26 Jan 2012 (92 Pages)
Includes 3 FREE Quarterly Updates.
Regional stability looks precarious as Saudi Arabia competes with Iran over Gulf dominance, following
events that saw regime change in Tunisia, Libya and Egypt, as well as uncertainty in Syria and Yemen.
The end of the Mubarak presidency in Cairo saw Riyadh lose a significant regional ally, despite the
Egyptian military’s continued authority. Saudi Arabia has reacted to unrest in the Middle East and North
Africa (MENA) region in 2011 by announcing greater government spending and promises of democratic
reform, particularly in the area of women’s rights. Those demonstrations that broke out in the country’s
predominantly Shi’a eastern region criticised the March 2011 military intervention in Bahrain, which
ended after three months when Saudi Arabia and the UAE withdrew their Peninsula Shield forces from
Bahrain in late June 2011.
Saudi Arabia’s military spending continues to grow, facilitated by massive oil revenues and justified by
both the regional rivalry with Iran and the on-going turbulence along its borders such as in Yemen and
continuing violence in Iraq. Saudi Arabia and the US agreed in principle in September 2010 on a
US$60bn procurement deal for fighter aircraft, missiles and helicopters. Discussions continue between
the two parties at the time of writing. The agreement, along with a separate US$30bn deal to upgrade the
Saudi Navy will modernise the country’s military, giving it a JDAM capacity currently only possessed by
Israel. The GCC nations are spending billions to establish a missile defence shield, with the Iranian threat
in mind. Tensions between Iran and the Saudis blame Iranian infiltrators for the unrest in Bahrain, as well
as for supporting alleged terrorist plots uncovered by Saudi Arabian security forces.
Saudi Arabia continues to play a role in many of the crises across the Middle East. The country defended
the Mubarak regime and made public its grievances about US support for demonstrators intending to oust
the authoritarian figure. Saudi Arabia has taken a proactive approach in dealing with events in
neighbouring countries. This included crafting a political ‘exit strategy’ for Yemen’s president Ali
Abdullah Saleh, who has nonetheless steadfastly held onto power.
Unlike its fellow GCC allies – Qatar, UAE and Kuwait – Saudi Arabia did not support the Transitional
National Council (TNC) in its fight to end the rule of Muammar al-Qadhafi in Libya, even at one point
denying TNC diplomats clearance to fly over Saudi Arabian airspace. This contrasted with Qatar’s
vigorous support for the TNC, which included rapid diplomatic recognition, financial assistance and
support with the provision of refined fuels. The country finally threw its weight behind the TNC at an
Arab League summit in August 2011.
In general, Saudi Arabia has overseen a successful crackdown on terrorism, under deputy interior minister
for counterterrorism, Prince Mohammed bin Nayef. Violent attacks have dropped precipitously since the
2003-06 crackdown, as anger over the Iraq War subsided, although the Saudi Arabian government
continues to announce arrests, weapons seizures and plot disruptions.
The government stimulus packages announced in 2011 will reinforce the already strong outlook for the
Saudi Arabian economy, in particular the non-hydrocarbon sector will benefit with various government
initiatives seeking to diversify the nation’s core revenue sources for better long-term economic security.
GDP growth forecasts have been revised up to 6.3% in 2011 and 4.0% in 2012. This spending drive is at
threat, however, if oil prices drop significantly; this would threaten Riyadh’s capacity to finance the
ambitious plans, and would pose a downside risk in our otherwise strong forecasts.