The Outlier in The Middle East

Governments in the Middle East and Northern Africa have approached the clamour for political and social change in very similar ways and with little success and at great cost to lives of innocent people. The exception seems to be the Kingdom of Saudi Arabia where the monarchy has responded by opening the treasury and expanded welfare programmes and redistribution of the rents from petroleum to citizens through a variety of methods. As Neil MacFarquhar of the NYT states, it is clear that the strategy is to disarm the calls for political reforms by redistributing oil money from the state to citizens through increased construction of housing, raises in pay and contributions to clerics who are friendly to the establishment.

This approach is understandable since Saudi Arabia has comparatively large oil reserves and receives substantial rents for that every year. It is therefore capable of maintaining this distribution to placate citizens and momentarily quell any rising discontent. It is less clear that this approach is bound to work for a long time especially as public expenditures must have a limit and affects the development of private sector. That aside, this political trick should worry watchers of the oil markets because if this approach is maintained into the medium term, then it affects the incentives in the country to play Saudi Arabia's conventional role as the moderator of oil prices. I hope that the monarchy sees this as an opportunity to buy some time and start its reforms because it is unlikely that perpetual appeasement is a good trade off for reforms.