speaking honestly about this sub-region of the Middle East, observers should stop short of projecting their own desires onto countries like Saudi Arabia. It’s unwise to assume no one could be proud to live in a country that lacks certain freedoms and promotes a version of Islam which some find controversial.

As for statistics, consider the following:

Under-30s such as al-Ghamdi and his friends make up 66 percent of the Saudi population — a group that also has the highest rate of unemployment. About 27 percent of the Saudi labor force aged 20 to 29 is unemployed, according to data from the Central Department of Statistics and Information.

That’s almost on a par with Spain, where 36.4 percent of 16- to 29-year-olds were unemployed in the fourth quarter of 2011, the highest rate in the European Union.

[…]

In a country of 28 million people, about 8.6 million are foreigners, who make up most of the labor force. Just 4.3 million of the almost 19 million Saudis were in the workforce in 2009, according to the most-recent statistics agency data.

[…]

With an unemployment rate of 55 percent for women aged 20 to 29, it’s not surprising that Sultan and her friends jump at the few chances offered to them. Keeping their male cohorts happily employed is trickier.

[…]

Some 90 percent of the private-sector workforce in Saudi Arabia is foreign. It’s rare to find a laborer, waiter or construction worker who’s Saudi: They tend to prefer desk-bound managerial positions.

I welcome all comments, expecting some to disagree. I’m also eager to hear from our Saudi readers. I know there’s a few.

Saudi-Iranian Relations and OPEC

Platts has a new post on its blog (The Barrel) that reveals Saudi Arabia’s nominee for OPEC’s next secretary general. Riyadh’s choice is Majid Moneef, and his resume is impressive. “US-educated Moneef knows OPEC well. He has been a member of Saudi Arabia’s ministerial delegation to OPEC since 1988. He has served as Saudi Arabia’s OPEC governor and as the kingdom’s national representative on OPEC’s Economic Commission Board. He has also served as an adviser to the minister,” Margaret McQuaile and Kate Dourian wrote on February 1.

After introducing Moneef, the authors conclude that there’s little chance he’ll be accepted by Iran, since the appointment of secretary generals can be complicated by politics. Saudi-Iranian relations are probably as tense today as they were thirty years ago when the Islamic Revolution ousted the Shah and threatened Saudi Arabia.

But this year could be different. Not because tensions will prevent Moneef from becoming the next secretary general, but because Iran has recently signaled a willingness to accommodate Saudi Arabia in surprising ways. Indeed, Tehran’s outreach has been linked to oil matters especially. Take for example OPEC’s last meeting in December 2011. It was there that Iran sent its new oil minister, Rostam Qasemi. As I wrote on December 15, Qasemi–a Revolutionary Guardsman more associated with the Ayatollah’s wishes than the finer points of oil production–arrived with a “very different tone, approach, and result.” He ultimately signed off on OPEC’s first output agreement in three years. The Saudis were very happy with it.

The agreement increased OPEC’s production ceiling to 30 million barrels per day just as the Saudis had wanted. Only months before–at OPEC’s June meeting–Iran rallied price hawks in an effort to prevent the organization from expanding production. At the time, I wrote that the OPEC agreement was an interesting development, one made even more noteworthy by a visit to Saudi Arabia made by Iran’s Intelligence Minister. No doubt he visited Saudi in order to address the alleged assassination plot targeting the Saudi ambassador to Washington. I also speculated then that Moslehi’s visit probably included a conciliatory message from the Supreme Leader. Together these moves showed Iran was trying to dial back tensions.

But it’s unclear how far Iran is willing to reach out across the Gulf now. The OPEC agreement and Moslehi’s visit took place in the same week in December, thus hinting that Iran had tried to find an off-ramp before tensions reaching a tipping point. Comments made by Iran’s Oil Minister at the December OPEC meeting, however, suggest that Iranian good will was conditional. Worried about the upcoming EU ban on Iranian crude, made official on January 23, Qasemi told reporters that Naimi, his Saudi counterpart, had promised to refrain from replacing Iran’s share of the market. Saudi Arabia would not produce more oil to make up for Iranian crude, he said.

To my knowledge Naimi never confirmed Qasemi’s statement. And it’s hard to imagine Saudi Arabia refusing to increase production when the market is at risk and they have spare capacity ready; the Saudis, to their credit, often prove willing to pump more oil and preserve the market, for fear that high prices could drive consumers toward alternate energies. Naimi directly contradicted Iran’s oil minister on January 16, telling CNN, “I believe we can easily get up to 11.4, 11.8 (million barrels a day) almost immediately, in a few days, because all we need is to turn valves,” if Iranian production is curbed.

Naimi’s promise and Iran’s economic turmoil may have hardened Tehran’s stance since December. But we can’t be sure yet. I for one think it would be premature to dismiss the Saudi nominee for the OPEC post, based simply on a presumption of animosity, considering last month’s reconciliation efforts made by Tehran. Moneef might actually be a weather vane in this case: any drama surrounding his nomination should reveal the dominant mindset in Iran. We’ll know soon if Tehran wants to pick a fight with Riyadh–or reconcile.

Saudi Arabia tends to get what it wants at OPEC meetings because it is the biggest producer. When OPEC doesn’t fall in line, it still acts on what it thinks is best for the market. We saw this in June when the country expanded oil production after an OPEC meeting collapsed. This predominance best explains why Saudi has not held the the secretary general post since 1967. That said, this nomination might be important not for the organization–but because it will tell us more about Saudi-Iranian relations.

Note: I know plenty of people read this blog and don’t know much about oil. So what does the OPEC secretary general do? He’s an administrator, appointed by OPEC member states and tasked with executing OPEC’s agreed upon policies. Those policies are decided at annual conferences often hosted by the country which holds the OPEC presidency at the time. OPEC presidents assume the post according to alphabetical rotation. The individual who serves as president tends to be the oil minister of whichever country enjoys the title: Iran held the OPEC presidency last year; this year’s OPEC president is Iraqi. Ideally, OPEC presidents help set the agenda and seek consensus.

Note on US-Saudi relations after 2011

My Saturday post on the likelihood of Saudi Arabia participating in a conflict with Iran got me thinking about a rumor which–to my knowledge–remains unsubstantiated by anyone in government willing to speak on record. According to a few sources whose comments were then recycled for months by the media, relations between Washington and Riyadh supposedly collapsed in 2011, after the Obama administration abandoned Egypt’s Hosni Mubarak and Saudi Arabia intervened in Bahrain without warning.

I understand why the Saudis might be disappointed with the U.S. taking a principled stance in Egypt, however clumsily it was articulated by an administration suffering whiplash. And I’m sure the Pentagon was surprised by the GCC’s Peninsular Shield Forces suddenly entering Bahrain back in March. But I can’t believe these two episodes have damaged relations as much as is claimed.

Firstly, the stakes are too high in the region and the U.S and Saudi Arabia are still animated by terrorism, the Iranian threat, and oil. Secondly, U.S.-Saudi relations are more institutionalized than ever, with cooperation taking place not just at the executive level, but most often–and most importantly–at the bureaucratic level, among mid-level officials. This allows the relationship to continue on “autopilot,” even when there are hiccups at higher levels of officialdom. Finally, let’s remember the relationship has always suffered from a certain amount of friction. The Palestinian issue is a chronic irritant to name but one. And yet in spite of this and the seeming incompatibility of U.S. and Saudi government traditions, cultures, and faith, the relationship endures, buoyed by permanent interests which have overlapped for decades.

This is not a “Pakistan scenario.” The U.S. and Saudi Arabia agree on what constitutes a genuine threat. There is no double game to be played. And there is no alternative to American military might in the Persian Gulf, which will remain in place for years. Unlike relations with Pakistan, U.S.-Saudi relations are characterized by mutual respect–rather than convenience or unfortunate circumstances that force cooperation. I’d like to know what more people think about this issue since claims made last year have seemingly crystallized into conventional wisdom. I can’t say how many times I’ve heard the canard repeated. But it did prompt me to write last July about why I believe U.S.-Saudi relations will continue moving forward. I still stand by that post, titled “Nowhere Near Rock Bottom.”

Comments welcome.

What Might War Look Like?

If war broke out with Iran, there’s no doubt the U.S. would do the heavy lifting. The British and French would contribute but to what degree is impossible to predict. Depending on how the conflict erupted, the Chinese might very well back American action, given that country’s dependence on Persian Gulf oil and Iran’s stated willingness to close the Strait of Hormuz. But it’s hard to imagine Beijing contributing hardware or firepower.

Switching optics from the international scene to the regional level: few local powers could contribute if the contest came to blows. Even Israel’s participation is not guaranteed. Israeli action would depend on the availability of air space and whether or not they shot first or were dragged in later–if at all. If the U.S. were to cement a Gulf Arab-American front, complemented by Europe or even a UN mandate, chances are the participation of Arab states would force Israel to stay on the bench. There remains one key exception when considering who might contribute something tangible, and it may surprise many: the Kingdom of Saudi Arabia could and most likely would play a major role in any conflict, given its proximity, interests, capabilities, and vulnerabilities.

Saddam’s invasion of Kuwait in 1990 shocked the world. Within Saudi Arabia, that shock led King Fahd to accelerate arms purchases and expand training with foreign militaries. While Saudi Arabia’s armed forces are considerably smaller than Iran’s, they remain far more advanced. It’s worth remembering too that Iran’s ability to project violence beyond its borders is limited although coastal facilities along the Gulf are within striking distance.

CAPABILITIES

Saudi Arabia’s military is focused on airpower, land-based air defenses, the Yemeni border, and coastal areas along the Red Sea and Persian Gulf. Advanced weapons systems, especially those deployed by the air force, are the hallmark of the Saudi posture. This is a natural consequence of Saudi Arabia’s small population and manpower deficiencies: the kingdom’s entire population is less than 29 million—Iran’s is roughly 66 million. Active Saudi forces total 233,500. This includes: 75,000 army units; 13,500 members of the navy; 20,000 airmen; 100,000 national guardsmen; and 25,000 tasked with defending airspace and vital industries).*

Saudi Arabia’s current weapons systems should sound familiar to Americans. These include: M1-A2 Abrams battle tanks; UH-60A Black Hawk helicopters; F-15 fighter jets; American-built armored personnel carriers (APCs); TOW anti-tank guided missile launchers; Badr-class missile frigates; Harpoon anti-ship missiles; minesweepers; Patriot surface-to-air and anti-ballistic missile platforms; as well as five E-3A AWACS (Airborne Warning and Control Systems). Complementing these systems and others are guided munitions and sophisticated surveillance and targeting equipment.

Simply owning the tools does not make one a master craftsman of course. Questions linger about competency and Saudi Arabia’s ability to fight effectively. Much of this apprehension is natural since the Saudis have, to date, accumulated little fighting experience. The only yardstick of any military is its performance in the field. Most recently, Saudi forces were deployed to Bahrain in March, where they protected key facilities, thus freeing up the ruling family of the small island kingdom to crackdown harder. But there’s no evidence they took a “hands-on” approach. Before that, Saudi forces saw real action along their southern border after Houthi rebels from northern Yemen crossed into Saudi territory in 2009.

American-made weapons took the lead in what many believe was Saudi Arabia’s biggest military test since the Gulf War. The scale of the conflict, which lasted from November 2009 through January 2010, was limited but valuable for inexperienced units. The military’s performance did, however, reveal real deficiencies. After three difficult months, the Saudis won an undeclared ceasefire.

Any future conflict with Iran would be defined by Tehran’s use of asymmetric tactics. The key difference between fighting insurgents, such as the Houthi rebels, and Iran, however, is that the Islamic Republic has much more to lose. The Houthis do not represent a state; they have no infrastructure and must be leveraged in the field because their numbers are so few. Iran possesses vulnerable assets that could be struck repeatedly—these include sites within Iran like government offices, stationary bases, supply depots, etc. Saudi Arabia’s military capabilities are geared towards conventional conflict, meaning they could strike Iran with a similar rate of success as the U.S.

Saudi Security Forces

THE NEXT TEN YEARS

Today’s technology gap will only grow in the coming decade. The Saudis are expected to receive 84 new F-15 fighter jets. And, although the radar included with the jets is not yet confirmed, any upgrade would allow the Saudis to identify Iranian targets. 70 F-15s will be refurbished according to the agreement, thus allowing older models to achieve parity with new aircraft. New surface-to-air missiles will allow Saudi forces to strike from the same distance and with the same accuracy as their American counterparts. Up to 60 Longbow Apache attack helicopters will also be included. These systems would allow for speedier and nimbler action against Iran’s forces in shallow waters along the Gulf coast. Patriot anti-ballistic missile (ABM) batteries will be upgraded accordingly and will provide Saudi Arabia with better defenses against incoming missiles. And, finally, new ships will improve Saudi Arabia’s defenses against the IRGC and its navy, should those forces get passed American battle groups and try and attack an oil export terminal like Ras Tanura.

Also worth mentioning are ambitious plans now being developed by the new Saudi Defense Minister, Prince Salman. David Ignatius revealed on Nov. 18 that the Saudis were planning to double the size of their military over the next 10 years. According to Ignatius, “The doubling of ground forces is partly a domestic employment project, but it’s also a signal of Saudi confidence.” He also suggested, and other accounts confirm, that Prince Salman deserves his reputation as a “strong manager.” “This contrasts with what foreign analysts say was the loose discipline (and occasional corruption scandals) under his predecessor, Prince Sultan, who died in October after 48 years as defense minister,” Ignatius wrote. No doubt the Saudis are trying to close the numbers gap with Iran while widening the tech gap. Renewed professionalism, heightened expectations, and a sense of real danger have all combined to push the Saudi military in the right direction, at the right time, whether you’re watching events unfold from Riyadh or Washington.

CIRCUMSTANCES AND RESPONSIBILITIES

How Saudi Arabia is drawn into a conflict will dictate what options are tabled in Riyadh. These scenarios seem the likeliest: the U.S. could strike Iranian nuclear facilities first, Iran might then respond by attacking sensitive Saudi oil facilities along the Gulf coast and ports where American ships anchor; Iran could close the Strait of Hormuz if its economic situation became truly desperate, thus encouraging Saudi Arabia to respond along with the international community; Iranian-sponsored terrorism could even claim the lives of Saudi nationals, thus forcing the Kingdom to consider action with the expectation that the U.S. would offer assistance.

These circumstances matter because they would dictate the level of Saudi mobilization and their mission. In the event that the Strait of Hormuz was closed and swarmed with Iranian ships, it’s hard to believe the Saudis would offer the Fifth Fleet much help. Instead, the Saudis would most likely focus on their own border security, oil facilities, and the coast. While such a mission seems narrow given the international implications of a conflict in the Gulf, it would allow the U.S. to move against Iran without expending energy on defending Saudi territory. The Saudis could do this themselves.

Iran could also attack Saudi Arabia for replacing its share of the oil market. Iranian officials have already warned the Kingdom to reconsider their pledges to make up for any supply shortfall, with Iranian crude coming under increased sanctions. Saudi Arabia’s mission would naturally expand if Iran attacked Saudi oil facilities. It’s entirely possible that a strike on a key Saudi installation or the loss of many Saudi lives would prompt King Abdullah to insist on a bigger role for Saudi forces. Given their technical prowess and sizable fleet of fighter jets, the Saudi Air Force would take on offensive responsibilities, and add to America’s already devastating array of systems in the area.

*All data is from the 2010 edition of IISS’ The Military Balance.

Did Iran Just Blink?

2011 was not easy on Iran. Tactically speaking, the regime’s brand suffered from stunts like the foiled assassination plot targeting Saudi Arabia’s ambassador to Washington and the November assault on the British embassy in Tehran. There’s reason to believe both episodes have the regime’s fingerprints on them. Strategically the game is changing too.  While long-time American allies were forced from power, uprisings eventually erupted in Syria—the “Jesus pin” of Iran’s strategic constellation, which affords it access to favored proxies in Lebanon and the Palestinian territories. Sure there were some small victories to be celebrated by the regime: they captured an American drone, possibly revealed dozens of spies, and opened the Bushehr nuclear reactor on September 12. But the promising chaos of 2011 never translated into concrete gains. Meanwhile, Turkey changed from friend to foe, the Gulf Cooperation Council took a hands-on approach to regional unrest, and the US will maintain 40,000 military personnel within striking distance of Iran for the foreseeable future.

This realization might best explain Iran’s unexpected outreach to Saudi Arabia this week. On Tuesday, Iran’s Oil Minister, Rostam Qasemi, agreed to a new crude oil output framework in line with Saudi Arabia’s production goals. OPEC agreed to maintain an output level of 30 million barrels per day. Remember it was only six months ago that Iran led price hawks to demand a decrease in production. Such a move would raise prices, of course, and benefit Iran because it—like many other OPEC members—already operates at maximum capacity. And so it wants the highest price per barrel. Meanwhile, Saudi Arabia and Gulf Arab producers with spare capacity sought higher production (instead of higher prices) so that a fragile global economy might not be harmed further. (Note: spare capacity is the ability to pump more oil as necessary and moderate prices.)

The June 8 OPEC meeting was an embarrassment. Saudi Oil Minister Ali Naimi memorably said it was OPEC’s worst ever. Leading up to the meeting, President Ahmadinejad was caught in a public spat with Ayatollah Khamenei. He tried in April to dismiss Intelligence Minister Heidar Moslehi. The Supreme Leader denied the president, however, and Ahmadinejad instead dismissed three other ministers, including Iran’s oil minister.  In a daring attempt to enhance his status while under pressure from conservative opponents at home, he appointed himself caretaker oil minister shortly before OPEC’s June 8 meeting in Vienna. The Guardian Council denied him on constitutional grounds. Ahmadinejad then appointed a friend, Mohammed Aliabadi. Prior to his appointment as oil minister on June 2, Aliabadi was best known for threatening to boycott the 2012 Olympics in London because the Committee’s stylized numerals for “2012” could instead be misread as “ZION.” He previously served as vice president of athletics. Seriously.

Aliabadi’s performance was less than stellar. Even though Iran held the OPEC presidency in 2011 and the country is the organization’s second-largest producer, Saudi Arabia and Gulf Arab producers went ahead and expanded production in spite of Iran. Only one month later, after Aliabadi’s failure and Ahmadinejad’s stunning setbacks at home, the president appointed an IRGC commander to run Iran’s oil affairs. It was this new minister, Rostam Qasemi, who arrived at OPEC’s December meeting with a very different tone, approach, and result. This shift in posture is all the more dramatic given what happened on Monday.

Iran’s Intelligence Minister—the one Ahmadinejad failed to dismiss in April—visited Saudi Arabia two days ago in a surprise visit. He met with Crown Prince (and Interior Minister) Nayef and Saudi Intelligence chief Muqrin. According to the spokesman for Iran’s Foreign Ministry, Moslehi hoped to convince his Saudi counterparts that the alleged assassination plot was bogus. I have no doubt that the meeting was stiff but friendly enough. The Saudis are not prone to emotional outbursts when hosting members of foreign governments—even those representing their arch-nemesis. As much as I would like to be a fly on the wall for the meeting, the most revealing comments probably came afterwards, in private, and were made once the parties were separate. One would assume that Tehran insisted on the meeting since their official made the trip; this might also explain why the Saudis accepted. Moslehi did not meet the king but did meet the man who may soon inherit the throne. He might even have relayed a message from Ayatollah Khamenei.

The OPEC announcement and Moslehi’s visit suggest Iran wishes to improve relations with Saudi Arabia before the Kingdom is asked by the European Union to replace lost Iranian crude. Next month, the EU will consider new sanctions against Iran’s oil and banking sectors that could result an embargo against Iran. If it happened–and I doubt it will–the EU would presumably turn to those with spare capacity to make up the difference. According to the Associated Press: “Iranian oil Minister Rostam Ghasemi [written above as ‘Qasemi’] said he had met with Saudi counterpart Ali Naimi and gained a pledge that the Saudis would refrain from flooding the market with extra oil in case an international embargo on Iranian crude hurt Tehran’s ability to sell its petroleum.” Qasemi’s emphasis on an unconfirmed verbal agreement that would handicap EU sanctions reveals what Tehran is most worried about. Beyond this, official denials claiming Iran will not target Turkey’s new radar system or practice shutting down the Strait of Hormuz—through which 40 percent of world crude passes daily—suggest Iran’s hard-liners may be having second thoughts about their confrontational approach.

Iran’s strategic portfolio is in jeopardy, economic sanctions make life uncomfortable, and diplomatic isolation is reaching new depths after several European countries withdrew their ambassadors to Tehran after Britain’s embassy was attacked. It’s hard to believe Iran’s efforts to reconcile with an historic rival are disconnected from this year’s many troubles.

Awamiyah Rundown

By Matthew M. Reed

14 people were wounded in Saudi Arabia on Monday after riots erupted in the predominantly Shia town of al Awamiyah, located in the eastern oil-rich region of Qatif. According to AFP: “Tension in the village boiled over Monday as Saudi police arrested two men, both in their 70s, in a bid to force their fugitive sons, accused of taking part in Shiite-led protests, to surrender, according to a Shiite activist.” Judging from videos and other accounts, dozens of masked young men hit the streets; some lit small fires, others threw petrol bombs, and, for the first time in 2011, protestors fired on police with automatic rifles. To be generous, the protests appear ad hoc and amateurish and not a result of conspiracy or serious coordination.

Tensions first arose in March when hundreds of Shiites protested their community’s discrimination as well as the imprisonment of a leading cleric who called for reform. Saudi police responded immediately, as did global oil markets: within minutes of an Associated Press report suggesting police had fired their weapons to disperse the crowd, oil prices jumped $3 based on the assumption that an uprising in the east could disrupt production. Such knee-jerk reactions make little sense when one considers the fact that even al Qaeda could not disrupt Saudi oil or seriously damage infrastructure during its 2003-2006 campaign. But, that said, Qatif remains especially problematic for the Saudi royal family because sectarian faultlines and oil pipelines meet there. And many Shia do work in the oil industry, I understand. Beyond that, perceptions matter to the Saudis given their status as a major oil exporter that enjoys historic stability in spite of regional upheaval.

The Saudi response to Monday’s episode was speedy. As of Thursday, the town is reportedly quiet and security forces are withdrawing, but Saudi officials are making a lot of noise blaming an unnamed “foreign country” (i.e. Iran) for the unrest. It’s hard to say why, but the Saudis haven’t explicitly blamed Iran, even though the Gulf Cold War is in full swing. Completely ruling out Iranian involvement in Saudi Arabia’s Shia community would be unfair given Tehran’s historic connection to outfits like Saudi Hizballah, which the FBI concluded was responsible for the Khobar Tower bombings in 1996. But, in this particular episode, it seems very, very unlikely given that all accounts suggest the Saudis initiated the drama by pressuring the family members of two Shiite fugitives. (More surprising in this case was the fact that oil markets were unaffected by the drama in al Awamiyah. Anxieties surrounding the health of the global economy pushed prices down until Wednesday and today, when they ticked upward with news that US stockpiles shrank and the Labor Department was about to release a positive jobs report on Friday.)

Again, the videos—if they are to be trusted—suggest the protestors are not very disciplined: some ride around on motorbikes; others gossip in small groups while their masks make them appear more menacing than their actions. AFP also quoted Abdulaziz Sager, chairman of the Dubai-based Gulf Research Center, who suggested there was “‘concrete evidence of Iran’s involvement’ in this week’s unrest, including ‘telephone calls from Tehran that were intercepted’ by Saudi Arabia.” Mr. Sager continued: “This is ‘a message from Iran to Gulf states after its failure in Syria and its loss of a strategic ally. It will respond… and we will begin to see escalation in Bahrain and Saudi Arabia’s Eastern Province,’ he said.” I have reservations about this because the sequence of events suggests Monday’s drama was reactionary rather than a designed provocation. And, until Saudi officials are willing to own those accusations, rather than speak in generalities or in secret to some experts, it’s best to wait and see. We need more details for sure.

Frequent accusations should make observers wonder why the Arab Gulf sheikhdoms so often “cry wolf” and blame Iran. Part of this paranoia is historically based. In the immediate post-revolutionary period, Iran did in fact encourage Shia factions to agitate where Sunni rulers challenged the Islamic Republic. Such enthusiasm dried up when reformists came to power in Tehran during the mid-1990s. Since then, Iranian fingerprints have been harder to find on the Arab side of the Gulf—though not impossible. Instead we are left with accusations that many observers quickly dismiss. The problem here is two-fold.

First, obsessing over Iran without providing evidence can only hurt the monarchies’ credibility, if in fact there is some grain of truth to be found. The Saudis cannot benefit from a credibility gap as the U.S. shrinks its profile in the region. They and others need to provide evidence because it will only cement Iran’s reputation as a regional provocateur. (The problem then becomes what the Saudis do about explicit Iranian involvement. No doubt it would lead some at home to call for a serious response that could invite war–this might explain why the Saudis make such general comments.) Second, blaming Tehran for all domestic unrest prevents the government from taking any responsibility for the status of the Shia community, which, by all measures, suffers because it is a minority sect in an ultra-conservative Sunni-Wahhabi kingdom. Associations of this kind reinforce discriminatory practices because the Shia are portrayed as agents of a foreign enemy even if only some are sympathetic to Iran.

Saudi Arabia’s Shia community totals some two million of twenty million nationals. Given their sensitive location and size, there is no guarantee that the Saudis can keep a lid on their Shia problem forever. As events in Tunisia and Syria prove, it only takes one symbolic act, and a fuse is lit which leads to unpredictable consequences. If the Kingdom values long-term stability, the Shia cannot be driven into the arms of Iran, which current policies and accusations risk doing. There appears only one good way forward if the Saudis are worried about Iranian intrigue: Shiites must become fuller citizens and those grievances that afford Iran any leverage must be addressed. I write this, admittedly, from thousands of miles away, where it is impossible to tap into the historic enmity and mutual suspicion that defines Sunni-Shia interaction on the Arabian Peninsula. But the future of the Kingdom depends on farsightedness now more than ever in a time of uncertainty.