Saudi Arabia Defence and Security Report Q3 2009

Saudi Arabia faces a host of challenges over the coming year or so, with the economic downturn likely to increase dissatisfaction and inter-communal tensions. The violent clashes between protesting Shi'a Muslims and the security forces in February and March illustrated the resentment that continues to simmer below the surface. For Saudis to protest in this manner, given the reputation of the security services and jails, suggests that dissatisfaction is running deep. With an al-Qaeda threat already looming over the country, the question of the spill-over of violence from Iraq is a real source of anxiety for the authorities. This was seen in the recent declaration by the interior ministry that 'Iraq has become a major centre for Islamic militancy in the region'. Subsequently, when announcing the US$12bn security wall project, the powerful Interior Minister Prince Nayef added that 'a border fence separating us from Iraq has become essential to protect security' – both to stem the tide of Saudis travelling to Iraq to join the insurgency and to stop such fighters coming back to continue their jihad within the Kingdom. Al-Qaeda has a stated goal of toppling the House of Saud, which it deems an infidel regime. The succession question in Saudi Arabia now looks of imminent relevance. The 83-year-old Crown Prince Sultan is apparently very ill, and the decision of who will take his place remains undecided. It is possible that some instability could result, although this is not our core scenario. Prince Nayef, 75, looks likely to be appointed crown prince, signalling a potentially more conservative and hawkish direction over the coming years. This may be positive for stability, which is highly prized by Saudi Arabia's allies and trading partners. Although Nayef is seen as particularly conservative, and could even reverse some of the (tentative) reforms implemented by Abdullah over the last few years, the appointment of the younger rival Bandar bin Sultan, 60, would not necessarily be a bad thing in terms of stability. Ultimately, we believe that whoever is the next crown prince will maintain the status quo, with security remaining a priority and electoral, political and economic reforms kept to a minimum. Considering the size and wealth of the country, Saudi Arabia’s defence industry is small and underdeveloped. Despite previous efforts to create a degree of self-sufficiency in its defence production, the country still relies heavily on arms imports. Saudi Arabia has traditionally relied heavily on foreign sources of arms, and looks set to continue to do so in the medium term. The country’s geo-strategic position and pro-Western outlook have allowed it to receive high-technology weapons systems from the major supplier countries. The majority of arms have been sourced from the US, the UK and France. The most significant development to affect the country’s defence industry has been the sharp deterioration of personal security for overseas workers. The attacks in Khobar and the impossibility of guaranteeing security (a raid on ExxonMobil’s Yanbu complex was undertaken by employees with security passes) have led to a greater fear among expatriates and pressure to leave the country. We see Saudi Arabia managing to grow by 0.5% in 2009, with the rate bouncing back to 2.7% in 2010 and then continuing to recover gradually after that, although 4% rates of growth are not expected to return within our ten-year time horizon. The oil price of US$49/bbl may be a welcome rise now, but would have seemed horrifyingly low to Saudi policymakers this time last year. In the longer term, we see a gradual rise in oil prices, with the OPEC Basket averaging US$48.50/bbl in 2010, US$56.50/bbl in 2011, US$71.50/bbl in 2012 and US$81.50/bbl in 2013. This will see total exports grow from 2009's trough of US$169bn to US$303bn in 2013. This quarter, we have introduced a significant new aspect to BMI's Defence Reports, which is the City Terrorism Rating (CTR). This assesses the risk of a terrorist attack. The CTR takes into account the overall BMI Terrorism Rating for the country in question. It also incorporates the 'prevalence' of terrorism, which recognises the frequency of attacks, and whether the city is a target for terrorists. The CTR also recognises the 'threat' of terrorism in terms of the likely numbers of victims and the ability of groups to launch sustained campaigns. In Saudi Arabia we assess the CTR for Riyadh at 80.0, the seventh best of the 23 rated cities in the Middle East and Northern Africa region.