U.S. Props Up Oil-Rich Gulf Leaders

The al-Sauds and their cronies, smarter than Warren Buffet or most corrupt leaders ever?

A significant fact, only recently deemed newsworthy, is the pervasive corruption in Mubarak’s Egypt and Qaddafi’s Libya. It is curious that the media and the White House have only just taken notice; more curious is the continuing blind eye they turn on the more significant robbery that has been going on throughout the Persian Gulf for years. The United States has frozen the assets of the Qaddafi family and will probably do the same with Mubarak’s billions, but what about the al-Sauds in Saudi Arabia, the al-Nahyans in Abu Dhabi and all the other corrupt rulers in the region? No one mentions their ongoing larceny! Nobody hints at freezing those assets! Why is this?

Although the scale of the thievery in Saudi Arabia dwarfs what is going on elsewhere in the region, the al-Sauds and most other dictators in the Persian Gulf are, at least for now, “friends” of Washington. Yet, the United States knows full well that these dictators will have to embrace fundamental reform if they are to survive, and if they don’t, the United States will have to condemn them and freeze their assets once they are overthrown—with the added bonus of being hated by the citizens of these countries for having collaborated with their corrupt rulers.

Compare the palaces, luxury planes, boats, cars and general lifestyle of the al-Sauds and their cronies, both at home and as they travel through Europe and elsewhere in the world, to the lifestyle of the poor in the Eastern Province of Saudi Arabia. Either the al-Sauds (and other rulers and their cronies in the Persian Gulf) are the best businessmen in the world, putting even Warren Buffet to shame, or they are simply the most corrupt bunch of elites ever.

Progress is impossible where pervasive corruption is the norm. This is especially true in a society that relies heavily on the depletion of an exhaustible resource such as oil.

In their quest to hold a tight grip on power, illegitimate rulers (unelected and unrepresentative) rely not only on their intelligence services, police and military forces, but also claim “Islamic legitimacy”—or turn to foreign powers for support. The major powers are happy to prop up dictators who sit atop vast oil and gas reserves. Illegitimate rulers are weaker, more easily manipulated and more vulnerable than their legitimate counterparts.

The exploitation of oil reserves in countries that lack good institutions and good governance affords little economic and social benefit. Indeed, it may negatively impact development. This is why some speak of the “oil curse.” Oil reserves in countries that lack checks and balances and effective institutions give added incentive to those in power to solidify their position, be repressive and engage in rent-seeking activities. Their goal is to capture as much of the income from oil as possible for their own personal benefit. Given this goal, the last thing the ruling elite wants is to establish effective institutions. The rulers do not need a productive economy to finance their lavish lifestyle because oil does this and more.

A viable option for addressing corruption, economic failure and inequity in these countries would be to take oil revenues away from the government and create a fund to address inequality. Some countries have established significant (relative to their domestic populations) funds to provide a source of income for when oil and gas booms taper off. The problem is that these funds (commonly referred to as Sovereign Wealth Funds) are hardly transparent; their operations and their ownership (rulers or citizens) are not clear. The suggestion that SWFs should be the vehicle to manage the depletion of oil reserves in order to benefit all generations is a good one, but they must be de-linked from government coffers.

The US should push such a prescription onto its “friends” in the Persian Gulf and in the process shame its “adversaries,” such as the mullahs in Iran, to reform. This would be the single most important thing US policymakers could do to reduce corruption in the Middle East, enhance economic development and growth, pave the road toward representative government and win the hearts and minds of the citizens in the region.