SAUDI ARABIA

COUNTRY OVERVIEW

LOCATION AND SIZE.

Saudi Arabia is located in the Middle East between the Persian Gulf and the Red Sea. It borders Jordan, Iraq, and Kuwait to the north, Yemen to the south, and Oman, the United Arab Emirates (UAE), and Qatar to the east. The country, which is divided into 13 provinces, is composed primarily of desert. Each region has a governor appointed by the king. With a land area of about 1.96 million square kilometers (756,981 square miles), Saudi Arabia is about one-fourth the size of the continental United States. Riyadh, the capital, is located in the central eastern part of the country.

POPULATION.

The population of Saudi Arabia was estimated at 22,023,506 in July of 2000, a figure growing at about 3.3 percent a year. Saudi nationals account for close to 75 percent of the population. The remaining residents, nearly 6 million people, are expatriates comprised primarily of foreign workers. About 90 percent of Saudi nationals are Arabs. The rest of the indigenous population, according to CIA statistics, are Afro-Asian.

In 2000, the birth rate stood at 37.47 per 1,000 population, compared with a death rate of 6.02 per 1,000. According to a Saudi census taken in the early 1990s, a little over 50 percent of the population is male. While men make up a majority of the population, due primarily to the high concentration of males among expatriate workers, women are expected to live longer. Women on average live 69 years in Saudi Arabia, while the men live 66.

An overwhelming majority of the Saudi population is young. In 1999, according to the Saudi Ministry of Planning, 46 percent of the population was under 15. Another 38 percent was under 40. Those over 40 accounted for only 16 percent of the population. Efforts to accommodate the rising numbers of young adults entering the workforce each year have been only partly successful, and the consequent rise in unemployment has begun to aggravate the underlying tensions between the country's richest and poorest citizens.

Up until the 1960s a majority of the Saudi population were either nomadic or semi-nomadic desert dwellers with no fixed homes. However, after petroleum was discovered in Saudi Arabia in the 1930s, state revenues quickly began to rise. As the oil industry matured, the economy quickly modernized and nomadic herding faded as an economic base. By 2000, 95 percent of the Saudi population was settled.

The Saudi royal family and a majority of the population are Sunni Muslim. About 5 percent of the population, around 1 million people, are Shia Muslim. Tensions between the Sunni majority and the Shia minority have been especially high since the 1979 Iranian Revolution, when Saudi Shiites rioted in parts of the Eastern Province. Shia Muslims routinely suffer from religious discrimination.

OVERVIEW OF ECONOMY

The Saudi Arabian economy is fueled almost entirely by the production and distribution of petroleum and its derivative products. Over the past decade oil sales have generated, on average, 90 percent of the country's yearly export earnings, 35 percent of annual gross domestic product (GDP), and 75 percent of all budget revenues. High oil prices in the 1970s led to rapid economic expansion, with GDP growing over the course of the decade by 10 percent per year. As oil prices dropped in the 1980s, GDP growth slowed, averaging just 1.3 percent per year between 1980 and 1998. Rising oil prices beginning in 1999 again boded well for the economy.

Oil was discovered in Saudi Arabia by American geologists in the 1930s, but high level production did not begin until after World War II (1939-45). In the 1960s, the Saudi oil industry began to mature, resulting in a massive accumulation of wealth, fast paced economic growth, and rapid urban development. However, it was not until the 1970s that Saudi Arabia emerged as one of the Middle East's preeminent political and economic powers.

Two events in the 1970s were crucial to Saudi Arabia's economic development. One was the Arab oil embargo of 1973, during which time Arab countries withheld oil from the world market, raising world oil prices dramatically. The other was the 1979 Iranian Revolution, when Shiites overthrew the western-backed monarchy in Iran and assumed control of the country. Both events disrupted oil supplies, causing the commodity's cost to rise. Throughout the 1970s, Saudi Arabia was able to export oil at substantially elevated prices, leading it to become one of the fastest growing economies in the world. The massive inflow of revenue allowed the kingdom to increase import levels and still maintain a favorable balance of trade. Spending on defense and infrastructure rose, and Saudi Arabia became a benefactor nation to the rest of the Arab world, supplying large amounts of financial aid. (Aid has averaged 4 percent of GDP per year over the past 25 years, making Saudi Arabia's average aid-to-GDP ratio the highest in the world.) In a matter of decades, Saudi Arabia transformed itself from a desert kingdom populated by nomadic tribes to a modern economic entity which controls over a quarter of the world's oil.

While petroleum exports are indeed lucrative, Saudi Arabia's dependence on oil as its primary source of revenue is potentially problematic. In the near term, the Saudi economy is left vulnerable to shifts in the price of oil, lowered demand, or disrupted production due to any number of factors, including regional conflicts and the Organization of Petroleum Exporting Countries (OPEC) shifting oil production quotas. In the long term there is the problem of dwindling supplies. While the Saudis maintain over a quarter of the world's known oil reserves (about 263 billion barrels at the end of 1999), these reserves, at the current rate of production, will last only 87.5 years. If, in that time, Saudi Arabia fails to sufficiently diversify its economy or discover new sources of oil, the country will be faced with a serious shortfall in revenues. And even if the kingdom does discover new reserves (as will likely be the case—some estimates put undiscovered reserves in Saudi Arabia at nearly a trillion barrels) the price of oil will probably steadily drop in the coming years as supplies and production efficiency increase.

The need to begin generating alternative sources of income was recognized as early as 1970, when the government issued the first in an ongoing series of 5 year plans aimed at expanding the non-oil sectors of the economy. While infrastructure expansion and urban develop-ment—both natural outgrowths of the oil industry—have proceeded at an impressive pace, attempts to diversify the economy have produced limited results. Similarly, efforts to decentralize the state run economy through broad privatization schemes have been largely unsuccessful.

THE FIVE YEAR PLANS.

The first 5-year plans, covering the 1970s, focused on developing the national infrastructure (see Infrastructure, Power, and Communications). The third plan (1980-85) focused less on infrastructure and more on education, health, and social services. It also included efforts to expand the productive sectors of the economy, namely industry—a goal which was only partly achieved. While the building of 2 new industrial cities, Jubail and Yanbu, was completed, no broad industrial expansion occurred, leaving primary components of the plan unfulfilled.

The fourth plan, which covered the latter half of the 1980s, remained focused on education and training. It also sought to reduce government spending while generating growth in the private sector. Joint ventures were encouraged between foreign companies and Saudi state enterprises in the hope of increasing foreign investment. The role of the private sector grew during this time, rising to 70 percent of non-oil GDP by 1987.

Starting in 1990, the fifth 5-year plan concentrated on expanding the infrastructure and strengthening the Saudi national defense. The perceived need for a stronger military was reinforced by the Iraqi invasion of Kuwait, a move which destabilized the region and precipitated the 1991 Persian Gulf War. Between 1990-94 34 percent of Saudi expenditures went toward national defense. The fifth plan also sought to increase private sector employment opportunities for Saudi citizens by limiting the number of foreign workers on Saudi soil. Efforts to "Saudiize" the workforce—raise the percentage of Saudi workers—continued through the sixth plan (1995-2000), which also focused on the diversification of economic activity through private sector growth, especially in the areas of industry and agriculture.

The Saudi government will continue in its efforts to create jobs for Saudi citizens over the next 5 years and beyond. Indeed, with 100,000 nationals entering the workforce each year, job creation will remain a priority for the foreseeable future.

GOVERNMENT SPENDING.

High petroleum prices in the 1970s boosted Saudi revenues and allowed increased spending. A series of ambitious, high cost initiatives were launched to develop the nation's infrastructure, expand industry and agriculture, overhaul health and education, and modernize the military (as outlined above). These efforts eventually put a strain on the government budget, as spending began to outpace the flow of revenues. In the 1970s, the problem was mitigated by the high price of oil, but in the 1980s, when oil prices declined, revenues fell and the government deficit grew, reaching 19.6 percent of GDP by 1986. Financial resources were further strained in 1990 when Iraq's invasion of Kuwait prompted the Saudis to appropriate US$30 billion in emergency defense spending. Though the value of Saudi exports exceeds that of its imports, the trade surplus has historically been unable to offset the deficit, which is generally financed through domestic borrowing. Eighty percent of the debt is held by autonomous government institutions, such as pension funds and social security. The other 20 percent is held by commercial banks.

Over the past decade, measures have been taken to lower government spending and reduce the fiscal imbalances created in the 1980s. In 1996 and 1997, spending cuts coupled with rising oil prices helped lower domestic debt and ease the pressure on government finances. However, this trend was interrupted in 1998 when oil prices fell, prompting calls for additional austerity measures and general economic reform. In 1999, government spending was reduced by an additional 13 percent. That year, with financial pressure building, the government also implemented new revenue-generating measures, a move it had resisted in the past. It raised domestic gasoline prices by 50 percent, introduced airport taxes, and doubled work permit fees. In 2000, surging oil prices produced the first government surplus in 17 years. However, the surplus may be shortlived, as the Saudi government plans to increase spending in 2001, a decision based primarily on expectations of rising oil prices.

While spending in 2001 is expected to be higher than in 2000, total spending between 2000-04 is actually slated to go down. The seventh 5-year plan (2000-04) calls for spending no more than US$200 billion, down from US$258 billion over the previous 5 years.

The Saudi government has expressed an interest in decentralizing the economy and increasing private sector participation. Although a number of privatization schemes have been considered, the government has yet to relinquish control over most major industries. Plans to privatize telecommunications and electric companies have stalled, as have plans to privatize the state-owned Saudi Arabian airlines.

Privatization efforts will likely be revitalized as Saudi Arabia attempts to gain entry into the World Trade Organization (WTO), an international regulatory body that sets standards for international trading practices and arbitrates disputes between member nations. (The WTO holds that free market, rules-based economies are more transparent than state-run economies and sees them as more fit for membership.) Joining the WTO will force Saudi Arabia to further liberalize its economy and would place its economic policies under international scrutiny, depriving Saudi policy makers of a certain degree of freedom. But once Saudi Arabia was admitted to the WTO it would have protection against the arbitrary exclusion of its imports by other members, a trade-off most Saudi officials find favorable. Among the measures the kingdom will have to take to gain entry into the organization are the removal of protectionist trade barriers, the lowering of import tariffs, and the opening of key service sectors to foreign participation—all policies which remove protection for local producers from competition. Saudi Arabia will also have to improve its protections for intellectual property rights. These measures will likely improve the investment climate in Saudi Arabia, paving the way for greater inflows of foreign exchange and smaller outflows of remittances.

Many workers in Saudi Arabia are from other countries, and send home much of their earnings. These worker remittances amount to approximately US$16 billion a year. Opening the private sector up to greater foreign participation—allowing, for instance, non-Saudis to buy homes and invest in local companies— could provide a means for keeping more capital in local markets.

POLITICS, GOVERNMENT, AND TAXATION

HISTORY OF THE RULING FAMILY. The foundations for a modern Saudi state were laid in 1744 when Muhammad bin Saud, the ruler of a local tribe, joined forces with a religious reformer, Muhammad Abd Al-Wahhab, in an attempt to unify the Arabian peninsula under strict Islamic law. Within 60 years, the Al Saud family, through a mixture of religious proselytizing and military conquest, had taken control of a majority of what is now Saudi Arabia, including the holy cities of Mecca and Medina. (Mecca is where the prophet Mohammed, the founder of Islam, was born in 570 A.D. and Medina is where, in 633, he died.)

The success of the Al Saud attracted the attention of the Ottoman Turks, who held the Arabian peninsula as part of their empire. In 1816, employing an Egyptian force, the Ottomans launched a campaign to recapture areas under Saudi control. The Al Saud, outnumbered and overpowered, were driven back by Egyptian forces and by 1818 had lost a majority of their empire.

Over the course of the 19th century, the Al Saud made numerous attempts to regain their lost territory, but superior Ottoman forces, as well as resistance from rival clans, proved difficult to overcome. By 1890 the Al Saud had been driven into exile in Kuwait.

In 1902, the Saudi prince Abdul Aziz Al Saud (who was to become known internationally as Ibn Saud) was able to recapture Riyadh, his family's ancestral home, from the rival Al Rashid clan. From there, Ibn Saud launched his campaign to reunify the peninsula. By the end of the First World War, in 1918, the Ottoman empire had collapsed, paving the way for Arabian independence. In 1924, having established a foothold in central Arabia, Ibn Saud moved west into the hejaz region where his army of fanatically religious desert dwellers known as the "Ikhwan" (brethren), defeated Sherif Hussein and took possession of the holy cities of Mecca and Medina. By 1932, Ibn Saud, with the support of the Ikhwan, had consolidated control over nearly the entire peninsula. That year he declared the Kingdom of Saudi Arabia with himself as its king.

Over the next 30 years the Al Saud and Al Rashid, vying for control over the peninsula of Arabia, remained at war. In the end, the Saudis emerged victorious, primarily due to Ibn Saud's ability to gain the loyalty of the Ikhwan. Ibn Saud, upon his death in 1953, had 34 surviving sons, who continue to sit at the center of the nation's political apparatus. Ibn Saud was succeeded after his death by his eldest son Saud, who, in his first year of rule, established the Council of Ministers, a body formed to advise the king on state policy and direct the development of the rapidly growing Saudi bureaucracy. Despite ruling for a full 11 years, King Saud was perceived as an ineffective leader. In 1964, under heavy pressure from religious elites and members of the royal family, Saud stepped down in favor of his half brother, Faisal, who had previously served as foreign minister.

As king, Faisal attempted to address issues to which Saud, and even Abdul Aziz, had given little thought, such as how to effectively modernize the country in the face of its emerging wealth. He also struggled with how to maximize the benefits of the kingdom's bountiful petroleum resources. Decisions on oil policy were not always easy to make, especially when matters of Arab solidarity conflicted with the country's drive toward economic prosperity.

When Arab oil producers decided to cut petroleum sales to the United States in 1973, this conflict came into full view. That year, the ever-present tensions between Israel and its neighbors erupted as Israeli and Egyptian forces clashed in the Sinai desert. U.S. aid to Israel during the war led to fierce protests in the Arab world, culminating in an Arab boycott of oil sales to the United States and other western countries. Saudi Arabia, which participated in the boycott, learned a hard lesson as a result: it could not maintain its economy without doing business in the West, for even though the price of oil went up during the boycott due to the cut in supply, the price spikes were insufficient to cover the loss in sales. In 1974, despite opposition from other Arab oil producers, the Saudis froze oil prices and resumed sales to the United States. That year, in a series of negotiations, the United States and Saudi Arabia came to an agreement by which America would provide the kingdom with military support in exchange for an uninterrupted flow of oil. Over the remainder of the decade, Saudi Arabia sold vast quantities of oil at inflated prices, leading it to become one of the fastest growing economies in the world.

King Faisal, who presided over the oil boycott and the subsequent agreement with the United States, was assassinated in 1975 by a member the royal family. The alleged assassin was executed for the crime. Faisal was replaced by his half brother, Crown Prince Khalid. Fahd, another half brother who would later become king, was appointed as the new Crown Prince and first deputy prime minister, where he was given the responsibility of overseeing a wide range of the country's international and domestic affairs.

Economic development was rapid under King Khalid. Saudi Arabia's acquisition of national wealth enhanced its political influence in the Middle East and heightened its role in world economic affairs. At the same time, however, the kingdom's growing relationship with the West began to concern religious hard-liners who feared that Western influence would corrupt the nation's Islamic ideals. In November 1979, about 250 armed followers of Sunni Muslim cleric Juhaiman Ibn Seif al-Oteif took over the Grand Mosque in Mecca. After a standoff, government troops ousted the militants by force. The incident was not without effect, as it alerted the royal family to the extent of the religious opposition it was fostering by failing to display a more overt commitment to the preservation of Islamic ideals. In response, a committee was established, chaired by interior minister Prince Nayef, to establish a set of societal rules based on Islamic principles. Still, opposition from Islamist religious forces continues to pose the greatest single threat to the royal family.

In June 1982, Khalid died and, in a smooth transition, Prince Fahd became king. Prince Abdullah, Fahd's half brother and commander of the Saudi National Guard, was appointed crown prince and deputy prime minister. The role of second deputy prime minister was filled by Fahd's brother, Prince Sultan, who also served as the minister of Defense and Aviation.

King Fahd, despite inheriting a weakening economy, quickly became a central figure in Middle East politics. In 1988, he played a key role in bringing about a cease fire in the Iran-Iraq war. He also helped reorganize and strengthen the Gulf Cooperation Council (GCC), a group of 6 gulf states (Saudi Arabia, Oman, Kuwait, Qatar, the United Arab Emirates, and Bahrain) formed to facilitate regional economic cooperation and peaceful development. Additionally, in the 1990-91 Gulf War, King Fahd used his influence as arbiter over Islam's holiest sites (Mecca and Medina) to help organize and hold together the U.S.-led war coalition that liberated Kuwait from Iraq. King Fahd suffered a stroke in November of 1995. By 1997, Crown Prince Abdullah had taken effective control of the state.

Over the decades, tensions between the royal family and radical religious forces have persisted as various Saudi kings have sought to balance the nation's dependence on the West with efforts to preserve the kingdom's cultural and religious heritage. Currently, opposition from Islamist religious forces poses the greatest single threat to the Saudi government. The royal family tries to maintain close ties with the religious leaders, who, it is hoped, can keep the extremist members of the clergy in line. However, religious radicals have, especially over the past decade, attracted a growing number of followers. The reasons for this vary. The kingdom's uneven distribution of wealth is partly to blame, as it has led to rising discontent among the nation's poorest citizens. But more importantly, there is deep seeded resentment stemming from the presence of non-Muslim military forces on Saudi soil. U.S. troops and British soldiers have been stationed in Saudi Arabia since the Gulf War, a situation religious fundamentalists fiercely oppose. This opposition on more than one occasion has been expressed through violence. In November 1995, a car bomb exploded near a U.S. military installation, killing 7 people. In June 1996, there was another, more lethal attack in which a bomb blew up outside the Khobar Towers military barracks, killing 19 American servicemen. A Saudi dissident, Osama bin Laden, has been blamed for planning the attack. However, as of 2001, no arrests had been made.

GOVERNMENT STRUCTURE.

Saudi Arabia is an absolute monarchy where the king essentially rules by decree. That does not mean, however, that judicial structures are entirely absent, or that the king's powers are limitless. The Basic Law, the closest thing the Saudis have to a written constitution, was introduced in 1992 to be used in conjunction with Islamic Sharia law, whose dictates up to that point had been the sole source of legal guidelines. Neither the Basic Law nor the king's decrees are meant to violate Sharia law.

The Mutawaa'in, or religious police, constitute the Committee to Prevent Vice and Promote Virtue. The semi-autonomous group enforces compliance with Islamic customs. Abuses by the Mutawaa'in are known to occur, especially in its treatment of Saudi Arabia's Shia minority.

The Council of Ministers, established in 1953, holds executive and legislative powers, but any of its decisions can be overruled by the king. The council is appointed by the king and is primarily made up of members of the royal family. There is also a Consultative Council, which was formed in 1993. Its members are also appointed by the king. Originally comprised of 60 members, the council was expanded to 90 members in 1997. Made up of tribal leaders, government officials, and educated elites, the council plays an advisory role to the king and has no governing power. Each of Saudi Arabia's 13 regions has its own council as well as a regional governor who is appointed by the king.

TAXATION.

Saudi Arabia has a very limited tax regime, as it relies mostly on oil receipts, customs duties, and licensing fees to produce government revenue. Saudi nationals, rather than paying income or property taxes, pay what is called the zakat, an annual 2.5 percent assessment of a person's net personal wealth. Revenue from zakat collection helps pay for social services, such as health care and education. Foreign companies and self-employed foreigners in Saudi Arabia are not obliged to pay the zakat, but are, on the other hand, charged with income taxes, which range from 25 percent on income under US$26,667 to 45 percent on income over US$266,667.

Saudi Arabia also charges tariffs on imported goods which range from 12 percent to 20 percent. In order to gain entry into the WTO, the government will have to lower these tariffs to a maximum of 7.5 percent.

INFRASTRUCTURE, POWER, AND COMMUNICATIONS

In the 1970s, in order to accommodate its burgeoning oil industry, the Saudi government took extensive measures to expand the kingdom's infrastructure. Roads and railways were built, airports were expanded, and seaports were enhanced to handle heavy volumes of traffic.

By the end of 1999, the kingdom had around 150,000 kilometers (93,210 miles) of roads, about a third of them paved. Major arteries provide passage between urban and industrial centers. Jeddah, Mecca, and Medina in the west are linked to Riyadh and to the Eastern Province oil fields

by the trans-peninsular highway. The Tapline road provides a link between Damman, on the gulf coast, and the Jordanian border. The Red Sea road runs north-south, the length of the western shore.

Saudi Arabia's rail network is currently limited to a 571-kilometer (355-mile) single track line running between Damman and Riyadh, and a 322-kilometer (200-mile) line between Riyadh and Hufuf. As of 2000, new lines had been proposed to connect cities on the gulf coast in the east, such as Damman and Jubail, to mineral deposits in the northwest. A cross-peninsula line connecting the Red Sea port of Jeddah with the gulf port of Damman had also been proposed.

There are 6 major seaports in Saudi Arabia, along with 14 minor ones, sufficient to handle the country's importing and exporting needs. Four of the major ports— Duba, Yanbu, Jeddah, and Jizan—are on the Red Sea. The other 2, Damman and Jubail, are on the Persian Gulf. Yanbu and Jubail are industrial ports and together account for more than half of the country's import and export handling. As part of a larger effort to decentralize the economy, operation and maintenance of the seaports were turned over to the private sector in 1997.

Saudi Arabia has 3 international airports located at Jeddah, Damman, and Riyadh. These airports also act as the primary hubs for domestic flights. Other domestic airports include Medina, Jizan, Taif, Qassim, Tabuk, and Abha. Saudi Arabian Airlines, the national carrier, is owned and operated by the government. While privatizing the airline has been considered, as of 2000 no concrete moves had been made to that effect.

The expansion of the Saudi infrastructure was rapid in the 1970s, when oil revenues were at their peak. The completion of a number of major projects in the 1980s coincided with a downturn in the price of oil and a subsequent loss of revenues. As a result, spending on infrastructure declined. The growth in the transport sector, which between 1975 and 1979 reached 19.3 percent, had, by the early 1990s, dropped below 2 percent.

In 1998, despite a growth in investment, the telecommunications sector in Saudi Arabia was fairly limited. By 1999, the expansion of the industry had become a priority. The U.S. firm Lucent Technologies won a US$4 billion contract in 1994 to install fixed phone lines throughout the kingdom, but 4 years later the 2.9 million existing lines still represented under 15 lines per 100 inhabitants, according to the International Telecommunication Union. In an effort to bring the system in line with emerging East European economies, the government is seeking to increase the number of lines to at least 30 per 100 residents by 2002. Lucent, on top of its initial contract, was hired in 1998 to expand mobile phone service in a deal worth US$700 million. The government hopes the expansion will enable the kingdom to accommodate 5 million cell phone subscribers by the end of 2001.

In a bid to privatize the telecommunications industry, the government in April 1998 approved the creation of the Saudi Telecommunications Company, an entity which originally comprised the telecommunications arm of the Post, Telegraphs, and Telephone ministry (PTT). According to the initial plan, shares in the company were to be sold starting at the beginning of 2000, with the government stake in the company being eventually reduced to zero. However, when talks broke down over the transfer of a large bulk of shares to the American firm SBC (Southern Bell Communications), government withdrawal of operations was delayed. By 2001, a deadline for complete privatization had still not been set.

By the end of the 1990s, the demand for energy in Saudi Arabia had reached an all-time high, outstripping supply and, in some cities, causing frequent power out-ages during periods of high use. Short-term solutions, such as raising prices to curb demand, proved ineffective. For instance, in 2000, price increases totaling almost 78 percent were introduced for electricity. However, after 6 months, vehement public protests were launched in response to high electricity bills. As a result, the price hikes were rescinded before they could have any substantial effect. To meet growing energy needs over the long term, the government has set out to restructure the industry and increase investment from both the public and private sectors.

In November of 1998, it was announced that the 10 separate electricity companies in Saudi Arabia would be consolidated into a single company, the Saudi Electric Company. The government has expressed its intention to eventually relinquish its 85 percent stake in the sector. By consolidating the sector, the government hopes to streamline operations and improve efficiency, making the industry more dependable and more profitable, and in turn more attractive to outside investors. By 2020, the government's aim is to increase power generation capacity by over 3 times from where it stood in 1990, from 22,000 megawatts (MW) to 69,000 MW. Saudi Arabia, which imports no energy, is entirely dependent upon oil for the generation of its power.

ECONOMIC SECTORS

Saudi Arabia, despite moves to diversify its economy, is still almost entirely dependent upon oil. Petroleum sales provide the kingdom with 90 percent of its export earnings and 75 percent of its annual budget revenues. Saudi Arabia is a founding member of the Organization of Petroleum Exporting Countries (OPEC) which was founded in Baghdad, Iraq, in September of 1960 to unify and coordinate members' petroleum prices.

Iraq, Iran, Venezuela, and Kuwait were OPEC's other founding members. Qatar, Indonesia, Libya, the United Arab Emirates, Algeria, and Nigeria are also current members. OPEC countries are responsible for 40 percent of the world's oil production and 77 percent of its known reserves. Saudi Arabian oil exports make up nearly 30 percent of OPEC's yearly total exports. The government hopes to increase non-oil GDP by 4 percent between 2000 and 2004, with agriculture projected to expand by 3.1 percent per year, industry by 5.1 percent, and utilities (electricity, gas, and water) by 4.6 percent. Construction activity is expected to increase annually by over 6 percent.

And non-oil mining had been targeted for an expansion of 8.3 percent per year, which would make it the fastest growing sector of the economy. Despite all such efforts to increase non-petroleum related economic functions, it will be difficult to move the country away from dominance by the petroleum sector.

In 1998, industry, which included oil production, contributed 47 percent of GDP and employed 25 percent of the total workforce of 7 million. Agriculture contributed just 6 percent of GDP and employed 12 percent of the workforce, while the services sector contributed another 47 percent and employed 63 percent of the workforce.

AGRICULTURE

In the 1980s, in moves to diversify the economy, the Saudi government sought to expand the agricultural sector. It was hoped that eventually the nation would become self sufficient for food. This was an ambitious goal considering a majority of Saudi Arabia is desert where the potential for crop cultivation is limited. Still, the Saudis had some success with their plan. Food cultivation expanded in the 1980s, and as oil revenues fell, agriculture's share of GDP rose, stabilizing in the 1990s between 6 and 7 percent. By 1998, agricultural jobs provided work for 12 percent of the labor force.

Less than 2 percent of Saudi Arabian land is used for cultivation. Crops are grown mainly in the southwest of the kingdom, where there is rainfall sufficient for farming, or in areas where oases provide enough ground water for irrigation. Desalinated sea water, which is used for some purposes in Saudi Arabia, is too saline, even after treatment, to be used for farming.

The Saudi government, in its push to increase food production, had by the mid-1990s turned over 2.8 million hectares of public land to the private sector for agricultural use. About a fifth of the land was turned over to individual farmers, while the rest was designated for agribusiness projects or turned over to agricultural companies.

Government involvement in agriculture peaked in the 1980s. With production heavily subsidized, the value added in agriculture grew by 70 percent between 1985 and 1991. (Value added is the increase in the market value of a product at a particular stage of production. It is calculated by subtracting the value of all inputs bought from other firms from the value of the firm's output. For example, the value added by the cotton textile industry is the value of the textiles when they leave the factory minus the value of raw cotton and other materials used in their manufacture.) In the 1991-92 crop year, wheat production rose to an all-time high of 4 million tons, with Saudi Arabia becoming the world's sixth largest wheat exporter. However, earnings from sales were nullified by the high costs of production. The government was spending 5 times the market price to produce a ton of grain.

With the outbreak of the Gulf War (1990-91), agricultural subsidies were reduced and, with funds needed for military expenditures, quotas were imposed on government purchases of grain from local farmers. By 1995-96, the land area devoted to grain production had fallen by over 65 percent. The harvest that year fell to 1.2 million tons. Meanwhile, domestic consumption stood at 1.8 million tons. Although the production of barley and grain had markedly declined by the late 1990s, fruit and vegetable production rose.

INDUSTRY

OIL.

Due to vast petroleum reserves, low production costs, and high levels of distribution, the oil industry is the most vibrant sector in the Saudi economy, providing the country with the bulk of its capital. Oil revenues account for 35 percent to 40 percent of the Saudi GDP annually.

As of 2001, Saudi Arabia's proven oil reserves amounted to over 263 billion barrels, representing about a quarter of the world's known oil supply. Assuming production rates were to remain what they were in 2000, Saudi Arabia's reserves would last about 87.5 years. It is probable, however, that more reserves will be discovered in the future, extending the industry's viability. As of 2001, Saudi Arabia was the largest producer and exporter of oil in the world.

Sales of Saudi oil are highly profitable due to low production costs. The sheer abundance of oil in Saudi Arabia and its close proximity to the earth's surface makes it easy to find and cheap to extract. According to the kingdom's oil minister, Ali bin Ibrahim al-Nuaimi, the production of a barrel of oil in the kingdom costs about US__BODY__.5 compared with an average cost of US$5/barrel elsewhere in the world. Discovery costs are also low—about 10 U.S. cents per barrel as opposed to the worldwide average of US$4/barrel. Of the 400 billion barrels of recoverable oil discovered in the last 20 years, about a quarter was discovered in Saudi Arabia. The low discovery costs and high yields in Saudi Arabia are very attractive to foreign oil companies, who work in conjunction with the Saudi government to extract and deliver oil to world markets.

A majority of Saudi oil is produced from fields near Riyadh, in the Eastern Province, the largest of which are Ghawar, Safaniyah, Abqaiq, and Berri. Ghawar, with 70 billion barrels, is thought to be the largest oil field in the world. These 4 fields alone account for nearly half of the kingdom's reserves and 85 percent of its production capacity. Oil fields in the "Neutral Zone"—lands shared between Saudi Arabia and Kuwait—contain about 5 billion barrels.

Saudi Arabia exports a majority of its oil by tanker. Tankers loaded daily on the Persian Gulf coast have a full capacity of 14 million barrels a day (b/d). The other primary distribution route is through the 1,200-kilome-ter (746-mile) Trans-Arabian pipeline linking the Abqaiq oil field, near Riyadh, with Yanbu on the Red Sea. The pipeline has a capacity of 5 million b/d. Most of the oil arriving in Yanbu is loaded onto tankers for transport out of the Red Sea. Some of the oil continues on through the Sumed pipeline to Sidi Krier on Egypt's Mediterranean coast.

As of 2000 the most recently developed field in Saudi Arabia was the Shaybah oil field in the Empty Quarter, which holds reserves of up to 7 billion barrels. The Empty Quarter is the harsh desert region covering the southeastern part of the peninsula. Sand dunes in the Empty Quarter average 600 feet in height. In the summer, daytime temperatures reach 122 degrees Fahrenheit, then plummet to 32 degrees at night. Because of the harsh climate and terrain, much of the Empty Quarter remains unexplored. The field came on line in 1999 after the completion of a 635-kilometer (395-mile) pipeline linking it to distribution points in Abqaiq.

Practically all oil production in Saudi Arabia is controlled by the state-run Saudi Arabian oil company, Saudi Aramco. While foreign companies are contracted to build infrastructure and install equipment, the Saudi government maintains ownership of the facilities.

Saudi Arabia played a lead role in orchestrating the 1973-74 oil embargo against the United States. The resultant rise in oil prices was not enough to offset losses in sales, prompting the Saudis to soften their position and resume business in the West. Over the course of the next 25 years a stable partnership formed between Saudi Arabia and the United States, with the United States guaranteeing Saudi security in return for an uninterrupted flow of oil. Saudi Arabia now generally favors only moderate price increases, realizing it is in the country's long-term interests to keep demand steady by ensuring that oil remains competitive with other forms of energy. Out of a total workforce of 7.12 million people, 127,000 are employed in the oil and mining industry.

The kingdom is also planning to expand the production of natural gas, a venture that will involve the participation of a number of foreign companies. In 1991, natural gas reserves in Saudi Arabia were estimated at 6.1 trillion cubic meters, about 3.9 percent of the world's total. While most of this gas is acquired as a derivative of crude oil production, non-oil associated reservoirs are thought to exist in abundance. It is the mining of gas from these reservoirs that the government will focus on in the coming years, being that the use of oil-associated gas is constrained due to OPEC production quotas. It has been estimated that new foreign investment under the initiative could total tens of billions of dollars, more than the total level of foreign investment currently in the country.

NON-OIL MINING.

Saudi Arabia is a country rich in minerals. Large deposits of gold, silver, iron ore, copper, bauxite, coal, tungsten, phosphates, lead, zinc, and uranium are known to exist, but have yet to be fully exploited. The reasons for this vary. For one, the kingdom's concentration on oil has led it to neglect other forms of mining. Furthermore, the mineral deposits are in remote areas where the lack of roads and water make extraction difficult. Still, the government views non-oil mining as a potentially lucrative industry, one that might help re-orient the economy away from its dependence on oil. Thus, despite the difficulties, the government has decided to move forward in its efforts to exploit the country's mineral resources. Working in conjunction with the private sector, the government hopes to see the non-oil mining sector grow, on average, by 8.3 percent per year between 2000-04.

The newly formed Saudi Arabian Mining Company (Maadin) is at the center of the government's plans. The state-owned company, in partnership with privately run firms, has taken over key government mining operations with a goal to improve efficiency and increase production. Maadin is already active at the Mahd al-Dahab mine, from which over 100,000 ounces of gold are produced a year. In 2001, plans were approved to begin operations at Al Hajjar, in Asir province, with an anticipated annual yield of 55,000 ounces of gold. Renewed interest in phosphate mining is also expected to have an impact on the country's economy. If the deposits in the northern and center part of the kingdom can be feasibly removed, a major new processing plant may be constructed in Jubail to refine the high level yields.

Maadin is also involved in zinc mining near Riyadh, where results have been promising. In order to stimulate growth in the industry, the government may move to further deregulate mining in the second half of 2001.

MANUFACTURING.

The Saudi government, in its bid to diversify the economy and increase employment opportunities, has encouraged growth in the non-oil industrial sector. However, results have been limited. The number of licenses issued and industries established did not grow by a significant margin in the last half of the 1990s. During this time, the sector's contribution to GDP remained steady at around 15 percent.

Although an informal manufacturing base (involving the production of such various items as textiles, soap, and furniture) has existed in Saudi Arabia for centuries, these small-scale private industries contribute relatively little to the GDP, and the government is doing little to promote their development. Primarily the government has focused on the growth of heavy industry—petrochemicals, fertilizer, and steel—in its efforts to stimulate the economy.

CONSTRUCTION.

The rapid growth of the Saudi oil industry has led to fast-paced urban development and an ever-expanding infrastructure. As a result, construction is one of the more active sectors of the non-oil economy. It provided jobs for 16 percent of the workforce in 1998 and, in 1999, accounted for almost 9 percent of GDP.

Despite the construction sector's importance to the economy, growth in the industry during the 1990s was slow, averaging just 1.5 percent. This was partly due to the decline in infrastructure work following the completion of a number of major projects in the 1980s. However, industry prospects look good for 2001, with the pace of urban development once again on the rise. In 2000, the government issued over 27,000 work permits, with the number of contracts awarded rising 49 percent in the first 9 months of the year. The heightened activity pushed up the sales of cement by 6 percent.

SERVICES

TOURISM.

Hoping to capitalize on its Red Sea coastline, unspoiled desert landscapes, and a slew of archeological sites, the Saudi Arabian government has expressed an interest in expanding the country's tourism sector. However, this task will likely be complicated by the country's rigid social structures and its fear of outside influence. Visitors have little freedom of movement in Saudi Arabia. All tourist activities are controlled by a sponsor, or guide, who is responsible for ferrying tourists to and from points of interest. Outsiders are expected to adhere to Saudi conventions. Western women, for instance, are required to abide by the country's conservative dress codes, covering their heads, arms, and legs whenever they are in public. Pants for women are not permitted, nor are women allowed to drive. Furthermore, unmarried couples may not stay in the same hotel rooms. There have been reports of Saudi citizens harassing or assaulting foreigners who fail to comply with Saudi norms of behavior. These restrictive social rules could be off-putting to some western tourists. Nonetheless, steps are being taken to increase the kingdom's annual number of visitors.

New guidelines were recently approved for issuing tourist visas to foreigners, making it easier for travel companies in Saudi Arabia to arrange group tours. The king-dom's efforts to accommodate non-Muslim, recreational travelers only began in 1998, when a tour group visited the kingdom for the first time. It was an archeological tour limited to married couples and women over the age of 45. Expanding the tourism industry amid the country's restrictive social environment will not be easy. Still, the government hopes that between 2000 and 2004, it will grant some 3 million tourist visas to foreigners, generating revenues worth approximately US$2.67 billion.

A majority of the kingdom's tourism currently comes from Muslims performing the "haj," the pilgrimage to the country's holy sites. All Muslims are instructed to make the pilgrimage at least once in their lives. In 1999, the government moved to expand the travel rights of foreign Muslims, allowing them to venture beyond Mecca and Medina. In March 2000, it is estimated that over 1 million foreigners and 700,000 Saudis made their way to the western region of Hejaz to visit the holy cities.

FINANCIAL SERVICES.

Ten commercial banks operate within Saudi Arabia. Seven of them are joint ventures with foreign banks which operate according to international norms. The other 3 banks—the National Commercial Bank (NCB), the Al Rajhi Banking and Investment Company, and the Riyadh Bank—are state-owned and are run in accordance with Islamic law. This forbids them from charging interest on their loans. Any expansion of the banking system appears unlikely, at least in the near future, as the government considers the current number of banks to be sufficient to serve the economy.

Saudi Arabia has a viable over-the-counter stock market where investors, primarily the domestic commercial banks, trade equity in 75 Saudi companies, up from 70 companies in 1996. The number of shares traded and the value of those shares rose dramatically in the last half of the 1990s, gaining 43.6 percent in 1999 alone. In 2000, the market rose another 11 percent, making Saudi Arabia the only Arab country outside of Tunisia whose stock market posted overall gains for the year.

The Saudi Arabian stock market has traditionally been closed to non-Saudi investors. However, laws barring foreign participation were amended in 1997, and foreign nationals are now allowed to trade in the market, although on a limited scale (generally through investment in mutual funds).

INTERNATIONAL TRADE

Saudi Arabia has maintained a trade surplus since 1967 (when its trade statistics were first compiled in their current form). As the kingdom generates a majority of its revenue from petroleum exports, this surplus tends to rise and fall with the price and production of oil. After the oil embargo of 1973, when oil prices were high, the king-dom's trade surplus rose, increasing steadily until 1978. This trend continued after the Iranian revolution of 1979 when oil prices rose to new levels. Between 1978 and 1981 Saudi Arabia's trade surplus doubled, reaching a peak of US$82.5 billion.

The surplus declined steadily throughout the 1980s as export volume diminished and oil prices fell. By 1985, the balance of trade had fallen to just US$7 billion. In 1990, Iraq invaded Kuwait, prompting the United Nations to place an embargo on Iraqi oil. The cut in supply sent prices back up, and as Saudi Arabia heightened production to meet world demand (from 5.1 million b/d in 1989 to 8.2 million b/d in 1991), export revenues increased and the trade surplus rose once again. In 1996, export revenues exceeded import expenditures by US$35.3 billion.

In 1998, the world economy slowed. At the same time, oil production by both OPEC and non-OPEC members increased. The higher production levels coupled with lowered demand caused the price of oil to fall by almost US$7/barrel, from US$19.12/barrel in 1997 to US$12.76/barrel in 1998. In Saudi Arabia, oil receipts fell and the trade surplus dropped to US$11.2 billion. In 1999, oil producers worldwide lowered production, and the corresponding rise in prices helped boost Saudi Arabia's export revenues, pushing the trade surplus to US$25 billion. This upward trend continued throughout 2000 when the surplus rose to US$52.4 billion.

Saudi Arabia imported US$28 billion worth of goods in 1999. A majority of that expenditure went toward the purchase of machinery, electrical equipment, chemicals, foodstuffs, and transportation equipment (cars, trucks, buses). Agricultural imports accounted for 17 percent of the total in 1999, up 11 percent since 1992, reflecting cuts in farm subsidies and the consequent decline in domestic food production. Electrical equipment and machinery accounted for 24 percent of the kingdom's total imports in 1999.

Saudi Arabia's exports totaled US$48 billion in 1999. Over 90 percent of those earnings were derived from the export of oil.

A majority of Saudi Arabia's trade is conducted with the United States. U.S. goods in 1998 accounted for 21 percent of Saudi imports, over twice as much as the king-dom's next leading suppliers, the United Kingdom and Japan, whose imports to Saudi Arabia amounted to 9 percent each. Germany, France, and Italy were other major suppliers of goods.

Japan emerged as the leading buyer of Saudi goods in 1998, purchasing 17 percent of the kingdom's exports. The United States was close behind with 15 percent of Saudi exports. Saudi Arabia provides the United States with approximately 20 percent of its imported crude oil. The kingdom also is a major exporter to South Korea, Singapore, India, and France.

Saudi Arabia and its fellow members of the Gulf Cooperation Council (GCC)—Kuwait, Qatar, the United Arab Emirates, Bahrain, and Oman—have, over the past decade, been trying to promote higher levels of trade between themselves by removing barriers to the free exchange of goods, services, and capital between member states. One of these barriers, the lack of a common external tariff, has continued to complicate moves toward greater economic integration.

Saudi Arabia generally applies a 12 percent tax on imported goods, unless those goods compete with locally produced items, wherein the tax is issued at 20 percent. (Taxing certain imported items at higher rates raises the price at which the items are then sold. This helps keep local manufacturers competitive.) This is the highest import tax in the Middle East and is a point of contention between Saudi Arabia and other GCC members. In order to gain entry into the WTO, Saudi Arabia will be forced to lower tariffs to a maximum of 7.5 percent, bringing import taxes in line with other WTO member states. Imported medical goods, basic foodstuffs, and other items considered essential are exempt from the tax.

Some items, either for religious reasons or purposes of state security, are banned in Saudi Arabia. The import of non-medical drugs and alcohol is forbidden, as is any religious material which might be deemed offensive to the principles of Islam. Furthermore, the import of weapons and electronic equipment is tightly controlled.

MONEY

The Saudi Arabian Monetary Agency (SAMA) regulates the kingdom's money supply. Since June 1986, the Saudi riyal had been informally pegged to the U.S. dollar at SR3.745:US__BODY__. The fixed rate cuts down on revenue volatility, being that a majority of Saudi oil exports are sold to America and denominated in U.S. dollars. Keeping the riyal consistent in its relation to the dollar also helps keep the currency stable, and this, in turn, makes Saudi Arabia a more attractive market for international investment capital. At the same time, the pegged rate provides a stable exchange rate with other GCC countries whose currencies are also generally pegged to the dollar.

POVERTY AND WEALTH

Saudi Arabians generally enjoy a decent standard of living, due in large part to government programs designed to minimize poverty. Saudi citizens are given free education (although enrollment is not required and has historically been low, accounting for relatively high illiteracy rates) and health care, and all adult Saudis are entitled to a plot of land and a loan of US$80,000 with which to build a house.

The GDP per capita in Saudi Arabia reached its peak in the late 1970s and early 1980s, when elevated oil prices were generating high levels of revenue. In 1981, GDP per head reached US$16,650. Slumping oil prices and declining production in the ensuing years caused the per capita GDP to fall. By the end of the decade the figure dropped to US$5,500. Rising oil prices following the Gulf War coupled with increased Saudi production helped raise the per capita GDP once again. In 1999 the figure stood at US$9,000.

Despite the extensive social safety net in Saudi Arabia, the unequal distribution of wealth in the country is fostering resentment among the country's poorest citizens. In 1999, the National Commercial Bank estimated that out of a population of 20 million, there were 120,000 millionaires controlling a combined fortune of over US$400 billion. Meanwhile, according to the Saudi American Bank, 20 percent of Saudi men between the

ages of 20 and 29 had no paid work. As a result, larger families were increasingly finding themselves under financial strain. The government, in recognition of the problem, began taking steps in 1995 to open more jobs to Saudi citizens. Two successive 5-year plans, from 1995 through 2004, have listed the Saudiization of the work-force as a primary objective. To this end, the government has passed laws requiring that at least 5 percent of the private sector be made up of Saudi citizens. Also, all firms have been ordered to increase the number of Saudi workers by 5 percent a year. At the same time, the government has attempted to limit the employment of foreign nationals by prohibiting the renewal of their work contracts and by raising the visa fees employers must pay to hire them.

Illiteracy rates are high in Saudi Arabia, hovering at around 20 percent in 1999. Consequently, the government in its development plans has placed heavy emphasis on improving education. Outside of defense expenditures, education spending accounts for the largest portion of the government budget (27 percent in 2000). Between 2000 and 2004 the government hopes to build over 1,000 primary schools, 819 middle schools, and over 900 high schools. During this time student enrollment is projected to rise from 3.9 million to 5.1 million. In efforts to create more highly skilled high school graduates, the government is also attempting to increase student enrollment in the kingdom's vocational schools and technical colleges. Efforts thus far have been successful, with vocational enrollment rising by over 20 percent between 1998 and 1999.

Health care also receives a great deal of government attention. Facilities are generally good. According to a 2001 report issued by the Ministry of Health, the 314 private hospitals provide 1 bed for every 461 people. The 2001 budget provided spending for the construction of 30 new hospitals.

WORKING CONDITIONS

The Saudi Arabian labor force is comprised of approximately 7.12 million workers. These workers enjoy few rights. The formation of unions is strictly prohibited, strikes are forbidden, and there is no collective bargaining. In the absence of a minimum wage, employers are free to pay their workers as they see fit.

While forced labor is against the law, abuses do occur, especially in remote areas and in the domestic service industry, where there have been reports of maids being forced to work up to 16 hours a day, 7 days a week. Employees have little freedom of movement, and cannot leave the country or even travel out of the region without their employer's permission.

According to labor regulations, the work week is 48 hours. Employers can require 12 additional hours of overtime at time-and-a-half pay. The law requires workers to be given a rest period of 24 hours, which is generally granted on Fridays, the Muslim sabbath. Labor laws, however, do not apply to domestic servants, who have little redress for any poor treatment they might receive. Those who run away are generally returned to their employers.

The International Labor Organization has cited Saudi Arabia for failing to adhere to conventions on equal pay, for continuing gender segregation in the work place, and for limiting vocational programs for women. Additionally, in 1995 Saudi Arabia was suspended from the U.S. Overseas Private Investment Corporation (OPIC) insurance programs for its failure to guarantee the rights of its workers as recognized by international norms.

According to human rights reports, foreign workers run the risk of being exploited. Workers recruited in foreign countries may be pressured after arriving in Saudi Arabia to sign new contracts with less favorable terms, or they may be pressured to accept lower pay than originally promised. Once in Saudi Arabia, workers may also find their freedom of movement restricted. Employers may refuse to grant them exit visas, making it impossible for them to return home.

Saudi nationals in general receive higher pay than non-nationals, especially in the agricultural sector, where Saudi citizens can make up to 3 times that of their foreign counterparts. The Saudi government has taken steps to introduce minimum wage requirements for foreign workers, making it more costly for employers to hire them. In this way the government hopes to spur more employment opportunities for Saudi citizens.

COUNTRY HISTORY AND ECONOMIC DEVELOPMENT

1745. Muhammad Abd Al-Wahhab, a religious reformer, allies with Muhammad bin Saud, a local ruler, and the 2 begin a religious/military campaign to unite the Arabian Peninsula under a new brand of strict Islamic law. They and their followers are known as Saudis.

1801. Saudi forces capture Mecca, an important religious site.

1805. Saudi forces capture Medina, another important religious site. The Ottoman Turkish government, which rules the region, launches a campaign to drive Saudi forces out of Arabia. By 1818 the Saudis have lost most of the territory previously captured and eventually take up exile in Kuwait.

1902. The Saudis renew their efforts to unify Arabia. King Abdul Aziz Al Saud (later known as Ibn Saud) recaptures Riyadh, the Al Saud ancestral home, from the Al Rashid, who are ruling in Arabia with Turkish support.

1932. Present-day Saudi Arabia is consolidated under Ibn Saud's rule. Ibn Saud declares himself king.

1953. Ibn Saud dies, leaving his kingdom to his surviving sons. His eldest son, Saud, becomes king and establishes the Council of Ministers, an advisory body made up of members of the royal family.

1962. Civil war breaks out in Yemen between Royalists and Republicans. Egypt backs the Republicans while Saudi Arabia backs the Royalists. Tensions between Egypt and Saudi Arabia are high over the next 5 years until 1967, when Egyptian forces withdraw from Yemen.

1964. King Saud steps down in favor of his half brother Faisal bin Abdul Aziz.

1967. War breaks out between Israel and 4 Arab nations, Egypt, Jordan, Syria, and Iraq. Saudi Arabia sits out the war, but later provides economic assistance to Egypt, Jordan, and Syria.

1973. War erupts once again between Israel and its Arab neighbors. Saudi Arabia and other Arab oil producers boycott the sale of oil to the United States to protest American financial aid to Israel. The price of oil rises steeply, but Saudi Arabian earnings still suffer due to loss of sales to the West.

1974. Despite Arab opposition, Saudi Arabia abandons the 1973 boycott, negotiating an economic and military cooperation agreement with the United States whereby the United States provides the kingdom with military protection in return for the guaranteed flow of oil. Saudi wealth begins to grow rapidly, heightening its political and economic influence throughout the world.

1975. King Faisal is assassinated. He is succeeded by his half brother, Crown Prince Khalid. Another half brother, Fahd, is appointed crown prince and first deputy prime minister.

1979. Armed religious militants take over the Grand Mosque in Mecca. The 250 men, followers of the Sunni Muslim cleric Juhaiman Ibn Seif al-Oteibi, are removed by force. The incident alerts the royal family to growing dissatisfaction in the kingdom among religious conservatives. In response, the government establishes a committee to lay out a system of societal laws based on Islamic principles.

1982. King Khalid dies and is succeeded by Crown Prince Fahd. Fahd becomes a key player in Middle East politics.

1988. A Saudi-brokered cease fire is declared in the 8-year-old Iran-Iraq war, bringing stability to the Middle East.

1990. Iraq invades Kuwait, drawing international condemnation and starting the Gulf War. The UN places an embargo on Iraqi oil. The cut in world supply causes oil prices to rise. Saudi Arabia begins to increase production to help meet world demand. King Fahd helps organize and hold together the coalition of Arab military forces which, in conjunction with a large contingent of U.S. forces, drives Iraq from Kuwait.

1995. King Fahd suffers a stroke. Over the next 2 years, Crown Prince Abdullah emerges as the de facto head of state.

1996. A car bomb explodes outside U.S. military housing at the Al Khobar military base in Eastern Province, killing 19 American servicemen. Responsibility is linked to Osama bin Laden, a Saudi dissident claiming to resent the Western presence on Saudi soil.

1999. Saudi Arabia cuts oil production by over 2 million barrels a day to boost prices.

2000. New laws are passed to facilitate foreign investment.

2001. Saudi Arabia and Iran sign a security pact pledging cooperation in combatting terrorism, drug trafficking, and money laundering.

FUTURE TRENDS

Barring the discovery of a new energy supply that renders oil obsolete, Saudi Arabia will be able to maintain its economy through the production and distribution of oil for nearly another century. The discovery of new reserves, which appears likely, will extend the viability of the oil-based economy even further. However, as oil supplies rise and efficiency increases, prices will likely go down. To compensate for lower oil revenues, the Saudi government will continue to take steps toward economic diversification, expanding its agricultural, non-oil mining, and tourism sectors. The government will also continue to push for private sector growth as it loosens its grip on the economy.

In the meantime, Saudi Arabia will continue to implement oil policies that are favorable to the West for 2 main reasons. One, Saudi Arabia is dependent on the West, primarily the United States, for trade and military protection. And two, it is in Saudi Arabia's own interests to maintain stable oil prices to keep the commodity competitive with other forms of energy.

Saudi Arabia will also further its efforts to attract foreign investment, especially in heavy industrial sectors where the government is encouraging the creation of public-private partnerships. Although the government has expressed interest in decentralizing the economy, full privatization in most industries has yet to occur.

Cooperation between the United States and Saudi Arabia should continue, at least into the near future. However, relations could become strained if the situation in Israel continues to deteriorate. Historically, U.S. support for Israel has generated hostility in the Arab world. If the violence in Israel escalates and the Palestinians are perceived as being grossly victimized, the Saudi population, for reasons of Muslim solidarity, may begin pushing for intervention. Any move in that direction would complicate U.S.-Saudi relations.

Young Saudis will continue to enter the labor market in growing numbers. As such, the so-called Saudiization of the workforce will remain a government priority for the foreseeable future. Hiring fees will be raised for foreign workers, and those workers with expired visas may be forbidden to renew them. The Saudi infrastructure will also expand in the coming decades as new oil fields are discovered and the non-oil mining sector grows. Saudi Arabia's push to gain entry into the World Trade Organization will accelerate the pace of economic reforms currently underway.

DEPENDENCIES

Saudi Arabia has no territories or colonies.

BIBLIOGRAPHY

Asad, Muhammad. The Road to Mecca. 1954; Louisville, KY:Fons Vitae, 2001.

Commercial Office, Royal Embassy of Saudi Arabia in Washington, D.C. <http://www.saudicommercialoffice.com>. Accessed September 2001.

Economist Intelligence Unit. Country Profile: Saudi Arabia. London: Economist Intelligence Unit, 2001.

Metz, Helen Chapin, editor. Saudi Arabia: A Country Study. Washington, DC: Library of Congress, Federal Research Division, 1993.

The Saudi Arabian Cultural Mission to the U.S.A. <http://www.sacm.org>. Accessed September 2001.

U.S. Central Intelligence Agency. World Factbook 2000. <http:// www.odci.gov/cia/publications/factbook/index.html>. Accessed August 2001.

U.S. Department of State. Background Notes: Saudi Arabia, September 1998. <http://www.state.gov/www/background_ notes/saudi_0998_bgn.html>. Accessed September 2001.

U.S. Department of State, Bureau of Democracy, Human Rights, and Labor. Country Reports on Human Rights Practices, 1999: Saudi Arabia. Released February 2000. <http://www.usis.usemb.se/human/human1999/saudiara.html>. Accessed September 2001.

U.S. Department of State. FY 2001 Country Commercial Guide: Saudi Arabia. <http://www.state.gov/www/about_state/business/com_guides/2001/near/index.html>. Accessed September 2001.

—John Mazor

CAPITAL:

Riyadh (Ar-Riyad).

MONETARY UNIT:

Saudi Riyal (SR). One riyal equals 100 halalahs. There are coins of 5, 10, 25, 50, and 100 halalahs, and notes of 1, 5, 10, 50, 100, and 500 riyals. Since July 1986 the Saudi riyal has been pegged to the U.S. dollar at a rate of SR3.745:US__BODY__.

CHIEF EXPORTS:

Petroleum and petroleum products (90 percent).

CHIEF IMPORTS:

Machinery and equipment, foodstuffs, chemicals, motor vehicles, textiles.

GROSS DOMESTIC PRODUCT:

US$191 billion (purchasing power parity, 1999 est.).

BALANCE OF TRADE:

Exports: US$48 billion (f.o.b., 1999). Imports: US$28 billion (f.o.b., 1999).