Is Saudi Arabia Next?

WikiLeaks has published cables about the royal family of Saudi Arabia - the world’s biggest exporter of oil. When he arrived home last week, King Abdullah brought with him gifts worth $37 billion. Is he intending to placate Saudis of modest means after the unrest sweeping the middle east? We now know that over the past twenty years, most handouts have gone to his own extended family according to American diplomatic cables dating back to 1996.

Besides the huge monthly stipends that every Saudi royal received, the cables detail various money-making schemes some royals have used to finance their lavish lifestyles over the years. In 1996, US officials were concerned about the royals unrestrained behaviour and thought there could well be a backlash against the Saudi elite because of it. One cable reads “Of the priority issues the country faces, getting a grip on royal family excesses is at the top.”

A 2007 cable showed that King Abdullah has made changes since taking the throne six years ago, but it’s clear there is a deep-seated resentment about nepotism and corruption. One cable reads: "Saudi princes and princesses, of whom there are thousands, are known for the stories of their fabulous wealth and tendency to squander it."

The most common mechanism for distributing Saudi Arabia's wealth to the royal family is the monthly stipends that members of the Al Saud family receive. In the mid-1990’s we see that about $800 a month was allocated for “the lowliest member of the most remote branch of the family” and up to $200,000-$270,000 a month for one of the surviving sons of Abdul-Aziz Ibn Saud, the founder of modern Saudi Arabia. Grandchildren received around $27,000 a month and great grandchildren received about $13,000 and great-great- grandchildren $8,000 a month. Bonus payments were also available for marriage and palace building. The stipends also provided a substantial incentive for royals to have more children since they begin at birth. One Saudi prince said that the revenue from one million barrels of oil per day goes entirely to five or six princes.

But the stipend system was clearly not enough for many royals and they had other ways of making money. "By far the largest is royal skimming from the approximately $10 billion in annual off-budget spending controlled by a few key princes," the 1996 cable states. Two of those projects -- the Two Holy Mosques Project and the Ministry of Defence's Strategic Storage Project -- are "highly secretive, subject to no Ministry of Finance oversight or controls, transacted through the National Commercial Bank, and widely believed to be a source of substantial revenues" for the then-King and a few of his full brothers, according to the authors of the cable.

Then there was the common practice for royals to borrow money from commercial banks and simply not repay their loans. As a result, the 12 commercial banks in the country were "generally wary of lending to royals." Another popular money-making scheme saw some "greedy princes" expropriate land from commoners. "Generally, the intent is to resell quickly at huge mark-up to the government for an upcoming project."

One powerful royal ordered local authorities in the Mecca area to transfer to his name a "Waqf" (religious endowment) - of a small parcel of land that had been in the hands of one family for centuries. Another senior royal was famous for "throwing fences up around vast stretches of government land." Finally, royals would sponsor the residence permits of foreign workers and then make them pay a monthly fee of between $30 and $150.

But the real push for reform began in 2005, when King Abdullah succeeded to the throne. He told his brothers that as he is over 80 years old, he does not wish to approach his judgment day with the ‘"burden of corruption on his shoulder". The King, the cable states, had disconnected the mobile phone service for "thousands of princes and princesses." Year-round government-paid hotel suites in Jeddah were cancelled also the right of royals to request unlimited free tickets from the state airline. "We have a first-hand account that a wife of Interior minister Prince Naif attempted to board a Saudia flight with 12 companions, all expecting to travel for free," the authors of the cables write, only to be told "to her outrage" that the new rules meant she could only take two free guests.

Rumour has it that the royals have all their money stashed and invested outside the country in case of trouble. Now the question is - can the king buy his way out of trouble or is it too late?

Edit January 25, 2013:  The Arab uprisings in the Middle East hardly touched Saudi Arabia.  Some analysts believe it's because the government "bribed" its people into submission with a massive stimulus and welfare benefits, others think that it was because of King Abdullah's personal popularity.  Whatever way you look at it, King Abdullah is the most important man in the Middle East because Saudi kings are custodians of the most important oil fields in the world and remain the largest exporter of crude oil.  The King is 89 years old and it won't be long before power is handed onto another.  His immediate successor is Prince Salman who is said to be a reformer.