A tribal economy exists on the Arabian Peninsula, where many people live as nomads. In 1902 Abdul al-Aziz Ibn Saud, a member of the family that has controlled much of the Peninsula since forging an alliance with Muslim Wahhabi religious reformers in the mid-1700s, returns from a decade-long exile to take the city of Riyadh. With a group of Bedouin followers, he sets out to unify the region.
In an effort to consolidate control, Abdul Aziz plays the Ottomans, who for decades had nominally ruled much of Arabia, against the British, whose interest in the region increases with the onset of World War I. He receives subsidies from the British during the war, and gains control of more territory with the support of the Ikhwan movement, which stresses strict adherence to Wahhabism.
Rulers meet at a conference sponsored by the British but fail to settle their differences. By 1925 the holy cities of Mecca and Medina are under Saud family control. Revenue comes from pilgrims, but recession causes their numbers to drop. Though oil is found in parts of the Persian Gulf, a British attempt to explore in Arabia is abandoned before any discoveries are made.
Abdul Aziz officially establishes the Kingdom of Saudi Arabia, an absolute monarchy covering an area with roughly the same borders as the present state. He plans to use Western technology without adopting Western ideas, thereby maintaining the kingdom's strict Islamic tradition. Standard Oil of California wins the rights to develop oil, and in 1938 discovers large deposits of petroleum.
Depression and World War II slow oil development. But with strong postwar demand, Standard Oil of California and three other American firms form the Arabian American Oil Company (Aramco) to develop and market the kingdom's huge reserves. The company constructs the infrastructure necessary to bring oil to market, including port facilities, a pipeline, and housing and hospitals.
Abdul Aziz dies; his son Saud succeeds him. Saud's spending depletes the treasury, and twice he must cede power to his brother, who cuts payments to the royal family, balances the budget, and pays national debts. Citizens see a class split between the royal family and themselves. In 1960 Saudi Arabia helps form the Organization of Petroleum Exporting Countries (OPEC) to coordinate oil policies.
Saud is deposed, and King Faisal sets out to modernize the kingdom, focusing on defense, the economy, and education. While he advocates education for girls and opens government television stations, Faisal also tries to balance the introduction of Western technology with traditional Islamic principles. In 1970 he introduces the first of Saudi Arabia's five-year economic development plans.
During the October 1973 Arab-Israeli War, Faisal helps establish an oil embargo against countries that support Israel. Prices triple, increasing budgets for domestic programs. The government begins to take ownership stakes in Aramco and in 1975 announces plans to build two cities dedicated to non-oil industry. Also that year, Faisal is assassinated by a deranged nephew.
Oil prices rise, exports expand, and the kingdom booms. King Khalid reaches out to Arab neighbors and attempts domestic improvements. Aramco becomes state-owned in 1980 and has a monopoly on upstream oil development. The kingdom sees its first serious dissent in 1979, when strict Islamists take over the Grand Mosque in Mecca to protest what they see as the corrupting influence of Western culture.
During the years of peak oil revenue, the government, intent on producing chemicals and petrochemicals for export and building infrastructure within the country, focuses on developing a modern industrial sector. Work continues on the state-of-the-art industrial cities of Jubail and Yanbu. In 1982 Khalid dies, and Crown Prince Fahd becomes king.
Petroleum prices drop, culminating in the oil crash of 1986. The government reassesses its development program, freezing some projects while canceling others. Some private sector subsidies and large capital expenditures are temporarily suspended, and the focus shifts to maintaining existing assets and improving efficiency. As the 1980s close, the economy begins to stabilize.
Iraq invades Kuwait, and the government increases oil output to replace Iraqi and Kuwaiti oil embargoed by the UN. Support of U.S.-led multinational forces has both economic and social impacts. Defense spending pushes budget deficits to record levels and fiscal planners try a new idea: borrowing from external commercial banks. Meanwhile, critics are angered by Western troops on Saudi soil.
The government retires public-sector foreign debt, but budget deficits continue. Fahd establishes a consultative council comprising primarily religious and tribal leaders, some say in response to charges that he had not consulted widely before allowing foreign troops entry during the Gulf War. In 1995 he suffers a stroke, and the more conservative Crown Prince Abdullah takes over many duties.
The kingdom is a key player in efforts to cut production, and oil prices rise to their highest level since the Gulf War. The government moves toward privatizing industry, beginning with telecommunications and electricity, and aims for admission to the World Trade Organization by the end of 2000. The date is missed due in part to the degree to which Saudis are willing to increase access to markets.
Economic plans continue to emphasize the private sector, along with employment development and diversification. But by the end of the year, the petroleum sector still accounts for about 75 percent of budget revenues and 90 percent of export earnings. Estimates put unemployment rates among Saudis at 30 percent, and per capita GDP has dropped by about three-quarters since the early '80s oil boom.
Terrorist attacks on the U.S. and the war in Iraq place the ruling family in a precarious position between Americans critical of tepid support and Islamists who oppose Western ties. The economy is sluggish: Reform delays earn IMF criticism and stall talks to join the World Trade Organization. To fight unemployment, the government seeks to replace 60 percent of foreign workers with Saudis.
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