Saudi Arabia Under Ibn Saud

Economic and Financial Foundations of the State

J.E. Peterson

• Publisher: I.B. Tauris
• Year: 2018
• ISBN:
  9781838609047
• Edition: 1
• Topic: Politique et relations internationales
• Subtopic: Politique du Moyen-Orient

At its founding in 1932, the Kingdom of Saudi Arabia was characterized by tribal warfare, political instability, chronic financial shortages and economic crises. As a desert chieftain, Abd al-Aziz Ibn Saud, the ruler and king until 1953, had the skills, the cunning and the power to control the tribes and bring peace to this realm. But financial and economic matters were not his forte and these he left mostly to a single individual, Abdullah al-Sulayman al-Hamdan. He was entrusted with nearly all of the country's early financial dealings and administrative development. The Ministry of Finance, which he headed from its inception, served as nearly the sole government agency dealing with a wide variety of matters, many of which had only a peripheral connection to finance or the economy. This book examines the role of the Ministry of Finance and its minister, Abdullah al-Sulayman, in holding the country together financially and administratively until the promise of substantial oil income was realized a few years after the end of World War II. It will be essential reading for anyone interested in Gulf History and the Economic History of the Middle East.

CHAPTER 1

Saudi Arabia in the Twentieth Century

The Arabian Peninsula was a very different place at the beginning of the twentieth century. It was not until 1902 that ʿAbd al-ʿAziz b. ʿAbd al-Rahman Al Saʿud, better known in the West as Ibn Saʿud, regained control of the family's seat at Riyadh. And it was not until 1932 that Ibn Saʿud was able to meld the pieces of the widespread territory he had united into the Kingdom of Saudi Arabia.

Not surprisingly, the formal creation of the kingdom was only the beginning of the process of creating a viable state. Most of the country was desperately poor and the new king's principal source of income was revenue from the hajj, the annual Muslim pilgrimage to Makkah (Mecca) in the west of the country. Even the signing of a major oil concession in 1933 with what eventually became the Arabian American Oil Company (ARAMCO) only helped the financial situation marginally. For long decades, it was absolutely necessary to seek trickles of revenue wherever possible and to allocate scarce funds carefully.

It is not an exaggeration to say that in the first half of the twentieth century the Kingdom of Saudi Arabia was in its political, administrative, and economic infancy as a state. The founder of the modern state, ʿAbd al-ʿAziz b. ʿAbd al-Rahman, began his long and fruitful career as a tribal chieftain in southern Najd. Over three decades, he extended his control over much of the Arabian Peninsula. His authority was exerted through him directly and through his sons as was the traditional way. His eldest son and heir Saʿud was kept in Riyadh to serve as his father's right-hand man and as viceroy of Najd while his second son Faysal served his father as viceroy of al-Hijaz, the more developed and more populated region of the new country.

Trusted assistants carried out the functions of the Diwan, his court, also as had been done traditionally. For relations with the outside world, he also depended on northern Arab advisers, such as Hafiz Wahbah, Yusuf Yasin, ʿAbdullah al-Damluji, Rashad Pharaon (Faraʿawn), and Khayr al-Din al-Zirkali, as well as the transplanted Englishman H. St. John B. Philby. Arab rulers for centuries had done the same.

But as the state grew in physical size and administrative complexity, ʿAbd al-ʿAziz required functionaries who could manage the difficult financial situation and create the initial bureaucratic machinery necessary to run the various functions of the growing state. He found his principal instrument in ʿAbdullah al-Sulayman al-Hamdan. A native of ʿUnayzah, an important town in al-Qasim region of central Najd, al-Sulayman had worked in India and Bahrain before joining his older brother Muhammad at the court in Riyadh. Quickly impressing ʿAbd al-ʿAziz with his intelligence, creativity, and loyalty, the ruler made him his treasurer and, after the incorporation of al-Hijaz, the country's first finance minister. While al-Sulayman served as minister of finance from before the creation of the Kingdom of Saudi Arabia until after the death of Ibn Saʿud in 1953, his functions and responsibilities went far beyond just finances.

Major components of his position included maintaining charge of the treasury and making payments as ordered by the king, as well as keeping track of revenues and expenditures and producing simple budgets. An example of his work in the latter context is the detailed revenue figures he produced for the years 1355–60H/1936/1937–41/1942.¹ However, his remit covered far more than just finances. He negotiated the initial oil concession with the predecessor of ARAMCO, drummed up interest in mining, started agricultural schemes, created schools, supervised the hajj, served as deputy minister of defense, negotiated foreign loans and assistance, and created the country's currency and central bank, among numerous other activities. From 1917 until his retirement in 1954, al-Sulayman's fingerprints were all over the fledgling government. King ʿAbd al-ʿAziz trusted him fully to carry out his wishes, to a greater extent than any other of his servants.

It took several decades for the discovery of oil in 1933 to be translated into significant state income. The intervening years were marked by poverty and a desperate scramble for available resources to meet essential needs. The decline of hajj revenues due to the Great Depression and restrictions imposed by World War II forced the kingdom to rely increasingly on first British and then American subsidies. The consequence of Britain's straitened economic circumstances during and after the war was less willingness to extend aid. As Britain withdrew financially, the United States stepped into the breach. This assistance, when combined with the winning of the oil concession by American companies (and the subsequent formative role that ARAMCO played in the development process, particularly in the Eastern Province), inevitably shifted Saudi Arabia from reliance on Britain as its principal ally and protector to a deepening partnership with the US. Remarkably, the partnership has endured ever since, despite periodic disagreements and deeply buried incompatibilities. The following pages chronicle the early attempts to create a state administration and financial structure and then the initial gestation of Saudi Arabia's prosperity.

THE KINGDOM OF SAUDI ARABIA

Saudi Arabia shares the Arabian Peninsula with six other countries: Kuwait, Bahrain, Qatar, the United Arab Emirates, Oman, and Yemen. It occupies by far the largest proportion of the peninsula, although Yemen and Oman are relatively large countries as well. All seven states in their present form are twentieth-century creations, although some of the smaller “city-states” such as Kuwait and Bahrain in effect trace their origins back to the eighteenth century and Oman has been independent far longer.

Before the beginning of the twentieth century, Arabia had a much different political complexion, reflecting its varied and wide-flung geography. What is now Saudi Arabia is composed of three principal geopolitical regions, flanked by northern and southern areas. The Najd occupies central Arabia and forms the heartland of the present kingdom. Its principal city is now Riyadh, also the country's largest urban area, but Haʾil in the north and ʿUnayzah and Buraydah in the center also have been prominent in history. The Eastern Province is noteworthy today as the source of Saudi Arabia's immense oil fields. The urban areas of Dhahran, al-Dammam, and al-Khubar are essentially recent creations, built to take advantage of the oil industry and the associated industrial and population boom that oil brought. Historically, the region's focal points were the two large oases of al-Ahsaʾ (Hasa) and al-Qatif, as well as several small ports on the Gulf. The Eastern Province's location on the Gulf is what gives Saudi Arabia an aspect as a Gulf state, as well as boundaries with the smaller states that form the six-member Gulf Cooperation Council (GCC).

On the western or Red Sea coast of the country, al-Hijaz is the most cosmopolitan region of the country. Jiddah is the second largest city in the kingdom and site of its most important port. But the mountainous al-Hijaz is more notable for its possession of the two holiest cities in Islam: Makkah (more formally and respectfully known as Makkah al-Mukarramah; Mecca), where the Prophet Muhammad was born and where the venerated Kaʿbah (the spiritual center of Islam) is found, and al-Madinah (al-Madinah al-Munawwarah; Medina), where the Prophet Muhammad created the original Islamic state and later died. To the south lie the fertile highland regions of ʿAsir and Najran, as well as the coastal plain of Tihamah. Several small provinces in the north, along the southern rim of the immense Nafud Desert, form the borderlands with the “new” states of Jordan and Iraq. The south-eastern region of the kingdom consists of the Rubʿ al-Khali Desert or Empty Quarter, which, as its name suggests, is inhabited by only a few nomads and constitutes the largest sand desert in the world.

The agglomeration of these distinct regions into a single state is a recent phenomenon but one with roots in the eighteenth century.² An alliance begun in 1744 between Muhammad b. Saʿud, the head of the town of al-Dirʿiyah in southern Najd, and an Islamic reformer named Muhammad b. ʿAbd al-Wahhab soon resulted in the expansion of the so-called Wahhabi doctrine throughout much of Arabia and the establishment of the Al Saʿud dynasty. The dynasty's rule experienced a wave of expansions and regroupings through the nineteenth century. Late in the century, the Al Saʿud were forced from their new capital at Riyadh into exile in Kuwait.

It was left to ʿAbd al-ʿAziz, the young son of the family's leader, to lead a few men into Riyadh in the dark of the night and recapture the city in 1902. Following this celebrated event, ʿAbd al-ʿAziz required only a few short years to extend his control over much of Najd. When he was unable to secure British recognition, he was forced to accept nominal Ottoman suzerainty. But in 1913, following Ottoman setbacks in Europe, ʿAbd al-ʿAziz captured the Ottoman garrisons in al-Ahsaʾ and al-Qatif in eastern Arabia. This obliged the (British) Government of India to conclude a treaty with him. The principal effect of this treaty was to encourage the Al Saʿud to contend with the Al Rashid, who remained Turkish allies. But ʿAbd al-ʿAziz still did not have British favor. The Arab Bureau in Cairo championed Sharif Husayn b. ʿAli al-Hashimi of Makkah as the preferred leader of the “Arab Revolt” against the Ottomans and recognized his declaration of an independent Kingdom of al-Hijaz in 1916.

Following the end of the war, ʿAbd al-ʿAziz resumed his unification goals, conquering his arch rivals, the Al Rashid of Haʾil, in 1921. In the same year, he dropped the traditional Al Saʿud title of imam and adopted the secular title of sultan of Najd. His desire to incorporate al-Hijaz, forestalled by British intervention during the war, grew more transparent as the Hijazi kingdom's weaknesses became apparent. British concern was provoked by the first major Saudi conquest in al-Hijaz, i.e. the city of al-Taʾif in 1924, when the Ikhwan, ʿAbd al-ʿAziz's tribal army, were given free rein and civilian casualties were enormous.³ Makkah surrendered without a struggle soon afterwards, al-Madinah followed in 1925, and Jiddah fell at the end of 1925 after a siege. With the flight of the Hashimi family, the Hijazi notables formally recognized ʿAbd al-ʿAziz on behalf of the people as their sovereign and he combined the titles of sultan of Najd and king of al-Hijaz. Ibn Saʿud continued to probe to the south and his sovereignty over ʿAsir, Najran, and the northern Tihamah plain (Jazan) was recognized by his Yemeni rival, Imam Yahya, after Saudi victory in the Saudi–Yemeni War of 1934. Further expansion to the north was blocked by the British-backed Hashimi monarchies of Transjordan and Iraq, and similar obstacles were encountered on the Gulf littoral because of British protection for the shaykhdoms in Kuwait, Bahrain, Qatar, and Abu Dhabi. In 1932, ʿAbd al-ʿAziz adopted the Kingdom of Saudi Arabia as the official name of his country.

Subsequently, Ibn Saʿud turned his attention to transforming a fragile rule in Najd, based on tribal alliances, into a central state, and then to gradually integrating al-Hijaz with Najd. A principal step in this process had occurred in the late 1920s when the rebellion by the Ikhwan movement of tribal levies was finally put down. A long series of negotiations with the British over boundaries in eastern Arabia ended in stalemate when the Saudi king rejected the British “Red Line” and London rejected his “Riyadh Line.” A third major concern was over the lack of finances. The signature bonus for the oil concession granted to Standard Oil of California (SOCAL) in 1933 was a major financial boon to Ibn Saʿud. Although oil was discovered at Dhahran in 1938 and production started in 1939, the first significant impact of oil came after World War II when exports began in large quantities. It was perhaps unfortunate that the rush of oil income should occur in Ibn Saʿud's declining years. Although attempts were made to create a more rational infrastructure, to expand the government and establish social welfare programs, much of the early wealth dissipated.

Financial problems continued after the death of ʿAbd al-ʿAziz in 1953 and the succession of his eldest son Saʿud. Another problem arose with the ...