! ! ! THE DEATH OF RENTIERISM IN THE KINGDOM OF SAUDI ARABIA by Brianna Brooke Seymour A thesis submitted to the faculty of The University of Utah in partial fulfillment of the requirements for the degree of Master of Arts in Middle East Studies / Political Science Department of Languages and Literature The University of Utah August 2012 Copyright © Brianna Brooke Seymour 2012 All Rights Reserved The University of Utah Graduate School STATEMENT OF THESIS APPROVAL The thesis of Brianna Brooke Seymour has been approved by the following supervisory committee members: M. Hakan Yavuz , Chair 6/15/2012 Date Approved John Francis , Member Date Approved Roxane Farmanfarmain , Member 6/15/2012 Date Approved and by Kirk Jowers , Chair of the Department of Languages and Literature and by Charles A. Wight, Dean of The Graduate School. ! ! ! ! ABSTRACT The premise of this research is to determine when the end of rentierism will occur in the Kingdom of Saudi Arabia as well as what actions the government is taking to prepare for it. After compiling population growth, domestic consumption demand, and depreciating oil production into four separate future predictive scenarios, the results are that the end of rentierism will occur between 2022-2033 in Saudi Arabia. Analysis on the social, economic, and political landscapes was conducted to illustrate the current social and economic obligations that the government currently has. Alternatives to petroleum were analyzed, resulting in the finding that there are no viable natural resource alternatives to oil in order to maintain rentierism. The primary obstacles to preparing for the death of rentierism were found to be the extreme dissent within and between the House of Saud and the religious establishment, and the lack of stated goals with timelines and accountability for implementing economic diversification goals. “My grandfather rode a camel. My father rode a camel. I drive a Rolls Royce. My son flies a jet plane. His son will drive a Mercedes. But his son will ride a camel” Sheikh Rashid al Maktoum Emir of Dubai CONTENTS ABSTRACT…………………………………………………………………………...…iii LIST OF ABBREVIATIONS……………………………..…………………………....viii INTRODUCTION……………………………………………………………………...…1 THE FORMATION OF A KINGDOM………………………………………………….. 5 Notes………………………………………………………………………….….23 THE SOCIAL LANDSCAPE IN SAUDI ARABIA………………………………….…26 Rentierism in Saudi Arabia………………………………………………………26 The Social Landscape in Saudi Arabia…………………………………………..33 Education………………………………………………………………...37 Health and Welfare………………………………………………………40 Notes……………………………………………………………………………..43 THE POLITICAL LANDSCAPE IN SAUDI ARABIA………………….……………..46 The Kingdom of Saudi Arabia…………………………………………………...46 Custodian of the Two Holy Mosques……………………………………………51 King Abdullah……………………………………………………………51 Crown Prince Nayef………………………………………………….…..55 The Religious Establishment…………………………………………………….57 Conflict Within the Ruling Elite…………………………………………………59 Other Sources of Political Influence……………………………………………..60 Branches of Government………………………………………………...60 Political Influence………………………………………………………..62 Middle East Relations……………………………………………………………63 Notes……………………………………………………………………………..66 THE END OF OIL………………………………………………….……………………70 The Definition of Petroleum……………………………………………………..70 Peak Oil Theory………………………………………………………………….72 Predicting Oil Reserves in Saudi Arabia…………………………………….…..76 The U.S. General Accounting Office Report……………………….……76 Saudi Aramco…………………………………………………………………….80 New Technology, Innovation and Investment…………………………...82 Depleting Oil Fields……………………………………….……………..86 Predicting the End of Saudi Arabian Oil Exports………………………………..88 Notes……………………………………………………………………………..93 OIL CURSE…………………………………..………………………………………….95 Increasing Domestic Consumption………………………………………………95 Are Alternative Resources the Solution?...............................................................98 Biofuels…………………………………………………………………..99 Wind…………………………………………………………………….100 Solar…………………………………………………………………….101 Petrochemicals………………………………………………………….102 Minerals and Mining……………………………………………………104 Hydrogen………………………………………………………………..105 Natural Gas……………………………………………………………..106 Nuclear Power……………………………………………………….….109 Notes……………………………………………………………………………114 THE ECONOMIC LANDSCAPE IN SAUDI ARABIA………………………………117 Challenges to the Saudi Arabian Economy……………………………….……118 Employment…………………………………………………………………….123 Agriculture………………………………………………………….…..125 Industry…………………………………………………………………126 Services…………………………………………………………………127 Avoiding Dutch Disease………………………………………………………..128 Notes……………………………………………………………………………131 PREPARATION FOR THE END OF RENTIERISM………………………………....133 Diversification…………………………………………………………………..135 Ninth Development Plan………………………………………………..135 Privatization………………………………………………………….....137 Sovereign Wealth Funds and International Investment………………...141 Parastatal Companies…………………………………………………...145 Taxation, Zakat and Hajj as Income Diversification…………………………...147 Taxation………………………………………………………………..147 Zakat……………………………………………………………….…..148 Hajj and Tourism………………………………………………………149 Private Sector Development……………………………………………………154 Women…………………………………………………………………154 Manpower………………………………………………………………………162 ! "#! Reducing the Foreign Workforce………………………………………162 Energy Security…………………………………………………………………165 Iran…………………………………………………………..................169 Securing Saudi Arabian Oil…………………………………………………….172 Preventing a Restive State…………………………………………......175 Conclusion……………………………………………………………………...178 Notes……………………………………………………………………………182 REFERENCES…………………………………………………………………………188 ! "##! ! ! ! ! ! ABBREVIATIONS ARAMCO Arabian American Oil Company CME Chicago Mercantile Exchange EIA U.S. Energy Information Administration ERI Energy Research Institute ESIS Electronic Share Information System EXPEC ARC Exploration and Petroleum Engineering Center FMS Foreign Military Sales GAO General Accounting Office GCC Gulf Cooperation Council IFP French Petroleum Institute IMS Idea Management System JORC Joint Ore Reserves Committee KA-CARE King Abdullah City for Atomic and Renewable Energy KACST King Abdul Aziz City for Science and Technology Mbd Million barrels per day MENA Middle East North Africa MGS Master Gas System MRC Maximum Reservoir Contact NGIT Natural Gas Investment Tax ! NGL Natural Gas Liquids OAPEC Organization of Arab Petroleum Exporting Companies OPEC Organization of the Petroleum Exporting Countries POWERS Parallel Oil, Water and Gas Reservoir Simulator R&DC Research and Development Center SABIC Saudi Basic Industries Corporation SAMA Saudi Arabian Monetary Authority SAMBA Saudi Financial Group SAO Security Assistance Organization SATORP Saudi Aramco Total Refining and Petrochemical Company SBG Saudi Binladin Group SEC U.S. Securities and Exchange Commission SPE Society of Petroleum Engineers URR Ultimate Recoverable Resources US United States of America VLCC Very large Crude Carriers WEA Wind Energy Association WPC World Petroleum Congress WPOP World Peak Oil Production WTI Western Texas Intermediate ! # ! x