Saudi’s Welfare State In Jeopardy

The resource curse which has spawned Saudi Arabia’s welfare economy seems in jeopardy.

From the Business Insider,

The share of Saudi workers employed by the government increased to 90 percent in 2010, up from 83 percent in 2000, according to a profile in The Economist (via @steven_strauss).

Saudi Arabia also increased unemployment benefits and other handouts during the Arab Spring.

The combination of the resource curse and relatively low oil prices and geopolitical tensions is bad for the regime. Says The Economist:

Saudi Arabia’s rulers are painfully aware that, should the region’s democratic wave leave lasting change and a new order in its wake, the kingdom will stand out as a peculiar and seemingly untenable anomaly. Even if the wave recedes leaving nothing but a mess, it has undermined any assumptions of rule by divine right. At the same time the kingdom’s most important alliance, with America, may face increased pressure. The United States is no longer reliant on Saudi Arabia for more than a small fraction of its energy needs. It has pulled out of Iraq and, soon, Afghanistan. It abandoned Egypt’s Hosni Mubarak. This raises doubts about its strategic intentions.

Oil prices at $80 below, for a prolonged period, will exert tremendous financial pressure on the oil dependent welfare based political economy of Saudi Arabia. This is yet another example of how the abundance of resources prevents economies from being competitive and productive.

Also the shale oil revolution will alter the dimensions of geopolitical relationships.

The Business Insider also has an interesting presentation of conflicts that had been caused by the geopolitics of oil.