It is dawning on everyone who does business with the kingdom that the Saudi government is locked in a long, vicious struggle with Islamic militants that threatens to send wave after wave of jitters through the oil markets and shake the timbers of the House of Saud. Oil prices hit 13- year highs of almost $39 per barrel on May 4 as traders panicked about the possibility of disruptions of shipments from the world's largest exporter. With only 2 million to 3 million barrels per day of spare capacity in the world, any disruption of Saudi crude flows would send prices into the stratosphere. A mass exodus of Western oil technicians could also have a long-term impact on the Saudis' ability to manage their industry.
Saudi oil officials say the worries about supply outages are exaggerated and that their facilities can function in the toughest environments. "It's going to take a lot more than people running around shooting AK-47s to disrupt our operations," says Sadad Husseini, who recently retired as executive vice-president for exploration and production at Saudi Aramco. But traders aren't listening. "If something happens in Saudi Arabia, the futures markets are going to react swiftly and upward," says Adam Sieminski, an oil analyst at Deutsche Bank in London.
The betting is that the markets won't relax about Saudi Arabia soon. While the Saudis have woken up to the dangers posed by Islamic fanaticism, diplomats in the kingdom are skeptical that they have the skills to deal with committed militants. Moreover, the reforms that many Saudis think are needed to assuage growing discontent seem to be losing momentum. "If you don't have genuine, comprehensive reforms, more young men will throw themselves in the arms of the jihadis," says Mai Yamani, research fellow at the Royal Institute of International Affairs in London.PROMISES, PROMISES
Under Crown Prince Abdullah, the kingdom has whipped its often shaky finances into shape, thanks in part to booming oil revenues. But hoped-for political changes such as elections for the Consultative Council have been slow to materialize. The Crown Prince promised elections for municipal councils this fall, but preparations are lagging. Particularly discouraging were the arrests in late March of a dozen moderate reformists on the eve of a visit by U.S. Secretary of State Colin L. Powell. Apparently hard-liners in the royal family were alarmed at calls for a constitutional monarchy and wanted to send a message to the U.S. to back off on its push for democracy. "All we have heard is promises; we haven't seen a single sign of practical reform," says Mohsen Al-Awajy, a leading critic of the government.
Events in Iraq such as the siege of Fallujah have energized the Saudi jihadists. "Join the brothers in Fallujah," shouted the killers in Yanbu as they displayed a dragged corpse to students at a school. In such an atmosphere, the royals are likely to hunker down and take few risks. By Stanley Reed in London EDITED BY Edited by Rose Brady