Saudi Arabia: The Kingdom and the Power

Amid reports of dissension, a royal family learns to live with less

In the heat of a summer's day, the highway curving across the desert from the port city of Jeddah to Mecca blurs into a shimmering ribbon of black. As the temperature climbs into the low hundreds, mishaps multiply: the blacktop is so hot that rubber tires explode and send cars swerving. No matter what the season, however, the same message greets travelers only a few miles outside the holiest of Muslim cities. Non-Muslims, the blue-and-white sign warns in English, must now leave the road. Only Muslims are allowed to visit Mecca; others must take a circuitous detour around the city. Farther down the road, armed guards make sure that the stricture is observed.

The sign is a telling symbol of how cautiously Saudi Arabia deals with the outside world. Although its bountiful oil reserves and strategic location make Saudi Arabia vital to the West, the country can be exasperatingly difficult for a foreigner to read. Today the kingdom seems to deserve closer scrutiny than usual: the past year's drop in oil production has diminished Saudi Arabia's income, while rumors of dissension within the ruling House of Saud have proliferated.

The country, of course, still shines with promise. As family businesses go, Saudi Arabia is immensely successful. Within a single generation, the ruling House of Saud has transformed its desert kingdom from a nomadic backwater into an influential power with all the trappings of a modern nation. Most of Saudi Arabia's wealth, in fact, has been accumulated only in the past decade: with nearly a quarter of the world's proven oil reserves, the kingdom profited handsomely when petroleum prices quadrupled in the wake of the 1973 Arab-Israeli war. In 1981, for example, the country collected an estimated $110 billion in oil revenues, up from $2.7 billion in 1971. Government outlays rose accordingly: spending is now running about $80 billion a year.

As demand and oil prices have slipped, however, so have Saudi oil revenues. The best estimate for the fiscal year that ends next March is $65 billion. For the first time in 20 years, Saudi Arabia will have a budget deficit, estimated at about $10 billion.

The effect is already being felt. Payments to foreign contractors are being deferred by 30 to 60 days. Instead of paying 20% in advance to construction firms, the Saudis are proffering only 10%. The biggest casualty so far is the country's ambitious five-year development plan for 1980 to 1985. Once budgeted at $250 billion, the program is way behind schedule, and no new projects are scheduled for 1984.

Even so, most countries would be glad to have Saudi Arabia's troubles. The Saudis still have an estimated $150 billion in monetary reserves invested abroad. Many Saudi officials, moreover, consider the slump a blessing of sorts, for it allows the country a chance to pause. Says a U.S. banker in the capital city of Riyadh: "The Saudis are not going to run out of money. But they are going to watch what they spend and begin setting priorities."