Index trend
Previous Quarterly Editions
Expropriation Risk: 52 52 52 52 ►Political Violence Risk:48 50 50 48 ▼Terrorism Risk:34 30 30 30 ►Exchange Transfer and Trade Sanction Risk: 45 45 45 54 ▲Sovereign Default Risk:37 37 37 27 ▼
Overall Risk Temperature: 46 (Medium) TREND ►
Special topic: Relationship with the 'global rules-based order'
Saudi Arabia views the rule-based order as a Western concept that should be applied according to the circumstances of individual states. This view will be reinforced now that it has joined BRICS, an intergovernmental organization comprising Brazil, Russia, India, China, South Africa, Egypt, Ethiopia, Iran and the United Arab Emirates. Riyadh acknowledges the rules-based order as lying at the heart of international security: respect for international law, territorial integrity and national sovereignty. Thus, in intervening in Yemen in 2015, it was careful to do so following United Nations Security Council resolutions — even though it was accused by reputable international non-governmental organizations of indiscriminate bombing in its conduct of the war. Riyadh knows that its contribution to the world’s oil supply means that deviation from rules-based norms is likely viewed pragmatically.
Domestic policy and security are not subject to those rules. Absolute power lies in the hands of King Salman and Crown Prince Muhammad bin Salman (MBS). There are no elections for national government and no political parties. Freedom of expression is limited, and social media networks are monitored where they cannot be controlled. Critics can be arrested and held without trial for lengthy periods in a legal system that serves the interests of the regime. The human rights of Saudi citizens, particularly those without connections and influence, are limited; those of migrant workers even more so. Women’s rights are improving but from a low base. Saudi Arabia scores low on international assessments of freedom. Freedom House gave Saudi Arabia a score of 8 out of 100, “Not Free,” with 0 being the most restrictive.
There has long been an unwritten understanding that in return for restrictions on individual liberty, the state will provide cradle-to-grave social services and support to Saudi citizens. Under the leadership of MBS, this has been extended to include much greater social freedom and potentially access to higher standards of living. The Religious Police has been severely curtailed and more moderate interpretations of Islam encouraged. There is massive investment in entertainment and sports, which have proved popular among younger age groups.
The government seeks to transform and diversify the economy and thus increase job opportunities, particularly for the 50% of the population under 35. As such, it increasingly respects international rules and norms in economic and commercial relationships, as these are needed to attract Saudi and foreign direct investment. The government launched a program to diversify the economy and society in 2016, called Vision 2030. Since then, it has pressed ahead with reforms codifying the legal system to create a more predictable business environment. Up until now, Saudi judges relied on uncodified Islamic law.
Thus, Saudi Arabia sometimes supports and sometimes seeks to undermine the rules-based order. It does not actively aim to revise them.
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The expropriation risk is very low. GDP contracted by 1.1% in 2023, but the International Monetary Fund expects it to return to 2.7% growth in 2024 and 5.5% in 2025. The 2024 budget projects an 11% increase in spending with a deficit of just under 2%. Budget deficits will be around this figure in the next three years as Saudi Arabia accelerates investment in Vision 2030 and related projects. OPEC+ cuts to production have been rolled over into 2024, probably until the third quarter. Prices are expected to be around or below $80 per barrel as demand remains weak due to the slowdown in China, the impact of Gaza and attacks on shipping in the Red Sea. The non-oil sector (now 60% of the economy) continues to grow at about 6% annually and is the principal source of job creation.
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The main risks come from the war in Gaza and the potential for the conflict to spread to Lebanon and possibly Iran. The war could also cause long-term damage to the influence of the U.S. and the West in the wider Middle East. Saudi Arabia has kept a low profile in the hope that it can salvage as much as possible of its pre-Gaza strategy of recognizing Israel in exchange for Israeli acceptance of a Palestinian state (and written U.S. security guarantees, assurances about future weapons supply and support for its nuclear energy ambitions). Saudi Arabia seeks regional stability in pursuit of its internal economic goals and has kept lines open to Tehran following their reconciliation in 2022 even though Iran continues to smuggle weapons to the Houthis in neighboring Yemen, which Saudi opposes.
Riyadh has not been directly affected by the Houthi attacks on shipping using the Red Sea, but it has not publicly supported or condemned the U.S.-led attempts — so far unsuccessful — to deter the Houthis. Saudi Arabia is conscious of the extensive domestic support for the plight of the Palestinians that the Houthis claim to champion. Saudi defenses have intercepted at least one Houthi cruise missile fired toward Israel in 2024. The government has also contributed to a rescue package for Egypt, whose economy has been damaged by the loss of Suez Canal revenues. The Houthis and Saudis were on the point of finalizing a deal that would enable Saudi Arabia to exit Yemen before the Hamas incursion into Israel on October 7, 2023. That is now on hold and could be undermined if Houthi leaders seek greater concessions influenced by the popularity of their anti-Israeli actions in the Red Sea among Arab (and Saudi) public opinions; however, a deal remains in the interests of both parties (and would prevent any recurrence of damaging Huthi missile and drone strikes on Saudi targets) even if it will not make Yemen any more stable. Yemen will remain a security concern for Riyadh not least because of Iran’s influence.
Al-Qaida in the Arabian Peninsula (AQAP) remains active in Yemen, where it has a new leader; however, the group is no longer able to mount a terrorist campaign in Saudi Arabia. Both sides in the Yemen civil war oppose AQAP. The MBS-led campaign to marginalize more extreme interpretations of Sunni Islam — backed by most young Saudis — reduces the already low risk of terrorism. There is still some restiveness among the Saudi Shia minority but no organized opposition. Saudi Shias are a different strand from the Houthi Shiism, and there is no evidence of any cooperation.
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The risk is low. Foreign exchange reserves were $439 billion at the start of 2024, rising from $427 billion in July 2023. Government debt is below 25% of GDP. Efforts to persuade multinational companies to move their regional headquarters to the kingdom appear to be working — as the number and scale of investment opportunities grow and the government continues to reform legal and regulatory frameworks. The level of foreign direct investment is now rising but is below Vision 2030 targets.
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The risk of a sovereign default is low as Saudi Arabia implements reforms to cut its dependence on oil exports, diversify the economy and enhance competitiveness. The kingdom is at the half point of Vision 2030, and MBS seems determined to pursue it vigorously using the sovereign wealth fund, the Public Investment Fund (PIF). The PIF is funded by Saudi Aramco profits and share sales. In March 2024, 8% of Saudi Aramco’s equity, valued at $164 billion, was transferred to the PIF. In addition, other state assets and income from its extensive external portfolio are also transferred. Despite a global shift to reducing oil output, the PIF can sustain a high rate of spending at least for the medium term. Saudi Arabia in 2023 issued bonds of $11 billion and raised long-term loans of $12 billion. Inflation remains very low at 1.8% in early 2024.
