Transition 2021 Series: U.S.-Saudi Relations: Where Do We Go From Here?

Thursday, April 29, 2021
Bandar Algaloud/Courtesy of Saudi Royal Court/Handout via Reuters

Visiting Professor, London School of Economics and Political Science; Author, The Son King: Reform and Repression in Saudi Arabia

Professor, John H. Lindsey ‘44 Chair, and Head of the Department of International Affairs, Bush School of Government and Public Service, Texas A&M University; CFR Member

Senior Fellow, Belfer Center for Science and International Affairs, Harvard Kennedy School; Former Publisher, Wall Street Journal; Author, On Saudi Arabia: Its People, Past, Religion, Fault Lines—and Future; CFR Member


Staff Writer, New Yorker; CFR Member

Transition 2021 Series

Panelists discuss the future of the U.S.-Saudi relationship under the Biden administration and its implications for American foreign policy in the Middle East.

The Transition 2021 series examines the major foreign policy issues confronting the Biden administration.

WRIGHT: I'm Lawrence Wright, and I'm a staff writer for the New Yorker magazine. I'm happy to host this panel, "U.S.-Saudi Relations: Where Do We Go From Here?" You know, it's interesting to think about where we came from. Just ninety years ago an American philanthropist named Charles Crane, the heir to plumbing parts—and you can see his name still on the toilet sometimes—was a philanthropist and had an interest, unusual at the time, in the Arab world. He visited what was not yet the Kingdom of Saudi Arabia. He met with the king, Abdulaziz, and he was given two Arabian horses. He was so touched by this that he hired a geologist, Karl Twitchell, to find what Saudi Arabia desperately needed—water. And Twitchell didn't have much luck with water, but he did turn up something else. So since then, the U.S. and Saudi Arabia have profited enormously from this relationship. The U.S. built much of modern Saudi Arabia and Saudi oil is, in many respects, responsible for taking the industrial age into a new era.

Now we're at a turning point. To discuss this, I have three of the most interesting people I can imagine to talk about this. Madawi al-Rasheed is a Saudi and is a visiting professor at the London School of Economics. She is the author, among other things, of The Son King: Reform and Repression in Saudi Arabia. Gregory Gause is a professor at the Bush School at Texas A&M and the head of the Department of International Affairs. Karen Elliot House is the senior fellow at the Belfer Center for Science and International Affairs at Harvard. She is the former publisher of the Wall Street Journal and the author of On Saudi Arabia: Its People, Past, Religion, Fault Lines—and Future. Also, as a journalist, she's a Pulitzer Prize winner. So I welcome my colleagues to this discussion. I want to begin by talking about Mohammed bin Salman. If we want to talk about U.S.-Saudi relations, really, that's the center of the question. He is the real king of Saudi Arabia, and he's a paradox. On the one hand, he must be the greatest reformer in Saudi history. And on the other hand, according to the CIA and a number of other intelligence agencies, he's a murderous tyrant. So how can we understand this fellow, and how do we deal with him? And Madawi, I'm going to ask you to start because you may have a little more understanding of his background.

AL-RASHEED: Thank you, Lawrence. Yes, he's a central figure in the politics and the economy of Saudi Arabia at the moment. His sudden rise to power meant that a young, inexperienced prince, who really didn't have a lot of work in government previously, has been put forward at the expense of other possibly rival princes. And the interesting thing that you mentioned is this contradiction between reform and repression, which I talk about in my last book. To understand that we have to go to the Arab uprising of 2011 when Saudi Arabia felt the heat and the pressure, and it was only a matter of time before the same sort of uprisings spread into Saudi Arabia. And they did, for example, in the Eastern Province where oil resources are and even in the central province of Qassim and on the southern border in Asir. The conclusion, possibly by senior members of the royal family, was that if they promoted a young prince who appeals to the youth of Saudi Arabia and introduce some social reforms and liberalization, they would contain of the possibility of the Arab uprising reaching Saudi Arabia. So from the moment King Salman became king in 2015, he worked very hard to promote his son, known as MBS, at the expense of his brother, Ahmed, who was eligible to become king, or at least crown prince at the time, and also Mohammed bin Nayef, who was very well known in the West because of the war on terror. So he got rid of them, in addition to his brother Muqrin, who was the crown prince, and promoted Mohammed bin Salman.

The moment he came to power, he amassed so much power and jobs. He is the crown prince, the head of the Economic Council. He is the defense minister. He is basically the state now. And, as such, I had followed the trajectory of Saudi Arabia since 2017, and he has quite a lot of disasters, in addition to the well-publicized reforms. They were very, very limited. There was no talk about any political reforms such as, for example, turning the Consultative Council, whose members are appointed by the king, into some kind of a National Assembly, elected National Assembly. But, in fact, the limited freedoms that Saudis had in the past has been eroded, and there are today over thirty thousand prisoners of conscience in the country. The interesting thing is his style of government differs from the previous kings and crown princes in the sense that his detention campaign has actually become so wide that you would find in the same prison cell liberals, Islamists, and in the women's prison, you would find activists such as Loujain al-Hathloul and many, many other professors and civil society activists. So at the moment, Saudi Arabia is actually suffocating under Mohammed bin Salman, although we see the beginning of a social liberalization in the sense that women can drive, they can attend football matches, they can travel without the permission of their guardian, etcetera. So the outstanding reform, and that is the political reform and the opening up of the political sphere to some kind of diversity and discussion, is totally eroded under Mohammed bin Salman.

WRIGHT: Thank you, Madawi. When you're talking it reminds me, my last conversation with Jamal Khashoggi was when he had fled to the U.S. I was under the impression that MBS was the greatest thing imaginable for Saudi Arabia. And yet there was Jamal saying the repression has never been greater. Karen, you've met MBS. Can you help us understand this paradox?

HOUSE: I think, as Madawi said, that he got more power than he had experience. But I think it is a mistake for us to look at him as some uniquely bad guy. Yes, he is not Marcus Aurelius. I would argue the Kingdom of Saudi Arabia is better off than it was under King Abdullah because the status quo simply couldn't prevail, and I think Mohammed bin Salman understood that and thus began the reform. And he never, as the song goes, he never "promised a rose garden." He never promised any political freedom. He promised social and cultural change. And if you look at it, I mean, he has done a lot to give people individual freedom as long as they don't want to talk politics. But, you know, to me, compared to Putin, who kills his people, poisons them in his own country and in other people's country, or Xi, with all of the Uyghurs under lock and key, you have to say that MBS, in terms of his cruelty thus far, is a bit of a junior tyrant. The Saudis simply aren't used to that because in Saudi Arabia, unlike the old Soviet Union, the family ruled through bribery and blandishments and not through fear. And now, obviously, there are Saudis who are afraid and that's a new thing for them.

WRIGHT: Greg, you know, when people of policy people talk about MBS, I often hear them say that he's learned his lesson. And yet, you know, he got a preemptory war in Yemen and the assassination of Khashoggi. And yet, threats continue to pour out of that. You know, Ali Soufan, for instance, has gotten very, very similar threats that preceded the Khashoggi murder. And Agnes Callamard, the UN investigator, not to mention, exiled Saudis around the world. Has he learned his lesson? How would we know? And how should we deal with him? Karen mentioned Putin, for instance. We've sanctioned Russia. We've sanctioned China. But we don't sanction Saudi Arabia. So has he learned a lesson, and if he hasn't then how do we teach him one?

GAUSE: Well, we don't know. And I think that a lot of this goes back to Madawi's very pertinent point that the consolidation of power in the hands of MBS is really unprecedented since the death of the founding king, Abdulaziz, even so, back in the early 1950s. Since that time, Saudi Arabia, I think, has basically been governed by committee. Now some kings were stronger, some kings were weaker, but there were more voices at the table. Now there's basically one voice at the table—MBS's plus the king. And that means that there's no restraints. Even the restraints of collegial leadership, that I think they also worked under for decades, are gone. And that means that basically the restraints on MBS are external, not internal. And they have to come from external actors. And I think one of the problems of the Trump administration is that rather than trying to set up those guardrails, they encouraged the crown prince in the belief that, and I think he had this belief, that Saudi Arabia is a superpower. Karen mentioned, you know, what Putin does and what Xi does. I think that to some extent, MBS, unlike the older generation in Saudi Arabia, didn't appreciate the limits of Saudi power. He thought he could act like Putin. He thought that he could act like Xi. But Saudi Arabia is not a superpower. Those restraints, I think, whether he's learning them or not, I don't know, we'll have to see. I'm hoping the Biden administration can impress upon him that cooperation with Saudi Arabia is part of what they want to do, but there are also limits on what the Biden administration and the United States, more generally, can accept from countries with which we are de facto allies.

WRIGHT: Well, let's talk about the source of Saudi power to the extent that it has power. It's a one-legged economy; It stands on oil. And there's a range of prices that I hear about the breakeven point for the economy. It's been a wild ride in the last several years, starting with the responsible Texans in the room, with fracking. It was a devastating blow to Saudi economy. Then the pandemic came along and, you know, the use of petroleum plummeted. It's stabilized now, but you can see how rocky this one leg—actually, this metaphor doesn't work very well, but it's an unstable situation facing trouble. And obviously MBS is trying to diversify. He is actually going into alternative energy and talking about a green future. There's are enormous problems with trying to get a Saudi workforce together. So, Madawi, can you give us a little bit of wisdom on how this shapes up in the future?

AL-RASHEED: Well, one comment. I think I agree with Gregory about lack of internal pressure to change behavior. Mohammed bin Salman had emptied the rudimentary state institutions that had existed, for example, the Committee of Allegiance, the thirty-three-prince committee that is supposed to elect the future king. He's also made the appointed Consultative Council redundant. He has emptied the higher religious council of any meaning. He has created new institutions, for example, the Public Investment Fund, and appropriated the oil revenues from Aramco, and also the sovereign fund, and created parallel economic financial institutions to the existing one, which meant that the old ones had actually almost vanished. But it's interesting, the economy is central and the threat to Mohammed bin Salman is the economy and his inability to deliver on Vision 2030, which he announced in 2016. In his latest interview, which was ironically done on Arabic Rotana television, owned by the Saudi state, he spent most of the time talking about the economy because he simply senses that Vision 2030 didn't actually yield the results. He quoted that unemployment is at 14 percent, which is actually an underestimate. He also talked about the falling oil prices, and he kept talking about the law of supply and demand. In his Arabic interview, assuring Saudis, that even the demand for Saudi oil is falling because of alternative energy and other sources of energy, we will be irrelevant to the world. But this is not justified with any kind of fact.

The interesting thing is he appealed to the local private sector in his interview. It has been actually devastated by the so-called anticorruption detention campaign in the Ritz Carlton. A lot of money has left Saudi Arabia and that money will probably never come back simply because there is fear and insecurity about the erratic behavior of Mohammed bin Salman. So he was promising that the local private sector will be brought in in partnership with the government in order to inject some kind of energy in the economy. The interesting thing about that interview was that it was directed towards local audiences. As you know, Mohammed bin Salman started his career and propaganda on English-speaking media and gave interviews to several important global English media like the Economist, Bloomberg, etcetera. But this time, he senses that there is agitation. The interesting thing is he talked about taxes. As you know, Saudi Arabia imposed a VAT in July around 15 percent, which its population is not used to. But interesting, also, is that he claimed that in the future 50 percent of the population of Saudi Arabia will be foreign residents, and they are the ones who are going to pay these taxes. Up to now we don't know what the corporate tax is going to be on foreign companies operating in Saudi Arabia. He definitely wants to lure them from Dubai into Riyadh. Otherwise no government contracts are going to be signed with any foreign companies.

So there is this hyperbolic nationalism to assure Saudis that they're not going to be paying for austerity. Foreigners are going to be paying for it, corporations, and individual residents, which actually makes Saudi Arabia less attractive for direct foreign investment because it wants to try to find markets where they're not going to be taxed. And therefore, his Vision 2030, that was meant to boost the economy, diversify, has stalled. One important news that he mentioned was the plan to sell 1 percent of Aramco in addition to the 5 percent that were sold earlier to a foreign company. He declined to name it. And all this creates some kind of uncertainty not only for foreign investors who are looking for, you know, untaxed income in Saudi Arabia and also the rule of law. What has happened over the four years is his erratic behavior has led to detentions and then ransom money paid. I wonder which foreign corporation would actually be encouraged by this bad news to go and operate in Saudi Arabia without protection.

WRIGHT: It sounds like Mexico might still pay for the wall if all this comes to pass. Karen, what's your outlook for the Saudi economy? Madawi has given us a pretty good overview.

HOUSE: I think she is absolutely right that his biggest problem is the economy. And his biggest problem in the economy is its inability to create jobs that Saudis are willing to take. So in the TV interview that she referred to, he talked about, you know, unemployment will be down to 11 percent this year. And, you know, it was fifteen in the middle of COVID. But it's a long, long way from the 7 percent he promised in Vision 2030 by 2030. I mean, he is, I think, playing it by ear. You know, it is very hard to transform an economy that is fundamentally handing out oil revenues into one that sustains itself with its own labor and creativity. It took South Korea twenty-plus years to truly transform its economy, and it had a highly educated population and a workaholic population. Saudi Arabia trails South Korea on both of those things. So it was a huge task for him before the Khashoggi incident, and as Madawi said, that has only compounded the ability to attract foreigners. And now he keeps compounding that ability to attract foreign investment, etcetera, by all the things Madawi's already just outlined. So it's a huge problem for him.

WRIGHT: Given, you know, the dependence on oil and at same time the world is trying to wean itself off of petrochemicals, our relationship with Saudi Arabia is built on oil. And yet, you know, there are unforeseen consequences, you know, that came along with climate change and so on. The role of oil in the future by any fair measure, I think, is going to diminish. Will our relationship with Saudi Arabia also diminish and with the entire Gulf? In twenty years how important will Saudi Arabia be to us? And how much should we invest in that relationship now?

GAUSE: I agree that if you're thinking on a thirty- or forty-year time horizon, the role of oil in the world economy is going to be much reduced. And I think Saudi Arabia will be the place where the last drop of commercial oil gets produced and sold from but how important that will be, I think, is much less than it's been in the past. It was a former Saudi oil minister, Sheik Yamani, who famously said that the "Stone Age didn't end because we ran out of stones." The oil age is not going to end because we run out of oil, it's because we found substitutes. But year to year, oil is still important. And maybe our neighbors down here in Texas, Lawrence, would kind of blanch at the idea that Saudi Arabia is really not that important anymore because oil is not that important anymore. I mean, we see the ups and downs in the oil industry, in oil prices. We saw it, not just in the pandemic, but as you said, with fracking, and then the Saudis kind of dumping the price in late '14 and early '15 by upping their production both to try to discipline Russia and OPEC members in their production decision, but also to try to drive fracking out. And I think American presidents are going to want to have in the short term some kind of relationship with a country that can have that kind of short-term effect on the oil market. So I mean, if the long term is made up of a series of short terms, I'm not really sure where, you know, the importance of Saudi Arabia drops in terms of the world economy and world oil.

WRIGHT: Before we get to the questions I wanted to squeeze in one more question for Karen. In September of '19, I think it was, the Saudi oil fields were attacked by missiles and drones, evidently, from Iran. It seems to have been a warning shot because those missiles and drones could have taken out most of that field. It underscores the fragility of Saudi Arabia that all of its eggs are in a basket lying on the sand. And with all the belligerents in the region, it seems to me that Saudi Arabia could not be more vulnerable to that kind of threat.

HOUSE: It is vulnerable. And, you know, one of the things they use to protect themselves with is, you know, get American missiles to try to shoot down these incoming missiles, which didn't work in that case. I remember I was there right after that incident and Prince Abdulaziz bin Salman, the oil minister and brother of the crown prince, said he wept at how well Aramco took charge and how quickly everything got back. But it was clearly an emotional experience, I think, and a frightening one for Saudi's because, while MBS talks very bravely about "I don't care what the price of oil is, I'm building another economy," they do have to care about the price of oil and they certainly have to care about their ability to produce it. And that's what, you know, what made that incident such a nightmare for the country, I think. And I think it still is because they're not certain. You can't be certain that you're safe from the Iranians.

GAUSE: I think the other thing about that, though, is that, you know, for over forty years, the United States said that we are in the Persian Gulf to protect the free flow of oil. And this was probably the most serious attack on the free flow of oil since Saddam Hussein invaded Kuwait. And the U.S. response, from the Saudi perspective, was nonchalant in the extreme. And, like you, Karen, I was in shortly after 2019. I felt like I should have worn a T-shirt that said "unreliable ally" because that's kind of what everybody was accusing the United States of being.

WRIGHT: Is there something to be said for that moment of restraint on the part of the U.S. to let Saudis know what could be in store for them if there wasn't a powerful ally over their shoulder?

GAUSE: You're asking me to delve into the mind of Donald Trump, and I'm not sure that I want to go there. But I don't think that we said that we were in the Persian Gulf because we like Saudi Arabia. I think we always said, the United States always said, we were in the Persian Gulf for our own economic and geopolitical interests. And, you know, if our interests are still in the free flow of oil, I think we want to be very clear to local powers that we are dead-set opposed and there will be a price to pay if they try to interfere with the free flow of oil.

HOUSE: Beyond the free flow of oil, our interest in that part of the world is also just not having upheavals that constantly risk sucking us in and have enough stability that, you know, the Israeli democracy can survive and thrive. So I don't think it is in America's interest or, frankly, anyone else's to have upheaval in Saudi Arabia. It's beyond the economic consequences.

AL-RASHEED: Yes, but—

WRIGHT: Go ahead, Madawi.

AL-RASHEED: —in the Yemen war, we see how the U.S. backed Saudi Arabia in 2015 when it launched the war in Yemen. Without the green light from Washington, Saudi Arabia wouldn't have had the opportunity, let alone the victory, that it claimed it wanted. So basically, I think it's important to understand how Mohammed bin Salman and Saudi Arabia today are very keen on dragging Americans into conflicts to the right and left simply because he feels certainly secured domestically.

WRIGHT: Karen, you've actually said that part of the strategy of MBS or the Saudi royal family is to keep tensions up, externally, in order to ensure a kind of domestic tranquility?

HOUSE: Yes, I think they do believe that it makes the Saudi people feel—they can't cause disruption because they're nervous about what's going on all the time. So I do think that that is part deliberate by the royal family to keep their own people off balance so they don't have time to think about turning on the royal family.

WRIGHT: So it's time to open up for questions from members. I'm reminding you that this is on the record, and the operator will remind you how to join the question queue. So at this time, we will accept questions.

STAFF: We will take our first question from Martin Indyk.

Q: Thank you, everybody. I really appreciate your conversation today. Lawrence, it's nice to see you, even though you can't see me. My question is for the panel, really, and it's about, it's from the perspective of Washington now and the Biden administration if you put yourself in their shoes. They have this problematic partner named Mohammed bin Salman. Is he capable of respecting our interests? Do we have an ability, I know it sounds arrogant, but do we have an ability to put the reins back on him in a way that we can rebuild a reliable partnership with him? And if that is possible, what do we need to do to make that happen? Or is he just unreformable, and we just need to calibrate our policy on the basis that it is what it is?

HOUSE: Well, you notice he said in the interview that Madawi referred to that he agrees with the U.S. on 90 percent of their policies, and he's working on, in essence, harmonizing the 10 percent disagreements without saying what those 10 percent are. I personally think you can approach him and show him the bit and the bridle and hope that he draws some conclusions from having it in front of his nose but that putting it in his teeth is not easy because he said, again, in the interview this week something to the effect of, "I will not be dictated to and I certainly want to accept interference in the internal affairs of Saudi Arabia." And Saudis, while they like the Americans, also don't like being what they regard as talked down to. So I think it is hard, you know, to be confident that Saudi Arabia will be doing our bidding the way it was in the days of the King Abdullah.

AL-RASHEED: I think that Mohammed bin Salman has learned a lesson, but it is early days. In the last four months, since the election of President Biden, he changed his tone on Qatar and started the reconciliation. Two days ago, he said Iran is a "neighbor and we don't want to destroy the Iranian livelihood." That's a change because at first, I mean, initially, he wanted to destroy Iran and create, sort of, conditions for regime change in Iran. And also since he came to power, in the last four months, he changed his tone with Turkey, another country that we don't talk about that has a tense relationship with Saudi Arabia for obvious reasons, one of which is the murder of Khashoggi. He has released a couple of dual Saudi-American citizens and Loujain al-Hathloul, the feminist. Obviously, they're still under a ban to travel and banned from talking to the press. So these are positive signs and everybody in Saudi Arabia and among the diaspora think that without that sort of pressure, or even the language in Washington about human rights, about democracy, Mohammed bin Salman would have simply continued in his behavior. But there is more that the U.S. could do. In order to protect its national interests, it will relieve the national interest of Saudis. I mean, it's not the responsibility of the U.S. to protect them. But as Greg said, because there is no internal pressure to create better conditions other than entertainment or football stadiums or tourism sites, I think if the Biden administration follows these, sort of, lessons of the last four months and continues to put pressure on him to actually create stable conditions in Saudi Arabia that allows the economy to get better, that allows people to breathe, allows people to think about a future where they have a say in policy, and also create favorable conditions for attracting foreign investment and boosting the economy. However, as long as Mohammed bin Salman is ruling as the "Son King," the absolute monarch, with no restraint and no checks, with absolutely no institutions that could restrain him, it's impossible. We are dealing with one young prince with ambitions and also with unrealistic, sort of, grandiose complexes. Therefore, the erratic behavior will continue.

GAUSE: I would just add that I think the jury is out on Martin's question—we don't know. I think that we've had an American policy for the past four years that basically coddled and encouraged MBS and now we're seeing American policy that's trying to direct him in other ways. I think it's probably easier to apply that kind of pressure on foreign policy than it is on domestic politics. I think Yemen will be a very, very interesting testcase in this regard. That's what I'm watching for early signs.

WRIGHT: I did want to say, I think that the central project of Saudi Arabia in the next 30-40 years, we're using Greg's timeline, is to transition away from its petrol origins into something else. And, you know, most Saudi intellectuals in some way or another had been educated in America. I think we've got a massive educational challenge in front of us. If we want to continue to have a relationship and take Saudi Arabia through this transitory period, then we will have a terrific job to do. But whether we will actually do that or be invited to do that is up in the air. We'll have the next question.

STAFF: We will take the next question from Joe Nye.

Q: This has been a very good panel. I want to go back to the murder of Khashoggi, which created some controversy in the U.S. When Trump ignored it, the Wall Street Journal criticized him for not saying anything about values. On the other hand, when Biden had a response in which he had the DNI issue of blame of MBS, Karen, you, among others, were critical of that. But Nick Kristof, for example, said they didn't go far enough. We have a lot of controversy inside this country. What's the effect inside the kingdom? Does it matter? Is this just something that Americans do to amuse ourselves or what is the net effect inside the kingdom of the fact that Biden made the statement that he made, whereas Trump made no statement?

HOUSE: Well, maybe Madawi should take that first.

AL-RASHEED: Well, I mean, the report was rejected as you'd expect. But, in fact, you know, the report didn't tell us more than what we had already known throughout, you know, the last three years. I think there was a sign of relief that only seventy-six unnamed Saudis were sanctioned by the U.S. But there was quite a lot of bad reporting on the U.S. in the Saudi press because, I mean, you know, Mohammed bin Salman was named. If you look at the Saudi press, obviously, it is a mouthpiece of the regime. There is no independent press. But I think quite a lot of people also were disappointed that President Biden went half a mile and didn't continue the journey. The interesting thing is Saudis don't want sanctions on their country because they are the ones who are going to be affected by any sanctions. What they want is sanctions on the individuals and at the very top level, and in fact, you know, the Trump administration and the last four months, again, gave the impression that Mohammed bin Salman could actually get away with murder.

GAUSE: So, I think that Madawi is absolutely right that you can't really tell Saudi public opinion from what's in the press or even what's on the Twitter feed because of the state's control and intervention in these areas. I think, in my own personal experience with my Saudi colleagues and friends, I think that it did have an effect on people who were of that kind of class of people in Saudi Arabia who knew Jamal and who traveled internationally and who understood the effect of this in the United States. I think, below that, you know, among kind of, quote-unquote, "more normal Saudis," right, it didn't seem to have the same effect. But I do think that Professor Nye brings up an interesting point about how U.S.-Saudi relations have become more partisan in the United States. And I think that this is, you know, part of the partisanization of American politics in general and I think was accelerated by President Trump with his embrace of MBS. And thus, I think, there are a lot of people on the Democratic side, particularly, you know, younger, foreign policy experts on the Democratic side, who, unlike President Biden, kind of didn't have decades of relationships in Saudi Arabia and kind of were schooled into this idea that Saudi Arabia is very important. And I think that it doesn't bode well for the U.S.-Saudi relationship if, you know, it becomes part of the partisan back and forth that so much of the rest of American politics has become.

WRIGHT: We'll have the next question.

STAFF: We will take our next question from Judith Miller. Ms. Miller, you're unmuted. Please go ahead. We will take our next question from Lauren Anderson.

Q: Hi, I'm Lauren Anderson. As was mentioned, I'm a former FBI executive, and I want to first thank you for a really interesting panel. I have a two-part question for you. I'm very interested in what your assessment would be of the intellectual capability of MBS, and secondarily, who do you believe does have any influence with him right now within Saudi Arabia or elsewhere?

HOUSE: That's a question a lot of people would like to know: Who has influence on him? I definitely don't know the answer. My view of him is it would be a mistake to think that because he's brash, he's stupid. He's not stupid. He is almost certainly not as smart as he thinks he is, but he is not stupid. So, you know, when you talk to him he has a full command not of his brief, but of his views. You know, you don't see him looking to his aides, you know, waiting to be supplied answers and thoughts. He's totally in command. And I think that is the one thing that it would be important for the U.S. to understand is that unlike the shah, when we started to push him on human rights and he got confused and dithered and, of course, he was physically ill, which most people didn't know at the time, but, you know, he dithered and wound up being dethroned. I think Mohammed bin Salman's number one goal is to hold on to power no matter what it takes. And he would prefer to do that in a gentlemanly fashion, but he will do his best to do it in whatever fashion is necessary. So, again, I'm perhaps repeating the bit and bridle, but I think making him feel cornered is not the thing one wants to do.

WRIGHT: We'll have the next question.

STAFF: We will take our next question from Hani Findakly.

Q: Thank you very much. Thank you very much for this extremely good panel. I happen to agree. I'm an economist. I had been the chief investment officer the World Bank and had been visiting Saudi Arabia for the last fifty years. I said it very carefully that Vision 2030 and concluded at the time that it's a very good vision with the right kind of goals and objectives, but extremely poorly structured and not going to lead to the diversification goals that the country needs for three reasons. One is it ignores the structure of the Saudi economy where the labor force is unproductive. It's one of the few countries in the world where it costs more money to hire people and produce goods and services. And the second is the fact that there is a myth that Saudi Arabia and the Gulf countries have low taxes. And, in fact, if you calculate taxes as a revenue that the government gets as a percentage of the economy, Saudi Arabia has about 50 percent more taxes than Americans get taxed by federal taxes. And having new taxes raised and that will put Saudi Arabia as one of the highest-taxed countries in the world by that measure. The third is the dependence on private sector and foreign direct investment. I listened carefully to the prince's speech or interview this last week in the press. He conflated government revenues, the rise in government revenues as a percentage of GDP with the diversification of the economy. In fact, the economy is less diversified today than it was five years ago when they announced Vision 2030. And the taxes are rising although the production and diversification is not rising. So they are conflating government revenues from taxes as compared to rise or share of non-oil in the economy. And a final issue is the fact that they're using an unorthodox economic policy where they're raising taxes at a time where the economy is weak instead of using a stimulus to use that. So my question really is, given the fact that the government will continue to be in a financial tightrope for at least the next five years by my calculation and the fact that the social contract that has prevailed during the last several decades is going to become far, far more constrained, how will that impact the political situation and future and what could the government do about it?

GAUSE: That's quite an agenda, Hani. [Laughs] Look, I think that raising taxes when the economy was weak is, yes, and that's the austerity playbook that a lot of countries took after the financial crisis of '08-'09. I think it was taken in Saudi largely because they were looking at government revenues. I do think that we should acknowledge that they have been running deficits and spending down, you know, going into the debt market and spending down some reserves in order to try to keep the economy somewhat moving forward in the last couple of years. And so it's kind of across purposes, certainly, but the economic policy, I think, and you'd probably agree with me, hasn't been complete austerity because there's been quite a lot of deficit spending in the last couple years.

I would just say the unproductive labor force, to me that's the nut that Vision 2030 hasn't cracked. During the boom years when oil prices were high from '05-'15, the Saudi private sector was a job-creating machine. But most of the jobs, you know, 90 percent of the jobs went to foreigners. And I don't think Vision 2030 has gotten the key to how you get the Saudi private sector to hire Saudis, right? And I think that until it does that's going to be the real conundrum of diversifying the Saudi economy. I don't think the Saudi labor force is unproductive because of Saudis, right, these are, you know, we have this kind of stereotype of the rich folks in oil countries who don't want to work. But I think we got to remember that the grandparents of these people did the kind of hardest physical labor to earn their daily bread. There's nothing cultural about not working hard in the Gulf. And I think it's just a matter of getting the policies right so that the cost of foreign labor is roughly equivalent to the cost of Saudi labor and then you have to have government policies to kind of subsidize the training. You know, the private sector should do the training, and the government should subsidize the wages. And I think that there are some models there that the Saudis are starting to think about and other Gulf countries as well.

AL-RASHEED: Well, to add to what Greg just said is, you know, obviously, I do not subscribe to the myth of the lazy natives. But the labor force needs to be linked to education that provides certain skills for the economy. And even with all the so-called reforms over the last twenty years of the education system and the scholarship system, which led to thousands of Saudis being educated in the U.S., Australia, Canada, and Europe, we still haven't reached that balance. We haven't reached a match between the education and the economy. An interesting thing is that even the scholarship system, which was hailed as the future of Saudi Arabia, as Saudis go abroad and come back with skills, has been politicized, and it has become a way of rewarding loyalty rather than vetting the potential candidates and sending them to top-class universities abroad. A lot of them went into higher education colleges, from my experience, in Britain. It actually doesn't give them that many skills, but it's a money-making machine. You get Saudis to come to these colleges and they pay high fees, almost triple what the local students pay.

But the question about the relationship between the bad economy that Saudi Arabia is having at the moment and the implications on the politics and stability of the country, I mean, this is a long, long story. Professor Greg had taught us a long time ago that loyalty in a rentier state like Saudi Arabia is dependent on welfare and benefits. But now we see that all of those are eroded, although the promise is that Saudis will be able to own their house, Saudis will be able to get a job, especially two days ago. But it is a problem. My guess is that it is not an automatic relation that you get welfare and then you basically accept your marginalization and depoliticization as a citizen. If you look at Saudi prisons, they are full of professors, lawyers, activists, merchants, and those who haven't been sort of, you know, deprived of welfare. In fact, they have generated money, especially the business community. And also professors have had a comfortable life and lawyers, etcetera. So the equation is that most of the welfare services is bad redistribution because in a system where redistribution of wealth is based on loyalty and obedience, citizens find ways of challenging those kinds of exclusionary measures. And in the long term, I think Saudis, as they are subjected to taxation, as they are subjected to more restrictions on their freedom, they are going to ask questions and they have already done so. Otherwise the prisons wouldn't be so full.

HOUSE: I'll just make one tiny point. One of the things that is working, in my view, one of the few goals in Vision 2030 that's already been exceeded is women in the workforce. And the reason I think is one Madawi alluded to. There are well-educated women who have been restricted in what they could put their talents toward, and now they can put them toward a much wider array. The Vision called for having women be 33 percent of the workforce by 2030, and they've already—no, it called for 30 percent, I think, and they're already at 33 percent. So I think women are contributors to and these are jobs in the private sector, not government jobs. So that's one small positive, but he's got a long, long way to go to, I think, keep people content.

WRIGHT: Let's see if we can squeeze in a very brief question followed by a very brief answer.

STAFF: We will take our next question from Charles Bolden.

Q: Yes, quick question about the Saudi Space Commission. A couple of years ago Saudi Arabia began by constructing a draft space policy and a strategic plan for a Saudi Space Commission. We don't hear a lot about it publicly. I'm wondering if in the kingdom there is any conversation about it. Its head is supposed to be Prince Sultan, who was the first Saudi astronaut to fly and I think is the big brother of MBS. Any word on that?

HOUSE: He is the big brother of MBS, but I swear to God, I know nothing about the Saudi space program. So, over to anyone else.

WRIGHT:  Charles, I think there's a business opportunity for you.

GAUSE: I haven't heard anything about it.

AL-RASHEED: These initiatives we have seen are basically imitations of what the neighbors are doing. So, if you remember a couple of months ago they use UAE sent its satellite and therefore—and it goes even to football. You know, as Qatar and the UAE had bought football clubs in France and the UK, now Mohammed bin Salman wants to buy a football club in the UK, which had gone really badly because the football league blocked it. But there's a lot of competition—

GAUSE: Madawi, there looking at buying Inter Milan now in Serie A in Italy.

AL-RASHEED: Yes. So it all depends on what the neighbors are doing and if the project sounds good. This goes back to the question we had on the intellectual capabilities of MBS. He comes across as someone who picks on certain buzzwords and actually when he's speaking in Arabic he throws these words. He throws them in order to impress a certain constituency in Saudi Arabia, the Western-educated, English-speaking young people. But sometimes as Hani said, it's very difficult to know that he exactly knows what he's talking about. And in terms of who advises him, I mean, he's surrounded himself by foreign advisors. I think management consultancy firms haven't had a better time in the past since he came to power. He even gives them the project of creating a nation. Some of them are actually helping to create a Saudi nation, which I suppose most management consultancy firms are not in a position to advise on that. But he likes that and it is a trend in the Gulf. It started in Kuwait and went all the way down the Gulf. And now he's discovered these kinds of consultancy firms who provide him with the buzzwords that he could use to impress this educated, westernized Saudi constituency.

WRIGHT: Well, I think we have reached the end of our hour. I just thought this was a really wonderful conversation. I couldn't imagine a better group to hear than Madawi, Greg, and Karen. I want you to note that the audio and transcript of today's meeting will be posted on the Council's website. Thank you. Thank you, especially panelists. It's been a wonderful discussion, and I will leave it to the CFR to sign us off.


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