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By Stanley Reed Oil prices rose to record levels, breaching $61 a barrel, on the announcement of the death of Saudi Arabia's King Fahd on Aug. 1 and his succession by Crown Prince Abdullah. But Fahd's departure is unlikely to disrupt a drop of oil output from the world's largest exporter.
And over the next couple of years, it could even put the Kingdom's governance on a sounder footing. Abdullah, after all, has been a force for reform since becoming somewhat of a de facto regent after a stroke incapacitated the King a decade ago. Having the full powers of the throne could add momentum to the glacial pace of change in areas such as women's rights and broader political participation.
TROUBLE AHEAD? Abdullah will be helped by the prosperity that has returned to the Kingdom recently after the long dry spell caused by low oil revenues in the late 1990s. Brad Bourland, chief economist at Samba, a Riyadh-based bank, forecasts that Saudi oil revenues will hit $157 billion this year, a 48% increase over 2004.
Inflation-adjusted gross domestic product is likely to grow by 6.5%. And unlike past government-spending-fueled booms, this one has a strong private-sector element, with non-oil GDP expected to grow by over 7%. If anything, Abdullah has to worry that the stock market, which is up 60% on the year, is heading for a bubble that could pop.
The current succession seems to have gone smoothly, which is not surprising since Fahd has been on his deathbed since May and debilitated since 1995. Abdullah has appointed the controversial Defense and Civil Aviation Minister, Prince Sultan, as his successor. Analysts, who have predicted trouble at the time of the death of Fahd, are now looking for disagreement further down the road.
PAPERING OVER TENSIONS. That date may not be too far away, considering that both men are already in their 80s and that Sultan has cancer. Among the key contenders are Interior Minister Nayef, who is around 72, and Riyadh Governor Salman, who is about 69. The jockeying over who takes over from Sultan as Second Deputy Prime Minister could get interesting. Whoever receives that title will be looked on as third in line for the throne.
There could be friction because these men, who are all sons of the Kingdom's founder, Abdul Aziz, are ambitious. "Hidden disputes will one day flare up over posts and authority," says Saad al-Fagih, a London-based Saudi dissident.
While there may be tensions, the family is also good at papering them over. The Kingdom's decision-makers are well aware that whatever their disagreements, their interests lie in sticking together on the big issues and remaining in control of the world's most lucrative family business.
FUNDAMENTALIST PROBLEM. Perhaps a more important question is whether this business has in its genetic makeup the flexibility to successfully navigate the next decade or more. Credible arguments exist on the negative side. The Saudi government is growing increasingly ossified, dominated by men in their late 70s and 80s.
Key government branches such as Interior and Defense have also turned into something like feudal kingdoms. Their bosses, Nayef and Sultan, have held their posts for decades. Many Saudis, perhaps tens of thousands, feel they owe them their jobs. These top princes also hold sway over billions of dollars in contracts. They have so much clout that it's difficult for Abdullah to take any initiatives without their approval.
Another problem is the family's dependence for its legitimacy on a fundamentalist streak of Islam known as Wahhabism. After being gravely embarrassed by so many Saudis participating in the September 11 attacks on New York and Washington and threatened by a series of bombings, shootings, and other violence by al Qaeda-linked groups inside the Kingdom, the family recognizes the risks of holding to this path. But whether it can root out radicalism without endangering its hold on power is a huge unanswered question.
DEVELOPMENT STRATEGY. In his 10 years as Saudi Arabia's de facto top leader, Abdullah has shown that he is aware of at least some of what needs to be done to preserve the family's hold. Now his challenges are to continue the long process of change that he launched in the mid-1990s, when he warned that the Kingdom would be in deep trouble if it didn't get its house in order.
On his agenda must be fostering a stronger private sector capable of employing the large numbers of Saudi youths that come on the job market each year. He will also want to revamp the education system, which puts far too much emphasis on religion, creating an atmosphere that fosters radicalism at the expense of practical skills.
Abdullah will also want to figure out a better strategy for developing the Kingdom's oil and gas reserves. Oil-output capacity has stagnated for a quarter of a century, and only last year, with world demand surging, did the Kingdom's leaders order a sustained boost from an estimated 10.5 million barrels per day to 12.5 million.
DOMESTIC RESISTANCE. Similarly, the Kingdom has fallen short on developing gas, which is now in many respects a more attractive fuel than oil. Abdullah seems to favor bringing in international oil companies and has signed agreements with the likes of Royal Dutch Shell and Total to prospect for gas. But his efforts to give the majors a serious role in exploration and production have so far been stymied by resistance from the national oil company, Saudi Aramco.
Nothing is easy in Saudi Arabia, but a $60-per-barrel oil price helps. And Abdullah can be expected to make the most of them now that's he officially in charge of the Kingdom.
Reed is BusinessWeek's London bureau chief and Middle East correspondent