Saudi Arabia Over a Barrel

Oil prices have not been front-page news in the United States since the bad old days of stagflation, American hostages in Iran, and gas lines. But the near-tripling of the price of a barrel of oil since January 1999 has finally begun to hit American consumers in their wallets. Those two great bellwethers of the public mood -- politicians and late-night comics -- have again made gasoline and heating-oil prices grist for their mills. After two decades of generally low oil prices, how has this happened?

There are many reasons for the spike: an unexpectedly quick recovery by the East Asian economies, which increased the world's overall demand for oil; all those gas-guzzling sport-utility vehicles on America's roads; and the slow recovery of Russia's oil industry from the decade of chaos after the Soviet collapse, which limited oil supplies. But one of the main reasons for skyrocketing oil prices is a series of decisions taken by one of the United States' closest allies, Saudi Arabia, the world's largest oil exporter. During the past 25 years, Saudi oil policy has generally helped to prevent price spikes and to hold prices down when big increases have occurred anyway. But as prices rose during 1999, Saudi oil production fell by more than a million barrels per day (mbd). Moreover, the Saudis were the driving force behind the event that sent prices climbing: the March 1999 agreement among the major oil nations, both inside and outside of the Organization of Petroleum Exporting Countries (OPEC), to reduce production.

All last year, the Clinton administration (quite reasonably) remained silent in the face of this shift in Saudi oil policy. In 1998, oil prices had fallen dramatically, at times running as low as $10 per barrel. Higher oil prices helped Russia, American friends in the Middle East, and America's own depressed oil industry. The booming U.S. economy, more insulated from the effects of oil-price increases than it had been in the 1970s, kept chugging along. But as prices continued to rise in early 2000, election-year politics combined with a cold winter and consumer discontent to push the oil issue back into the spotlight and compel Washington to react. President Clinton has suggested releasing oil from the Strategic Petroleum Reserve and sent Energy Secretary Bill Richardson to lobby major oil producers -- especially the Saudis -- to increase production. Although some in Congress have advocated sanctions against oil countries, the administration has kept the dialogue friendly.

Neither the United States nor Saudi Arabia wants oil prices to be "too low" or "too high." Just where "too low" and "too high" fall, however, is a matter of dispute. Washington has always said that market forces, rather than politically inspired production agreements, should govern the oil market. If the U.S. economy stalls, the new Saudi oil policy could create a crisis between Riyadh and Washington reminiscent of the 1970s.

Avoiding such a crunch is in the interests of both countries. They must start with a fundamental readjustment of long-held American views about Saudi Arabia and the forces driving Saudi oil policy. Since the 1970s, Washington has seen Saudi Arabia as a fabulously rich country. Successive American administrations have looked to Riyadh to help finance American policies both within the Middle East (most notably, the 1991 Gulf War) and beyond it (the Afghan mujahideen, the Nicaraguan contras, the Gorbachev transition in the Soviet Union). Meanwhile, Saudi Arabia has continued to pay cash for the most sophisticated American weapons technology. Washington saw Saudi oil policies as driven more by strategic considerations -- including inter-Arab, Arab-Israeli, and OPEC politics, to say nothing of the crucial U.S.-Saudi relationship -- than the need for revenue at home. The kingdom, U.S. policymakers figured, had all the money it needed, and more. But that view is now badly outdated. Riyadh no longer has the financial cushion needed to live beyond its yearly oil revenues. Saudi oil policy is now driven primarily by the immediate revenue needs of a government struggling to maintain a welfare state designed in the 1970s -- when money seemed limitless and the population was small -- for a society with one of the world's fastest-growing populations.

The key to avoiding a crisis in Saudi-American relations is for Washington to encourage Riyadh to restructure its economy and welfare state in ways that will encourage the Saudi private sector and lessen the fiscal burden on the state. Although Saudi leaders have in recent years talked the talk of privatization and economic reform, they have not yet walked the walk. Their hesitation is understandable. The dynasty's political stability is tied up with the generous "social contract" it struck with its citizens during the oil-rich 1970s. But now is the time for Riyadh to move, and for Washington to hurry it along. The Saudi domestic opposition, which emerged more publicly than ever in the early and mid-1990s, has effectively been suppressed. The Saudis' neighborhood -- a defanged Iraq, a reforming and more reasonable Iran, progress on the Arab-Israeli peace front -- is more benign than it has been in recent memory. The worst threat to the monarchy's stability would be a fiscal crisis, combined with a falling out with the United States that would encourage the House of Saud's domestic and regional opponents to challenge the monarchy. The longer the Saudis keep traveling their current road, the greater the chances of such a threat materializing.

FOR RICHER, FOR POORER

How could a government that had more than $100 billion in the bank in 1981 be strapped today? The last 20 years have not been kind to the Saudi exchequer. For one thing, Riyadh has incurred some extraordinary expenses. The Saudis officially put their share of the Gulf War bill at $55 billion, excluding postwar arms purchases. In the 1980s, they subsidized Iraq's war effort against Iran to the tune of nearly $26 billion -- not, in retrospect, history's wisest investment.

Meanwhile, oil prices slumped from their historic highs -- briefly touching $40 per barrel in 1981 before dropping below $10 per barrel in 1986, and generally staying below $20 per barrel until 1999. But these fluctuations did little to change Saudi spending habits. In effect, the Saudi government budget was not linked to the price of oil, even though oil has consistently supplied more than 75 percent of state revenue. Maintaining both high defense spending and far-reaching social services for a population growing at a whopping three percent per year has kept Saudi Arabia in the red since 1983. When they no longer had the cash reserves to fund these deficits, the Saudis began borrowing on the domestic market. Saudi Arabia's overall domestic debt in 2000 is expected to be $133 billion, more than 100 percent of GDP -- a level of domestic debt that approaches the limits set by the Organization for Economic Cooperation and Development and the Bank for International Settlements for fiscal soundness and makes using the domestic market to cover deficits a risky strategy indeed.

When oil prices tumbled in 1998, the Saudis faced a serious fiscal crunch. The Saudi stock market lost 30 percent of its value that year alone, and government payments to contractors fell deep into arrears. The budget deficit for 1998 was nearly 11 percent of GDP. Crown Prince Abdallah, acting for the ailing King Fahd, told the Gulf Cooperation Council summit in December 1998 that "the age of abundance is over....We must all get used to a new lifestyle that does not rely entirely on the state."

It was not just the Saudis who noticed these problems. Fiscal weakness and huge balance-of-payments deficits spurred rumors in international financial markets about a devaluation of the Saudi riyal, which for decades has been fixed at a rate of 3.75 riyals to the U.S. dollar. In December 1998, the Saudis had to go to the United Arab Emirates (UAE) for a nearly $5 billion currency swap -- Saudi riyals for U.S. dollars held by the UAE -- to strengthen their financial position. Earlier that year, the Saudi government used the borrowing power of its state oil company, Saudi Aramco, as a source for international loans of $4.6 billion. A fiscal crisis was clearly brewing in Riyadh.

The logical response to this kind of crisis is to cut government spending and raise revenue. The Saudis have tried, a bit. They reduced farm subsidies, increased fees for government services, stretched out payment schedules on major arms and aviation deals, and raised the prices of subsidized consumer products such as gasoline. In many ways, Riyadh is far ahead of other Gulf oil states in rationalizing the economic distortions that developed during the giddy days of the oil boom. But these baby steps alone cannot put the Saudi fiscal house in order. The 1999 domestic price increases for gasoline at the pump, phone services, and visas are expected to generate just over $1 billion per year; the budget deficit for 1999, even with vastly higher oil prices, was slightly more than $9 billion.

Real fiscal discipline means major cuts in the Saudi budget, the vast majority of which -- 65 percent in 1998 -- goes to paying government salaries and paying off the national debt. Defaulting on the debt is unthinkable; almost all Saudis in the workforce are employed by the government, so firing them has political implications the regime would rather not face. The difficulties inherent in getting a handle on government spending are exemplified by the 2000 budget: government expenditures are slated to grow by 12 percent. Even with oil prices considerably higher, the deficit is forecast to be $7.5 billion, 15 percent of the total budget.

Riyadh's reluctance to enforce serious fiscal discipline is understandable, particularly now that the immediate pinch caused by low oil prices has abated. The Saudi "social contract," established in the boom years of the 1970s, requires the government to provide jobs and services to its citizens. With soaring population growth and relatively low oil revenues during the past decade, that "social contract" has been fraying at the edges. Medical services cannot handle the growing population. Since the government cannot absorb the ever-increasing number of high school and college graduates, unemployment is becoming a serious problem for younger Saudis. The Saudi private sector still prefers hiring foreign laborers, who accept lower wages than Saudi workers and are easier to control. The big public-works projects that once drove the Saudi construction industry have slowed. So when the government does get some extra money, numerous constituencies need servicing. This kind of logic, perfectly sound in the short term, merely sets the stage for grave fiscal problems should the price of oil fall again.

Another logical response to Riyadh's dire fiscal straits would be to privatize money-losing government services, thereby increasing government revenue by selling assets and removing a steady drain on the budget. Talk of privatization has been in the air in Saudi Arabia for years, but action has been slow. The government will not privatize money-making concerns like the Saudi Arabian Basic Industries Company, its petrochemical giant, or its crown jewel, Saudi Aramco. But the Saudis have dithered even about money pits. Plans to divest the biggest money-loser, the national airline Saudia, are being prepared with excruciating slowness. Last December, the government did approve legislation paving the way to consolidate regional electric companies into a single firm. This was a prelude to breaking that company into three major components -- generation, transport, and distribution -- and inviting private-sector involvement in the generation component. But this simple step toward privatization came only after more than a decade of painful losses by these regional companies, which supply electricity at well below market prices to Saudi consumers. Those losses had to be made up, either from the government budget or from profit-makers like Saudi Aramco, which sells the regional firms oil at below-market prices.

Meanwhile, the kingdom's physical infrastructure, built in the 1970s and 1980s, is getting creaky. It will need enormous investments -- estimated at over $100 billion, particularly in the electricity and water sectors -- to keep up with the growing population. Major Saudi cities experience regular power brownouts in the summer months, and the desalinization plant in Jiddah, the country's second-largest city, cannot keep up with water demand.

Only the private sector -- domestic and international -- can provide this kind of capital. But proposals to increase private and foreign investment in the Saudi electricity sector have been rejected by the government because they entail price increases for Saudi consumers. Not only would privatization mean layoffs and higher prices, they would also tangibly reduce the state's power over the economy. (The recent legislation consolidating the electric companies and moves to rewrite Saudi regulations on foreign investment may be signals that the Saudi regime is finally getting serious about privatization.)

Yet another logical response to the fiscal crisis -- devaluing the riyal -- is also politically impossible. Devaluation would cut the Saudi balance-of-payments deficit and save the country the money currently used by the Saudi central bank to defend the riyal in international markets. But devaluation would also mean that private Saudi money would rush out of the country at the very time that the Saudis are encouraging both domestic and foreign investors to bring their money in. Estimates of the amount of Saudi private wealth held abroad vary widely, from $200 billion to a staggering $800 billion. The government knows that it needs to bring some of that money home if the private sector is to assume a greater role in the economy. Devaluation would be precisely the wrong signal to send to potential investors. It would also introduce inflation into a consumer economy that has been largely protected from price surges by fixed exchange rates.

It is not that the Saudis do not recognize their economic problems. Indeed, they are the major topic of conversation throughout the kingdom. The government consults more often these days with the business community, represented by the regional chambers of commerce and the national council of chambers. Many citizens say that they understand the need for fiscal discipline but pointedly argue that such discipline must extend to the top levels of the government and to the ruling family, rather than being borne solely by the Saudi middle class. Saudi leaders' speeches regularly echo the themes of belt-tightening set out by Abdallah in December 1998. The crown prince also appointed a "Supreme Economic Council" in August 1999, made up of the state's major economic officials, to formulate new policies. What is still lacking, however, is the will to face the politically difficult decisions about profound economic restructuring. And because that will is lacking, the Saudi government must rely on higher oil prices to keep the government budget and the economy afloat.

OIL IN THE FAMILY

Saudi Arabia's looming fiscal crisis has led it to rethink its oil policy. Since the price increases that followed the 1973 Arab-Israeli war, Saudi Arabia has generally been one of OPEC's moderates on oil prices. As OPEC's largest oil producer, with reserves that will last more than a century at current production rates, Saudi Arabia has no desire to push prices too high. At a certain point, it learned bitterly in the 1980s, consumers will switch to alternative sources of energy. As that decade began, consistently high demand for oil and the disruptions of the Iranian Revolution temporarily pushed prices over $40 per barrel. By the middle of the decade, demand fell, new sources of oil were discovered, and prices collapsed. When both Kuwaiti and Iraqi oil were taken off the world market after Saddam Hussein's August 1990 invasion of Kuwait, oil prices spiked to around $30 per barrel, but the Saudis quickly raised production to push prices back down to around $20 per barrel. That decision was not simply a bow to American desires; it was also in the long-term interests of the Saudis themselves.

On the other hand, the Saudis do not want oil prices to fall so far that their oil revenues do not meet their budgetary needs. In the early 1980s, Riyadh played the role of "swing producer" in OPEC, lowering its production to prop up prices. Average Saudi production fell drastically -- from nearly 10 mbd in 1981 to a low of 3.5 mbd in 1985, with a concomitant fall in revenue from $113 billion in 1981 to $25.9 billion in 1985. But these cuts failed to slow the drop in prices as world demand for oil fell, non-OPEC producers brought more oil onto the market, and other OPEC members produced more than their quotas permitted. In an effort to discipline overproducers inside and outside of OPEC, the Saudis increased production in the first half of 1986. Prices plunged. Saudi oil revenues also fell, despite the increase in production. Ahmad Zaki Yamani, the long-serving Saudi oil minister and the architect of the 1986 production increase, was fired, and the kingdom cut back on its production. Other OPEC members, chastened, promised to stick closer to their quotas. World demand for oil began to pick up in the late 1980s, and prices rebounded toward the mid-teens.

The Saudis emerged from the roller coaster of the 1980s determined not to play the role of swing producer again. Their loss of market share and revenue in the mid-1980s had been a painful lesson. The Saudis' ability to quickly increase production during the Persian Gulf crisis in 1990 regained most of the market share lost in the 1980s, and they were not about to sacrifice that to support some nominal OPEC price target. Even as oil prices fell in 1993 and 1994 from $20 per barrel to below $15 per barrel, the Saudis refused to cut production, pumping out between 8.5 and 9 mbd. But they also learned from the debacle of 1986 that opening up the spigots to discipline others could backfire. Theoretically, given their low production costs and enormous reserves, the Saudis could pump as much oil as possible as prices fell, drive competing producers out of the market, and gain a stranglehold on world production. But such a strategy would mean riding out a long period of low revenues -- a luxury the Saudis can no longer afford, as they quickly realized in 1986. As alternative sources of financing their budget deficits (drawing down reserves, borrowing domestically) became less viable, the need to maintain a certain level of revenue from oil sales became increasingly important to the Saudi leadership. Managing these two divergent if not downright contradictory goals -- price and market share -- defined Saudi oil policy in the late 1990s.

The desire to hold on to Saudi Arabia's slice of the market drove Abdallah to hold a Washington meeting in September 1998 with representatives of the major American oil companies. Other countries, particularly those in the Caspian Basin but also some in the Middle East, were inviting oil multinationals back by promising equity stakes in their oil fields. This return to the multinationals, after decades of nationalization and proud self-reliance in the oil sphere, has been driven by the need for capital, technology, and marketing outlets that only the biggest oil companies can provide. Here, Saudi Arabia is better off than most other oil producers. In the 1990s, Saudi Aramco developed the huge Shayba field, near the Saudi-UAE border, with its own resources. But production costs for Saudi oil are rising at a time when production costs elsewhere are falling (although, to be fair, Saudi oil is still the cheapest in the world to produce). If the major multinational oil companies regain equity stakes in Middle Eastern and Caspian countries, they will look first to their hosts for additional supply. The Saudis want to be the major source of supply -- particularly for the growing energy markets of East Asia, which are served by the major multinationals -- and want the technological advancements that the multinationals can provide. They would also like to involve international investors in other energy sectors, like developing natural gas and generating electric power for the Saudi domestic market. Abdallah's Washington meeting was meant both to remind the major oil companies that Saudi Arabia remains the big prize for oil development in the future and to solicit these firms' participation today in energy sectors other than oil.

If worries about market share led to the September 1998 meeting, concerns about price have driven Saudi Arabia's production policy and oil diplomacy both inside and outside of OPEC in recent years. In late 1997, OPEC producers, including Saudi Arabia, made a fundamental mistake. Even as Asia's economic crisis worsened, OPEC countries decided to increase production. The combination of more OPEC oil and less Asian demand drove prices on the world market down to around $12 per barrel. In March 1998, Saudi Arabia, Venezuela, and Mexico (a major non-OPEC producer) agreed to produce less oil; the Saudis cut 300,000 barrels per day. This agreement was then adopted by OPEC as a whole and by some non-OPEC states, including Norway and Oman, for a total cut of 1.5 mbd. Oil prices immediately rallied but then fell back as the Asian crisis took its toll on world oil demand and as other producers, most notably Iran, balked at joining the proposed cuts. By December 1998, oil prices were hovering below $10 per barrel and the Saudis were facing a serious fiscal crisis.

In response, Saudi Arabia began negotiations with Iran about more drastic production cuts. Relations between Riyadh and Tehran had improved considerably since the May 1997 election of Iran's reform-minded president, Muhammad Khatami. Both countries wanted to see prices go up, and the Saudis were willing to pay a certain price for the geopolitical gain of a friendlier Iran. In March 1999, those negotiations led to a new agreement on deeper production cuts among OPEC and non-OPEC producers, including Iran. This pact involved taking a further 2 mbd off the world market, with Saudi Arabia absorbing more than 25 percent of that amount. Iran was brought on board through a Saudi concession: letting Iran calculate its reduction from its "official" production level, which was higher than its actual production. These deeper cuts, coupled with the unexpectedly early rebound in Asian demand, did the trick for the Saudis and the other oil producers. Prices skyrocketed, and all the oil producers, even with their reduced production levels, netted substantially more revenue. Last September's OPEC meeting reaffirmed the production cuts, and members have largely abided by their quotas.

Saudi oil diplomacy in the past year successfully squared the circle between market share and price concerns. The price increases of 1999 staved off the looming fiscal crisis. The Saudis managed to push prices up without sacrificing market share. But how long Riyadh will be able to pull off this balancing act is anyone's guess. Its success so far has depended on a favorable conjunction of circumstances: rising East Asian demand, a galloping American economy, and other producers' willingness to stick to their production quotas. But if prices stay up, new oil will find its way onto the market, and demand might not grow at forecast rates. Further price increases could mean a drop in demand. If prices soften, OPEC and non-OPEC members alike will be tempted to cheat on their quota agreements -- a replay of the scenario of the early and mid-1980s. The Saudis are unlikely to act over the long term the way they did in the 1980s, sacrificing market share to accommodate quota-cheating by others. "No playing the swing producer" and "no loss of market share" are now guiding principles of Saudi strategic thinking. But in the short term, price considerations will loom large in any Saudi oil policy -- simply because the Saudi government needs the money.

HOUSE IN ORDER

American policymakers must adapt to these changes in the Saudi approach to oil policy. In the short term, Washington should realize that Riyadh will not be jawboned into producing more oil. Not-so-veiled threats about American reactions to "dangerously high" oil prices and lectures about the evils of tampering with markets will not have much effect on a Saudi government that just 18 months ago was facing a serious fiscal crisis without any American support or sympathy. A dialogue with Saudi leaders about mutual U.S.-Saudi interests in preventing unsustainably high prices has a better chance of success. The Saudis understand -- better now than in the 1980s -- that oil prices high enough to depress demand and encourage the search for alternative sources of energy do them no good. They also understand that a prosperous United States is central to their interests, both economic and strategic. (The Iraqi invasion of Kuwait did not happen that long ago.) As long as Washington evinces an appreciation of the House of Saud's immediate fiscal needs, Riyadh will be open to working together to bring oil prices down from the $30 per barrel range; witness the Saudis' favorable reception of Richardson's arguments about the need to open the spigots before the March 2000 OPEC meeting.

But such efforts to manage markets through political cooperation are stopgap measures. In the long term, there are too many variables in the world oil market for either the United States or Saudi Arabia to manage even if they wanted to. The key to a cooperative U.S.-Saudi relationship is encouraging the nascent Saudi economic reforms so that Saudi Arabia will not have to rely so heavily on oil prices to meet its fiscal obligations. Helping the Saudis detach their oil policies from their immediate revenue needs is good for America because the Saudi leadership could pay less attention to its current woes and focus more on its longer-term interests in keeping its share of a moderately priced oil market. The Saudis could return to their previous policies of using their huge production capacity (nearly 3 mbd more than they are currently producing) to smooth out price bumps caused by political crises and natural disasters, rather than coordinating agreements to produce less among their fellow oil producers.

The success of Saudi economic reform rests in the Saudi elite's hands. They must summon the will to take the politically hard decisions and surrender some of the economic control that they have spent the last four decades building. The United States cannot do that for them. But there are some limited yet practical steps that Washington can take to ease the pain.

The most immediate and important moves involve the World Trade Organization. In principle, Washington and Riyadh are on the same page regarding the WTO -- the Saudis want in, and the Americans want them in. The two sides differ only on the conditions of accession. The Saudis seek "developing country" status, which would give them more time to comply with WTO entry standards, whereas the United States is pushing to have Saudi Arabia admitted as a "developed country," which would force the kingdom to comply sooner. A farsighted U.S. policy would get the Saudis in as quickly as possible, even if that means giving them a longer grace period.

The full consequences of Saudi accession to the WTO are hard to foresee. Will Saudi businesses be able to compete in an open international economy? No one knows, but the Saudi business community thinks it can. There is no overt opposition to Saudi accession in the chambers of commerce, and most Saudis in business exhibit a mix of excitement and trepidation at the prospect of more open competition. The Saudi private sector sees the WTO as a means to make the government's commercial decision-making and legal system more transparent and regular. As a member of the WTO, Riyadh will be less able to preserve local monopolies and privileges, privatization will get a boost, and momentum toward economic reform will be locked in to the Saudi policy process. In short, WTO membership cannot but help those within the Saudi elite -- both government and business -- who want to change the structure of the Saudi economy to reduce its excessive reliance on oil revenues. That is certainly in the American interest, and Washington should take whatever steps it can to welcome Riyadh to the WTO club.

Washington can also encourage the Saudis to keep limiting their defense spending. Saudi Arabia's recent fiscal problems led to considerable reductions in Saudi defense spending, albeit from extremely high levels relative to both GDP and total government spending. That means fewer big-ticket weapons purchases from American arms manufacturers. But lower defense spending stabilizes the Saudi fiscal situation, thus reducing the Saudi appetite for higher oil prices and serving America's interests in oil prices and a Saudi monarchy that are both stable. Of course, U.S. arms producers will howl. Let them.

Finally, Saudi Arabia's friends in Washington can use their personal influence with the Saudi elite -- in some cases, built up over decades -- to impress on their Saudi counterparts the importance of sharing the burdens of economic reform equally between the various sectors of Saudi society. The Saudis are hardly America's most democratic ally, but they must understand that their stability rests on popular acceptance of their regime. Not only must the Saudi elite, including the ruling al-Saud family itself, bear its share of the costs of reform, they have to be seen by the rest of the population as bearing them. With their large reserve of popular support, the al-Saud family is in a strong position to do this. They have weathered the domestic political ferment of the post-Desert Storm period by offering modest political reforms and both co-opting and repressing opposition. With the higher oil prices of this past year, the royal family has more money to cushion the costs of reform for the Saudi public. Their international position could not be better: the Arab-Israeli peace process is moving forward, Iranian-Saudi relations are on the upswing, Saddam is contained in Iraq, and the U.S.-Saudi relationship is strong and close. What better time to face hard economic decisions?

The alternative is not very appealing -- for either Saudi Arabia or the United States. Oil prices are up now, but inevitably they will fall. Without change in the underlying structures of the Saudi economy, the next oil price decline will trigger an even worse fiscal crisis for Riyadh. At a minimum, Saudi-American relations would be strained as the Saudis pushed prices back up through production-restraint agreements similar to that of 1999. If the American economy is not as healthy as it was this past year, Washington will be much less willing to see a major ally manipulate oil markets to increase prices.

More ominously, a recurrence of serious fiscal problems could spur a political crisis in Saudi Arabia. Fiscal crises impose on governments the sort of hard choices that can split a ruling elite. With the issue of succession to King Fahd settled in favor of Abdallah, the Saudi elite remained united during the difficult year of 1998. If the next oil price decline coincides with the more difficult succession question of the future -- how to move from the generation of the sons of the kingdom's founder, Abd al-Aziz, to the generation of his grandsons -- oil and economic policy could become enmeshed with struggles for power within the al-Saud family. That generational shift might not come for a decade or more, but a fiscal crisis would certainly exacerbate the underlying tensions in the ruling family. Family factions would then look to mobilize those already discontented due to hard economic times. Serious political instability in the world's biggest oil exporter would be at hand. That prospect is reason enough for the United States to urge its friends in Riyadh to get their house in order.