Saudi Arabia

Averting famine will require Saudi Arabia to permit the resumption of commercial shipping of food and fuel to the besieged country.

As families work tirelessly to increase their income, and nations drive ever harder to spur economic growth, it can be easy to overlook the fact that the secret to growth may be hidden in plain sight. Saudi Arabia realized it when trying to end its “addiction to oil.” It can’t transform its economy without a bigger labor force, and it can’t reach its workforce targets without including women. And so, amid broader political and economic upheaval — from multi-billion dollar mega projects to an anti-corruption purge that detained many of the country’s most prominent officials — Saudi Arabia’s bid to modernize its economy included the unexpected step of permitting women to drive. This is likely not the last groundbreaking announcement from the kingdom. Because until Saudi women can work, travel, file legal claims, and otherwise engage in public life without permission from their male guardians — their father or husband, sometimes even their son —the country won’t realize the economic potential of half its population. And this is just the tip of the iceberg for the region. Widespread legal and cultural barriers restrict how women participate in society, according to a new report by the Organization for Economic Co-operation and Development (OECD), costing the Middle East and North Africa billions of dollars a year in lost income. With only 21 percent of women employed (compared to 75 percent of men), the region has the lowest rate of women’s participation in the labor force. While women are more educated and skilled than they have ever been, few work in the private sector, fewer hold senior positions in any institution, and women-owned businesses tend to be informal, home-based enterprises with little opportunity to grow. Combined this means lower productivity: women generate only 18 percent of the region’s GDP, despite accounting for half the working-age population. The McKinsey Global Institute estimates that increasing women’s participation in the workforce to the same level as men could nearly double the region’s economic output, adding $2.7 trillion dollars to the Middle East and North Africa’s GDP by 2025. Why the disparity? The OECD recently documented dozens of discriminatory provisions in family and labor laws in Algeria, Egypt, Jordan, Libya, Morocco, and Tunisia that prevent women from contributing to their countrie’s economies. In Egypt, Jordan, and Libya, for example, women need the permission of their husbands or fathers to work, and in Libya, it is considered justification for divorce if a wife travels without her husband’s permission. Across the region, laws perpetuate unequal access to assets: Family property is usually in the husband’s name, and women cannot access it if they are widowed or divorced. In Tunisia, a female heir receives half as much inheritance as a male heir; in Jordan, a 2010 regulation tightened the procedures to transfer inheritance rights after countless women were pressured to waive rights to their full inheritance. And because they have fewer personal assets, female entrepreneurs have a harder time securing a loan through collateral. Labor laws restrict women’s working hours and the sectors in which they can work, thereby limiting the employment available to women. Libyan women cannot undertake work that is not “familiar with woman’s nature”; in Jordan, the Ministry of Labor determines from which industries and jobs women are prohibited. And then there’s enforcement: Women face sexual harassment when they travel to or are in the workplace, but judges and police across the region rarely punish the perpetrators of sexual assault. Research elsewhere has documented that legal reforms can directly lead to economic and social gains. Within five years of Ethiopia removing the stipulation that husbands could stop their wives from working, women’s labor force participation increased and women were more likely to work in higher-skilled jobs. When India provided women and men the same rights to inherit joint family property, families spent twice as much on their daughters’ education and women were more likely to have bank accounts. The relationship between how much freedom women have in their homes and how easily they can contribute to society outside the domestic sphere is linear. Until women are able to freely work, travel, and own property, reforms to business regulations or other strictly economic solutions will not be enough to decrease the gender labor gap. Countries with discriminatory laws will continue to lose out until they remove the barriers preventing half their population from contributing trillions of dollars to their economy. This piece appeared originally in The Hill.

A road trip among ordinary Saudis revealed high hopes, and hardly any worries, about the country's new political era.

Saudi Arabia pressed Lebanese Prime Minister Saad Hariri to resign to try to weaken Iran-backed Hezbollah in Lebanon. The path to resolving the crisis could run through Yemen.

With a bold modernization project, Saudi Arabia is embarking on reforms U.S. policymakers have been urging for decades. The crown prince’s recent crackdown could undermine this crucial effort.

Saudi oil policy is undergoing a significant, yet subtle shift that is likely to have broader, strategic implications. The shift comes in the wake of a perfect storm of complicated existential threats facing Riyadh that have forced its government to accommodate new realities. In effect, for the time being, Saudi Arabia appears to have lost its flexibility on oil price policy and therefore will increasingly have to respond to geopolitical challenges in ways that don’t involve actively using export policy to lower the price of oil. A significant oil price drop now would be inconvenient to Saudi Arabia’s ambitious economic reforms, as well as threaten the success of controversial social reforms. This oil revenue conundrum could drive an already muscular Saudi foreign policy while at the same time, weakening the kingdom’s interest in the inner political dealings of the Organization of Petroleum Exporting Countries (OPEC). The threat to flood the oil market with its spare oil production capacity has for decades been a critical Saudi lever to muster oil production discipline and burden sharing within OPEC. OPEC, together with Russia, for now seem willing to consider a rollover of ongoing production cuts based on current improvements in oil prices but typically OPEC output cut discipline weakens over time. It remains unclear how the kingdom would be forced to respond if oil production increases from Iraq and other members to the agreement, not to mention the United States, start to eat at lofty oil prices come next spring. In the past, escalation in regional conflicts with Iran might have been met with policies designed to hurt Tehran via lower oil prices. But the Saudi response to the intercepted missile lobbed by Yemen-based Houthi rebels targeting the airport near the Saudi capital of Riyadh has been more strategic in nature. Riyadh quickly made it clear that the response it had in mind was more direct and militarily oriented, by announcing that the coalition would close access to all land, air, and sea ports to Yemen. The official Saudi Press Agency’s frankly worded statement on the matter noted that “Iran’s role and its direct command of its Houthi proxy in this matter constitutes a clear act of aggression that targets neighboring countries, and threatens peace and security in the region. Therefore, the coalition’s command considers this a blatant act of military aggression by the Iranian regime, and could rise to be considered as an act of war against the kingdom of Saudi Arabia.” Ironically, the more robust the kingdom’s military responses over time, the more likely that oil revenues will support the Saudi economy at home. The backdrop to the new Saudi oil price stance begins at home. In a series of recent interviews in late October, Saudi Crown Prince Mohammed Bin Salman made clear Saudi Arabia’s commitment to launch an initial public offering (IPO) of 5% of state oil monopoly Saudi Aramco next year and emphasized Saudi Arabia’s continued commitment to stabilize oil markets. Analysts calculate that the kingdom needs an oil price of roughly $60 a barrel for the Aramco IPO to meet acceptable revenues from the share sale. Events inside Saudi Arabia, including the recent arrest of at least eleven senior princes, former and current ministers, and dozens of top businessmen, sent oil prices higher Monday, raising the possibility that OPEC could even set its sights on $70 a barrel. It also created the prospects that any hole in the Saudi budget can be plugged by money seized from those arrested–fortunes estimated to tally in the hundreds of billions to trillions of dollars. A new anti-corruption commission has been empowered to “returns funds to the state treasury” and “register property and assets in the name of the state property.” The Saudi news comes in the wake of oil markets that have become more sensitive to geopolitical events in recent weeks, ever since a referendum on Kurdish independence temporarily disrupted oil exports from the Kirkuk oil field. The threat of a Venezuelan financial default is also weighing on markets. But it is also assumed by analysts and traders alike that an oil price drop would be inconvenient to Saudi Arabia’s ambitious economic reforms, including the Aramco IPO, leaving some speculators to believe they can go long in the oil futures market with impunity. This backdrop is in addition to the U.S. context where the U.S. President has made his commitment to the American domestic energy industry straightforwardly clear, implying yet another compelling incentive for Saudi Arabia to keep oil prices stable. President Donald Trump recently weighed in on the Saudi IPO on Twitter, saying it was important to the United States to float the shares on the New York Stock Exchange. Still, the longer term problem of price versus volume has been a durable, longstanding challenge for Saudi oil strategists over the years. Typically, Saudi declarations that the oil rich kingdom will support oil prices with its own production cuts invites other countries to free ride with extra production of their own. Russia has been a particularly notable free rider off OPEC cuts over the years, for example, promising cuts that tend to dematerialize over time in favor of export boosts. Conversely, Saudi attempts to expand or even protect its market share most often come at the expense of global oil prices. The late Saudi King Fahd removed his famous oil minister Sheikh Zaki Ahmed Yamani when the minister faced a similar delicate dilemma of achieving both a price and volume target. In the mid-1980s, the minister was instructed by the king to change course and end an extended oil price war that had been designed to get Saudi Arabia’s market share back. On some level, today's situation is reminiscent of that historical period. The Saudi IPO could create similar problems since investors will look for assurances that a steady volume of oil sales will reap predictable revenues that are also tied to the level of oil prices. That tension is in addition to other kinds of risks related to political stability in the kingdom and uncertainty about the long term demand for oil. Higher oil prices will invite a rebound in U.S. production at a time when Iraqi and Russian industry might also be poised to expand. That ultimately might be a longer term problem for Saudi Arabia, but one that doesn’t appear to be on the geopolitical radar today.

Welcome to “Women Around the World: This Week,” a series that highlights noteworthy news related to women and U.S. foreign policy. This week’s post, covering October 26 to November 3, was compiled with support from Anne Connell and Alyssa Dougherty.

Welcome to “Women Around the World: This Week,” a series that highlights noteworthy news related to women and U.S. foreign policy. This week’s post, covering September 17 to 28, was compiled with support from Becky Allen and Anne Connell.

Well-fed lobbyists and think tank experts do battle over catered lunches—but it's not as sleazy as it sounds.

One of the world’s most-watched news networks is at the center of a geopolitical rift between a Saudi-led bloc and the broadcaster’s funder, Qatar.

The global impact of oil’s fall from $100 plus to under $50 a barrel has not gotten as much attention as I think it deserves. For most oil exporters, it has been a profound shock—one that forced such a massive contraction in imports that it pulled down global trade (far more than the trade remedies that tend to dominate the ‘trade” news). A few countries adjusted quickly and relatively efficiently (Russia), though not painlessly. A few have struggled to adapt—notably, because of its large external debt, poor policies, and growing political crisis, Venezuela. And some important countries have been able to draw down on large buffer stocks to delay adjusting to the new market reality. Most significantly, Saudi Arabia.   The different response of various oil exporting economies to changes in the global oil price is the subject of my latest CFR discussion paper, coauthored with Cole Frank (there is also a companion interactive). The United States is a player in this drama. The ability of the U.S. oil and gas industry to pull globally significant quantities of oil and gas out of “tight” reservoirs—first at a price in the 70s, and now apparently at a price in the 40s—radically transformed oil pricing. U.S. production costs are still well above the average cost of producing oil in Russia’s traditional West Siberian fields, let alone the cost in Saudi Arabia. But the ability of the U.S. to produce large quantities—and to ramp production up and down fairly quickly in response to changes in the price—made it more difficult for the Saudis to keep global prices up by limiting their own production. U.S. tight oil is a fairly elastic source of supply, and it is now clear that it can be produced on sufficient scale to help set the global cost curve. But the United States is still a net importer of oil (despite the hype around crude oil exports that optimize the use of U.S. refining capacity). The U.S. is both a huge producer—and a huge consumer. Unlike the main oil-exporting economies, it both wins (on the consuming side) and loses (on the producing side) from changes in the price of oil. For the net oil exporters, a fall in the price of oil, directionally, is nothing but trouble. Exports drop. And if the country’s currency doesn’t drop with oil, so too will budget revenues from the production and export of oil. Many analysts—including most IMF country teams—focus on the budget impact of changes in the oil price for oil-exporting economies. In a new working paper, Cole Frank and I try to make the case for using oil-exporters’ external breakeven price—the oil price that covers a country’s imports and brings the current account into balance—to track how individual oil-exporting economies, and the oil-exporters as a group, are responding to oil price swings. The fiscal breakeven is something that everyone seems to understand. Yet calculating it for an individual country at a single point in time often turns out to be quite difficult. How much revenue does a country actually get from oil? It isn’t always clear, especially if the revenue comes from a tax on corporate profits rather than a royalty on production or exports. How should the cost of holding domestic oil and gas prices below global prices be reflected in the budget? What exchange rate is assumed for the conversion of oil export proceeds back into local currency? How much spending is being done off-budget, financed either directly by the state oil company or indirectly through funds that the state or state firms make available through the banking system? Getting a point estimate for a single country’s budget breakeven is hard, let alone a robust time series. But I like time series and I like cross-country comparisons. The external breakeven isn’t as intuitive to many people, though it seems fairly straightforward to me—it is the oil price that covers a country’s import bill.* Ok, technically, it is the oil price that balances the current account, so oil exports need to equal the non-oil current account deficit—meaning remittances, dividend payments, interest income, and non-oil exports all enter in. But basically, it is the oil price that covers a country’s imports so it doesn’t have to borrow from the world (or sell off shares in its state oil company) to cover its import bill. It can be calculated easily for many countries so long as you know a country’s net oil exports (BP fortunately does all the hard work there, in its great statistical review of world energy), the global oil price, and a country’s current account balance (the IMF does the hard work there). The inputs are the same across countries and across time. That means it is possible to compare the oil exporters’ global breakeven curve in say, 2013: With the curve in 2016: Notice the difference? And since oil exports and current accounts can be summed up across countries, it is also possible to compare an individual country’s breakeven with the composite breakeven for all oil-exporting economies (note: we include gas, as a result of its gas and product imports, Mexico no longer counts as a net oil exporter). Look at the breakeven for Russia and Saudi Arabia relative to the global breakeven, for example: The Saudis were once a model of prudence. And the Russians a model of profligacy. But Russia’s willingness to allow its exchange rate to float (down) and to allow inflation to erode the real purchasing power of Russian consumers helped it adjust quickly. Plus Russia has a somewhat bigger and more diverse economy than the typical petro-state or petro-kingdom. Conversely, Saudi Arabia’s commitment to the dollar peg has taken away depreciation along with the price of oil as a mechanism of both balance of payments and fiscal adjustment (the dollar, and thus the Saudi riyal, rose in 2014 even as oil fell). The Saudis did belatedly ratchet down spending and imports in 2016: cutting off-budget investment projects, delaying vendor payments, and cutting spending on government salaries. But with the reversal of some spending cuts this year, the durability of that adjustment isn’t yet clear. One other thing: the external breakeven isn’t necessarily the “breakeven” for a country’s foreign reserves. The external breakeven is the oil price that covers imports, not the oil price that covers imports and domestic capital flight. And funds have been leaving Saudi Arabia. In 2016, the Saudi current account deficit was $27.5 billion, and reserve draw was around $80 billion. The Russians by contrast were able to maintain a current account surplus even with oil averaging roughly $45 a barrel last year. Their 2016 external breakeven was just under $40. One finding of the paper is that the oil exporters aren’t really a homogenous group, especially if Russia, Saudi Arabia, and Iran (a unique case due to U.S. and EU sanctions) are left out of the mix. In many ways the smaller exporters sort fairly naturally into a group that has—through prudent policies, often facilitated by a very small population relative to their oil production—kept its external breakeven price at about $50 a barrel throughout the boom years. That group is anchored by Norway and the small, rich GCC countries. And then there is a group that more or less needed $100 oil back in 2014, and generally speaking also lacked a large buffer of external assets. They were forced to adjust quickly to lower oil prices—whether through the budget or a weaker currency. Most Latin American and African oil-exporters fall into this category. Take a look at the interactive that accompanies the paper. It lets you graph the historical breakevens of the 26 largest net exporters of oil and gas. A fall in the breakeven more or less means a fall in spending on imports, so the oil exporters’ adjustment was a major factor in the slowdown of global trade in 2015 and 2016. That though is (mostly) the past. Most of the global adjustment to lower oil prices looks to have already taken place. But there are exceptions to the rule. Oman, Algeria (which recently devalued), and Venezuela (whose breakeven needs to cover interest on its debt as well as imports) all had relatively high breakevens in 2016. So does Libya—but Libya’s breakeven fluctuates based on its oil production. And Colombia—but it has a more diversified economy. The utility of the breakeven calculation is limited if oil and gas aren’t the majority of exports. And, well, then there is Saudi Arabia. The Saudis did adjust in late 2016, and their current account deficit in early 2017 has remained modest. But the ability of the Saudis to sustain the fiscal tightening that helped bring imports down remains a question—especially with a growing population. Its adjustment is still worth watching. NOTE: the analysis in the working paper draws heavily on BP’s data on global oil and gas production. We used the 2016 data set, which has authoritative production numbers for 2015. We will be updating the numbers to reflect actual 2016 production soon. The main technical innovation in the paper was explicitly incorporating natural gas trade into the estimated breakevens. That requires converting gas in its oil equivalent, and estimating the gap between the global oil price and various countries gas export prices. It increases the complexity of the calculation but it adds to the accuracy of the estimated breakeven of countries like Qatar, Norway and Russia. In the future it also could matter for Iran.