The home furnishings craze had escalated as a result of the proliferation of luxury villas. Furniture and accessories were pinker, gaudier, and more expensive than ever. A shop in Jeddah was selling two silver-incrusted chairs with a matching hookah for $46,000. Shop windows in Riyadh featured expensive Victorian-style serving carts with crystal branches and fussy curlicues sprayed with gold, displayed in a setting of art deco furniture.

If the elite ventured into the desert, it was in a mobile home the size of a semi-trailer called the "Desert Palace" pulled by a diesel truck. The interior was decorated in chintz and damask and outfitted with a stereo sound system, several VCRs, and a microwave. There were still tents, but the Bedouins no longer wove the black hair of their goats into the timeless architecture of the desert. Instead, they bought canvas tents of garish print from the Yemenis and attached a television antenna to the top.

The car market was as outrageous as ever. Young Saudis were buying inexpensive Japanese Isuzu Troopers and equipping them with color television sets and video machines. Bavaria Car Styling of West Germany sent in a pearlized Mercedes embedded with sparkling specks of silver and trimmed in golden aluminum. There was also a Mercedes jeep customized for falcon hunting. The body had been extended, the top cut off, and four-bucket seats installed, each upholstered in black and white mink paw.

The colorful old souqs continued to crumble, to be replaced by air-conditioned malls with slick advertising campaigns. "London has Harrods, New York has Saks, Jeddah has the Galleria. A prestigious complex in a setting of Italian marble, water fountains, balconies and hanging greenery creating a relaxing atmosphere where the most discerning clientele can wander and browse." *

All of this was possible because salaries stayed high. Western-educated Saudi bureaucrats made about $2,000 a month plus perhaps another 50 percent from the copious fringe benefits provided by the government. Western companies paid more, about $5,000 a month, and technicians at the Jubail industrial complex could earn as much as $6,500 a month.

Furthermore, the welfare state under the House of Saud was still in full motion. In spite of the economic slowdown, the rulers continued to go to extraordinary lengths to provide for the well being of the citizenry. "Residents and tourists visiting Fifa mountainous area will no longer be worried about lightning . . . as giant devices will be in stalled to protect them from . . . hazards. **** The Saudis' expectations as recipients of the government's largess had risen to new heights. King Fahd, in his speech dedicating the King Khalid International Airport in Riyadh, said the graceful buildings and elegant furnishings did not belong to the government but to the Saudi people. His listeners took him at his word. Potting soil was ground into the new carpets as Saudis picked Terminal 3 clean of the tiers of lush plants that surrounded the central fountain. Men atop other men's shoulders pried signs from the wall as souvenirs. And one farmer was seen loading into his pickup a six-foot-tall palm tree that he had just dug out of the ground. At the cafeteria of the King Fahd Hospital at Nassim, young Saudi employees arrogantly walked past the cashier, always a foreigner, without paying for their food. And the push to not only "Saudize" but create a culturally acceptable job for every Saudi national expanded an already bloated bureaucracy, while jobs more critical to the functioning of the country's infrastructure continued to be filled by foreign labor. This seemingly limitless prosperity was not illusory, but how long it could be sustained by government spending became an overriding concern by the beginning of 1983. The combination of a sluggish world economy, the aggressive conservation policies of the industrial countries, and new sources of oil developed after 1973 perpetuated the glut on the world oil market. From a production high of close to 10 million barrels a day, Saudi Arabia in the early months of 1983 was producing only 4 million barrels a day. By March, the Organization of Petroleum Exporting Countries had been forced to make the painful decision to drop prices from $34 a barrel to $29 and, in an attempt to stabilize prices, set production quotas for its members. In this climate, Mana Said al-Otaiba, the United Arab Emirates' representative to the OPEC Market Monitoring Committee, issued another of his pungent poems:

*Arab News, June 16, 1984.

**Al Madinah, July 15, 1983.

 

It's a buyer's market, a flexible fluidity,

And the buyers are now quite changed,

Sometimes showing coyness,

At others cupidity,

No longer fearing boycotts,

Or shortages in supply,

They now dictate conditions,

And harsh rules apply.

The market, alas, is stagnant,

To the whims of buyers' over-pliant.

For sellers, that is a heavy care,

A great predicament. *

Saudi Arabia was central to OPEC's scheme to stabilize prices. The kingdom, with its enormous capacity, would become the swing producer of the organization. If in the face of production restraints a market surplus still existed, Saudi Arabia would cut its production to bring supply and demand into line and to defend the price of oil established by the cartel. If the price rose, the Saudis would increase production.

*Saudi Gazette, July 19, 1983.

The oil glut brought into question once again the whole philosophy behind Saudi Arabia's oil policy during the boom, a policy that never enjoyed unanimous support. Since 1973 Saudi Arabia has sought to use its oil wealth to achieve four general objectives: to maintain the kingdom's security and stability; to increase Saudi Arabia's stature in the world arena; to diversify the economy away from its nearly total dependence on crude-oil exports; and to price oil at a level that would slow down the rate of oil substitution by the consuming nations. Saudi Arabia was able to pursue these objectives in an orderly fashion as long as the kingdom remained the dominant voice in OPEC's oil pricing decisions.

Between 1974 and 1979, OPEC, despite the cries of the oil consumers, was not a true cartel and had little to do with setting oil prices. That was done by Saudi Arabia. Zaki Yamani, the oil minister, entered OPEC meetings with instructions on a price band from the senior princes. After consultations with its partners, the Saudis set the marker price of oil within that band. Since Arabian light gravity crude * was the marker crude in international markets, the other oil producers secured what they could for their oil in relation to the premium price. If an OPEC member tried to overprice its crude, the international oil companies operating the fields refused to lift its oil. Or if an oil company were on a long-term contract, it had the contractual right to reduce the amount it lifted. Short of crude in either of these scenarios, the companies turned to Saudi Arabia and lifted their shortfall from the kingdom's excess capacity. The whole system functioned on the basis of Saudi Arabia's setting the price of the marker crude and the oil companies, acting as policemen, keeping the other producers in line by using the Saudis' surplus capacity.

In 1979 Saudi Arabia lost control of the pricing mechanism. Amid the confusion and exhilaration of the revolution, Iran's Islamic government reduced petroleum output by some 3 to 4 million barrels a day. In order to make up the deficit, Saudi Arabia upped its own production to 9.5 mbd, close to the limit of its capacity. But production at this level could not be sustained. It soon became apparent that oil pumped at such a high rate was doing irreparable damage to pressure in the fields and had to be cut back. When Saudi Arabia lost its surplus capacity it lost control of prices, which subsequently went berserk.

*Light gravity crude oil is the easiest and therefore least expensive crude oil to refine. Saudi light became the benchmark crude because it was the first discovered in large quantities.

To a segment of Saudi planners, this forced cutback on production was a welcomed development. Throughout the oil boom, Saudi policymakers were divided on the wisdom of producing the maximum amount of oil in order to moderate prices and protect the Western economies where Saudi Arabia's surplus revenues were invested. Basically, the debate was over the value of oil in the ground versus the value of oil produced. The strategy of those who might be termed the "slow growthers" stressed the conservation of oil resources, slower economic growth, and a more moderate rate of social change. These advocates of oil in the ground argued that a barrel of oil sold created revenues that the domestic economy could not absorb. Therefore, they had to be invested abroad, subjecting Saudi monetary assets to foreign exchange fluctuations and the risk of sequestration and/or freezing. Their most persuasive argument was that high production benefited the West more than Saudi Arabia. And arming themselves with the figures, the conservationists early in the boom pointed out that "in terms of 1974 dollar prices [the currency in which oil is traded], the $129.5 billion gross foreign assets of OPEC that are denominated in dollars would be worth only $75.1 billion in early 1979 simply because of dollar devaluation." *

But by the time Saudi Arabia lost control of OPEC, it was already too late to moderate policy. The progressives among the senior princes, spearheaded by Fahd, already had the kingdom firmly set on the path of rapid economic development, financed by huge oil revenues deposited in the West. An intricate part of the progressives' plan was to maintain oil production at a high enough level to insulate the Western industrial countries against the worst excesses of the price hawks in OPEC, who were led by Iran. The rationale behind the high production philosophy of oil minister Yamani and Crown Prince Fahd was that a relationship exists between oil prices and rates of consumption. Low production and high prices drive consumers out of the market in search of alternative energy sources. From the standpoint of Saudi interests, this would leave Saudi Arabia with enormous oil reserves and fewer markets. By 1981 high prices had indeed driven the rates of oil consumption down. At year's end, Yamani, like an oracle predicting doom, said, "As we approach the year 1982 and enter it ... we will most likely encounter a big glut in the oil market at a time when we are not ready for it . . .. Then the chances of a price collapse will be great." * Events proved Yamani right.

* Ragaei El Mallakh and Dorothea H. El Mallakh, eds. Saudi Arabia: Energy. Developmental Planning and Industrialization (Lexington, Ma.: Lexington Books, 1982), p.31.

Nineteen eighty-three was the year that Saudi Arabia was compelled to seriously confront the new reality of too much oil and too few customers. Exports fell another 56 percent in the first six months of the year, with production dropping to 3.5 mbd, or about half the 1982 level. By the beginning of the second half of the year, production had plunged to a new low of 2.3 mbd as Saudi Arabia, OPEC's swing producer, continued to drop its output to hold the line on prices. Al though by August the Saudis were producing 5.5 mbd, three-quarters of a million barrels of that was needed for domestic consumption, and it is estimated that close to 800,000 barrels a day went to fund Iraq's war with Iran.

Beyond the number of barrels of oil produced and the dollars collected, the House of Saud began to clearly sense the threat to its own political fortunes inherent in the economic downturn. Theoretically, Saudi Arabia's economy was so underdeveloped at the beginning of the oil boom that the level of income depended on the level of oil production. When oil production was increased or reduced, government revenues and, therefore, national income either rose or declined. But as a result of rapid development, the government of Saudi Arabia found itself in the difficult position of always having to trade off three factors: oil production, development expenditures, and financial surpluses. A high level of oil production combined with conservative development expenditures produced large financial surpluses. A low rate of oil production combined with a large expenditure on development produced low financial surpluses or deficits. In each case, the government's ownership of oil resources, its control of development expenditures, and its command of financial surpluses made the public sector solely responsible for balancing these forces.

*Quoted in Joseph Kraft, letter from Saudi Arabia," The New Yorker, July 4, 1983, p.52.

Since oil is Saudi Arabia's only real source of income, government ownership of oil reserves means that the government alone determines the specifics of diversification through the major investment projects it chooses There is no feedback on the wisdom of these decisions from market mechanisms built up through a gradual process of economic development by the private sector. After a decade and a half of frantic developmental efforts that have included extensive efforts to direct private investment into productive ventures, the oil sector has yet to be integrated into the rest of the economy through various backward and forward linkages. Therefore, the overall performance of the Saudi economy can only be measured by the growth of the government bud get, the vehicle through which oil revenues reach every segment of the economy. As a result, the burden of finding a solution to the economic crisis caused by the oil glut falls squarely on the shoulders of the government. And the government, as perceived by Saudi Arabia's population, is the House of Saud.

The al-Sauds' predicament in dealing with economic recession is made even more difficult by the patriarchal nature of their rule. The average Saudi largely escaped demands of citizenship before the oil boom and after the boom became the beneficiary of an elaborate welfare state. The sudden drop in wealth and government spending has proved a jolting experience to a well-cushioned society that had be come all too accustomed to easy money, huge profits, and little work. With the House of Saud accepting the political reward of plenty during the golden years, it realizes it is also likely to suffer the blame for the drought years.

The al-Sauds' first line of defense in the oil glut was denial. Government ministries cranked out reassuring statements in which Mohammed Aba al-Kahail, minister of Finance and National Economy, claimed the kingdom was unaffected by recession, and Abdul Rahman Zamil, minister of Industry and Electricity, said, "We are going through a new era of our society. It is an era that will be extremely positive to the Saudis." *

Yet the signs of slowdown in the government's largess were clear. "Riyadh - The Ministry of Finance has issued a circular ... banning the publication of advertisements about deaths and condolences at government expense." * * Saudi ships no longer benefited from cut-rate bunker fuel. The handsome coffee table books about the kingdom that the Ministry of Information passed out to expatriates disappeared, to be replaced by packets of postcards. One of the large money-changing firms collapsed and there were rumors of impending bankruptcies among some members of the great merchant families. On Saudia Air lines flights I saw the signs of decline graphically. My family was still flying first class on tickets provided by the hospital. However, the expensive printed menus that were the size of newspapers, the hand some gifts passed out to passengers, and the Christian Dior perfumes and colognes in the toilets had all disappeared.

*Arizona Republic June 5, 1983.

**Al-Jazirah, January 31, 1983.

The 1983-84 budget, still totaling $76.4 billion, showed cuts of between 14 and 40 percent in almost every area of government spending. As an example of the magnitude of some of the reductions, the pediatrics department of the King Faisal hospital was allotted discretionary funds for July to October 1983 of SR 100, or $29.41. Most cuts, though, came in the form of stretching out the completion dates of construction projects. This chiefly hit foreign firms, leaving the holdings of the royal family and most other Saudis largely unscathed.

As oil production continued to slump and prices rocked, the question became whether or not Saudi Arabia would be forced to dip into its foreign reserves to meet the projected budget deficit of $22 billion for fiscal 1983-84. The answer was never announced; it simply evolved. As early as 1982, the government reduced the amount of money it paid to construction companies to cover startup costs from 20 percent to 10 percent of the price of the contract. No longer would contractors like "Red" Blount of Blount, Inc., collect $200 million up front. Later, the government, rather than drawing on reserves, simply stopped paying its bills to its foreign contractors. There were long delays in contractual in-process construction payments. These delays were described by the government as a "technical problem" rather than as fiscal policy. Whatever it was called, contractors could not collect their money. While average delays at first were between 90 and 120 days, soon they began to drag on for as long as six months. As the economic situation worsened, contractors were waiting eighteen months for their money. To meet their payrolls and buy materials, most companies operated on borrowed money. Shutting down operations ceased to be an option when the government announced that if a contractor stopped construction because he was not paid on time, he did not get paid at all. For Western construction companies, which had made so many millions of dollars during the years of plenty, the boom was over. *

*Western companies are still carrying millions upon millions of dollars of the Saudis' unpaid bills on their balance sheets

In 1984 revenues dropped another $15 billion to $42 billion. Stung by the reports some of us were filing in the Western press about contractors' cash flow problems, the minister of Finance and National Economy was still claiming that the delays on the payment of government bills was not because of a budget deficit but because of the time necessary for his ministry to examine the technical terms of contracts. But at the same time, the Saudi Arabian Monetary Agency was repatriating close to $20 billion in foreign reserves. A businessman friend of mine who had relatively small amounts of money due him routinely bribed employees in the Ministry of Finance to move his invoices from the bottom of the pile of the government's unpaid bills to the top. By now, Saudi businessmen were also feeling the pinch. The financially frail among the legions of trading establishments that imported and sold everything from construction equipment to consumer goods quietly folded. Of those left, many realized that although profits were poor this year there might not be any profits next year. The percentage of private money flowing out of Saudi Arabia into Swiss bank accounts and American real estate escalated accordingly. The only positive factor in the economic downturn was its effect on inflation. Prices stayed stable and in the case of real estate dropped precipitously. While housing costs were still high, the astronomical rents of the 1970's had crashed.

At the time I left Saudi Arabia in the summer of 1984, the kingdom stood in suspended animation. Many Westerners had either made the decision to leave or were considering it. Those who had no jobs waiting at home or who could not abandon their investments in Saudi Arabia anxiously waited the next round of bad economic news.

I went to a party one night at the home of an American construction contractor who had been in Saudi Arabia since the earliest days of the oil boom. Throughout the evening I had the vague feeling that I was living the movie Casablanca. In a corner of the room, someone languidly picked out a tune on an old upright piano. The room was dominated by an elaborate and well-stocked bar; a certain sign that the host had high-placed political connections. Critically stationed at the bar, pouring drinks, was the CIA's unacknowledged Riyadh station chief. As he mixed, he tipped his ear toward whoever was standing before him to catch the bits of information they passed along. Except for the host, it seemed everyone at the party was waiting for an exit visa to leave the kingdom for good. A young British farm equipment salesman, who although dressed in a pink Polo shirt looked like an Oxford don, was going home after eight years. A former U.S. army officer, who had been in Riyadh for three years, training the National Guard, would be leaving in two weeks. A distraught French architect would depart the next day, giving up on collecting his fee for designing a building finished two years before. Behind me, I heard a lawyer say he and his wife were returning to the United States the following week. I instantly recognized the voice. Sidling up to him, I casually asked, "Are you Bryan Lynch?" He looked puzzled and said yes. I whispered, "I am Michael Collins." A broad smile came over his face and he said, "I'm glad to meet you after all this time." While Bryan was practicing law in Saudi Arabia, he was also part owner of a Middle East business magazine published in Washington, D.C. Since 1980 I had been writing for that publication. Bryan and I had spoken many times over the telephone about stories, but we had never dared meet. His wife, who edited several of my articles, joined us and we reminisced about our time in Saudi Arabia and what lay ahead.

I left the party melancholy. Perhaps I was still thinking of Ingrid Bergman and Humphrey Bogart playing out the last days before World War II. Saudi Arabia was in no danger of going to war, but it was in danger of losing much of the wealth that had fueled development and the great consumer society.

The 1984-85 budget held level at $76.4 billion, the same as the previous year. To boost government revenues, the price of a gallon of gasoline was hiked from 21 cents, as was the price of other low-cost petroleum products consumed domestically. Even with the threat from Iran, military spending was cut 20 percent. The number of Saudis being sent abroad to study was severely cut back. Salaries and benefits for both Saudis and expatriates were cut from 30 to 50 percent. Layoffs were sending as many as fifty thousand expatriates a month home. Still, the budget deficit was estimated at $30 billion. The Riyal was adjusted downward against the dollar to raise import prices and discourage the purchase of so many foreign goods. The gold shops were no longer so crowded that people were forced to stand on the street waiting for a place at the counters. The pace of trade from the shopping malls to the souqs was somber. Businesses saw their profit margins strangled, and empty stores began to scar Riyadh, Jeddah, and al-Khobar like pockmarks. The average Saudi, at last, had begun to feel the pain of recession.

Nineteen eighty-four was also the year that the goals for the Fourth Economic and Social Development Plan (1985-1990) were unfolded. While the Third Plan was unveiled in 1979 at the height of the boom, the Fourth Plan was born in uncertainty. With most of the major infrastructure projects completed, the new plan's goals would be infinitely more difficult to accomplish than those of the building years. The plan has four objectives, which are more themes than goals. The first is to draw on the infrastructure built during the Third Plan to diversify the economy through manufacturing, agriculture, and finance. The second is to encourage the private sector to play an expanded role in the economy. To reduce the government's near total dominance of the economic system, local businessmen are to be provided with a range of incentives to establish enterprises aimed at increasing the gross domestic product rather than businesses geared to the importation and sale of foreign goods. Third, taking a page from every government budget in the West, Saudi Arabia has pledged to increase government efficiency to cut costs. * And finally, the gist of the plan is to reduce the kingdom's dependence on foreign labor "Saudization," a term introduced in the Third Plan, not only would put Saudis into jobs held by foreigners but would raise the quality of that manpower through education and training. The delicate issue of women's role in the labor force was addressed with promises that fields other than medicine and teaching would be open to women. And then, as if to cover his bases with the religious fundamentalists, Minister of Planning Hisham Nazer said the new plan would exert all effort in "the preservation of Islamic values and the propagation of the divine faith. **

Significantly, the Fourth Plan stressed two subjects barely touched on in the Third Plan: the necessity of adapting to revenue constraints, and the need to bolster the kingdom's defenses and internal security. The figure for projected expenditures over five years (1985-1990) - $278 billion - may be an illusion. In all public discussion of the plan, officials stress that, rather than committing a designated amount of money to development, the Fourth Plan establishes a set of desirable objectives on which money will be spent in line with the country's income.

* As an example of this efficiency, 326,000 new government jobs were added in fiscal 1984-85.

**Arab News, December 3, 1983.

On the threshold of the Fourth Plan, the promises of the Third Development Plan appeared as impermanent as oil shortages. Among the more serious repercussions of the oil glut was the future of Saudi Arabia's fledgling petrochemical industry. The commitment of the Third Development Plan to diversify the kingdom's economy by building on Saudi Arabia's abundance of oil raised not only economic but political questions as the Saudis struggled to maintain an acceptable level of oil production and to find markets for their petrochemicals.

As they had questioned the high production oil policy, many questioned the government's original decision to invest billions of dollars in heavy industry. There were strong arguments against industrialization in a country that had colossal capital costs, high operating costs, and essentially no indigenous labor. In addition, there were projections of marketing problems intrinsic to the cyclical slumps of the petrochemical industry and the great distance of Saudi Arabia from the major markets of Europe and North America. So dismal were the projections on profit margins that at the time Jubail and Yanbu were under construction, some experts predicted that the six major petrochemical projects would yield less revenue than the sale of 250,000 barrels of oil a day. But the proponents of industrialization believed the kingdom had no other course if it were to maximize the downstream potential of its oil resources. So the money was committed and the bulldozers went to work. The most obvious goal was to capture the gas, a by-product of oil production that burned in towering flares across the oil fields. A mammoth gas gathering and processing system was constructed, which could collect and process 3.3 billion cubic feet of gas a day to power industry, electric generating plants, and seawater desalination facilities while providing ethane as feedstock for the petrochemical industry. The original cost of the gathering system was to be $4.5 billion, but before it was finished it had absorbed $12 billion of the Saudis' oil revenues. Nevertheless, unlike the glamorous steel and aluminum plant projects, the gas-based industries made economic and developmental sense at the time. Saudi Arabia could produce the feed- stock for its petrochemicals at a cost of $.50 per million British thermal units of energy, or what amounted to $3 per barrel of oil, thus making the Saudis competitive in international markets. But as oil prices declined, whatever advantage Saudi Arabia had gained from cheap gas began to be lost to other factors. It cost twice as much to build a plant in Saudi Arabia as it did to build the same plant in the United States or Europe. The highly specialized technicians who were available only in Europe or North America charged about twice as much for their services in Saudi Arabia as they did domestically. Technology, dominated by American firms, was obtained largely through expensive leasing arrangements. Even more basic was the ever-present cost of water. The only way Saudi Arabia could meet industry's enormous demands for water was by desalination, at a cost of probably $2.50 per cubic meter. And then, to complicate the prospects of Saudi industry further, political events in the Arabian Gulf that were unforeseen at the time the decision to industrialize was made threatened to impede, if not immobilize, shipments out of Jubail.

Confirming the warnings of the doomsayers, the performance of the early Arabian industries was disastrous. There were labor shortages, management problems, and a succession of technical breakdowns. Over the first seven years of its operation, the fertilizer plant was never able to run at more than 55 percent capacity for any sustained length of time. Gradually these problems were brought under control, only to be replaced with an even greater problem: the threat to markets indirectly caused by the oil glut.

After seven years of construction and billions of dollars, Saudi Arabia's infant petrochemical industry was just coming on line about the time the surplus in the petroleum markets became endemic. The atmosphere in the country when industrialization was the buzzword among Saudi economic planners was much different from the atmosphere when the plants actually went into operation. When ground was broken for the Jubail and Yanbu projects, Saudi Arabia loudly boasted that the success of the ventures was assured. Industrial nations would be coerced into buying a quota of Saudi petrochemicals to qualify for a share of Saudi crude oil. But when the industrial cities went into production, Saudi Arabia was faced with doing business in the real world. No longer master of limited oil supplies, the kingdom was reduced to marketing its petrochemicals through the give and take of international trade governed by competition and trade barriers. By 1983 the Saudis, frustrated in their attempts to break into European markets, were threatening a trade war with the European Economic Community (EEC). The government insisted with little success that the EEC lower its import taxes of 13 to 19 percent on Saudi Arabia's chemicals as a reciprocal measure to compensate the kingdom for the largely duty-free status of European products imported into the country. The issue was pointed and it was public because the government was concerned not only to recover its vast investment in petrochemicals; it was growing increasingly concerned about the kingdom's income needs.

Hoping eventually to capture 5 percent of the world's petrochemical market, Saudi industry with its advantages and handicaps is chiseling away at the competition in Europe, the United States, and the Far East, as well as India and Africa. As long as the oil surplus wears on, Saudi Arabia has a more immediate problem than its market share in petrochemicals. Although the government desperately wants to recoup its costs and increase income, the immediate concern is to produce enough oil to maintain the pressure in the gas lines needed to fuel its petrochemical plants. In some respects, industrialization, rather than freeing Saudi Arabia from its total dependence on oil, has made oil production hostage to industry.

Agricultural policy, another cornerstone of the Third Development Plan, has also fallen victim to dearth and plenty in the oil markets. Reacting to veiled threats by other countries to embargo food exports to Saudi Arabia in retaliation against another oil embargo, the Saudi government in '977 hit on the idea of making the kingdom self-sufficient in the staples of the Saudi diet, particularly wheat. If industrialization was a questionable policy, growing wheat on the desert was ludicrous. Nevertheless, Saudis were offered free land, interest-free loans for machinery, fertilizer, and seed, and a government guarantee to buy their total production for just over $28 a bushel. (The average price per bushel of wheat in the United States in 1977 was $2.28) With almost unlimited capital and foreign management, Saudi entrepreneurs turned into gentlemen farmers.

Al-Madani Farms, owned by Sheikh Fahd Ghandourah, is near the oasis town of al-Kharj. My guide on this tour of a Saudi wheat farm was the sheikh's Egyptian manager, Abdul. It was early April and the wheat harvest had begun. I had grown up in wheat growing country in the western United States, but this farm was unlike any I had ever seen. With Abdul at the wheel, we drove over miles of dry, crusty desert interspersed with dots of green. The wheat, planted in circles, or pivots, was being fed water at 1250 gallons a minute. Thousand- foot sprinklers, anchored in the center, moved over the field on heavy tires, spraying a combination of water and liquid fertilizer to make fruitful soil devoid of animal or vegetable matter. Near the pivots it became almost steamy, as water, heated by the sun as it came through the pipes, sprayed out at 85 degrees. As I stood in the sun looking over the willowy wheat, it seemed only slightly less than miraculous. But an inch beyond the reach of the water and fertilizer, the ground remained what it truly was - desert.

The crop around al-Kharj was good. On the highway I had passed a line of trucks ten kilometers long, waiting to unload at the grain elevators. Although Al-Madani would also have a bumper crop, Sheikh Ghandourah was having problems. His specially built, $32,000, sixty- metric-ton trailers, which had just been delivered from the United States, were banned from Saudi roads for excessive weight. He had been talked out of his cherished plan to buy from an Italian con artist $1 million worth of earthworms to irrigate the soil. And the government was slowing down on its payments for wheat. Originally paying farmers on delivery to the silos, in 1983 the government began to stretch out payments in three installments. By 1984 no payments were made until ten months after the harvest.

In 1986 Saudi Arabia would produce two million bushels of wheat, one million more than it could consume. Not only has the surplus required more silos for storage, but the whole agricultural program has become exceedingly expensive. To stem the bounty, no new land is being provided for additional wheat acreage. Loans for increased production are difficult to obtain. Delays in payments to farmers have gotten even longer. And the price the government will pay for wheat has been cut to $14 a bushel, still five times the world price. But as with other projects of the oil boom, once the agricultural program was set in place, it acquired its own momentum. When the government in 1986 tried to reduce production by backing out of its commitment to buy all the wheat grown in the kingdom, such a commotion erupted that the plan was hastily withdrawn. Politically the House of Saud is locked into high costs for overproduction of wheat largely by city dwellers turned farmers who are now financially tied to guaranteed government payments. As serious as the economic drain is, other costs are even higher. To keep the farms going requires foreign labor and the resource Saudi Arabia can least afford to waste water. Agriculture now consumes 84 percent of the kingdom's water, 70 percent of which comes from the non-replenishable underground aquifers. With the water table in some areas dropping two meters a year and desalination costs so high, the search for water, somewhat ignored during the growth years, is on once more. The iceberg idea has resurfaced, as well as cloud seeding. And Wales has offered to buy Saudi oil and send the tankers back filled with spring water. None of this is enough if the current level of water consumption continues. In the end, the misguided agricultural policies of the boom era may turn Saudi Arabia into more of a desert than it was before.

The Saudis' reaction to the ups and downs of their economic for tunes has followed a clear pattern. The initial shock over their sudden wealth was followed by a period of supreme confidence that lasted into the 19805. The second phase, 1983 to early 1986, was marked by doubt and indecision as the crisis in the oil markets began to press down on the kingdom. OPEC, usually meeting in the cool and tranquility of Geneva, saw one emergency session after another flounder over the issue of production controls to support a unified price on oil. Unlike the period from '973 to '979, when oil minister Yamani would enter OPEC meetings with a predetermined price band and the others would fall in line, the production hawks now refused to bend. The plan by which Saudi Arabia would either shrink or expand its own production in response to market conditions was the only deal Yamani was able to strike to support prices. And that proved to be counterproductive to the interests of Saudi Arabia. As the Saudis' OPEC partners routinely exceeded their production quotas, the kingdom's own production became smaller and smaller to keep OPEC within its production guidelines. With oil production at one time as low as 1.9 mbd, the House of Saud needed the revenues from at least 5 million barrels of oil a day to shelter both the benefits of its welfare state and its own political well-being against the storms of the oil glut. As production dropped, the high level of government spending was maintained by allowing foreign reserves to fall over three years from an estimated high of $150 billion in 1983 to less than $90 billion in 1986. To shore up its own economy, Saudi Arabia had to increase its share of petroleum markets.

With essentially no hope of bringing OPEC in line, Saudi Arabia in February 1986 unilaterally abandoned its position as the swing producer in OPEC. In a bold move for the cautious Saudis, the kingdom declared it intended to use its dominion over a quarter of the world's proven oil reserves and its low production costs to recapture its oil markets. Throwing off the constraints of OPEC's failed production quotas, Saudi Arabia went into the marketplace to crush the high cost non-OPEC producers, such as Britain and Norway, and to force its OPEC partners to suffer the consequences of falling prices. OPEC's united front crumbled. As persuasive as the economic arguments were for Saudi Arabia's move to humble the dreaded OPEC of the boom years, the House of Saud's decision was made as much for psychological as economic reasons.

The oil glut had been a cruel blow to Saudi honor. In addition to the plenteous material rewards, the other real dividend of the oil boom for Saudi Arabia was what it did for the Saudis' perception of themselves. Before the oil era, it was their devotion to Wahhabism, the most puritanical and demanding sect of Islam, that the Saudis believed set them above all others. And the House of Saud defended the Saudis' pride in their piety by being the most vigorous protectors of the faith. How ever, despite their piety the Saudis still were derided for generations by their Middle Eastern neighbors, who regarded them as little more than illiterate Bedouins. Then with the House of Saud at the helm, the kingdom burst forth from the backwater to bask in the glory of unimaginable wealth. The world groveled at the Saudis' feet to win contracts and jobs. And everyone was made to pay court. Through a multitude of personal humiliations imposed on non-Saudi Arabs working in the country and through the systematic use of Saudi aid to other Arab governments, the Saudis extracted their pound of flesh for the years they suffered as objects of scorn. As for the West, the Saudis perceived the economic price that the oil shortage extracted from the industrial countries as revenge for Western acts against Arab honor dating back to the Crusades. In a sense, the oil boom was seen by the Saudis as restoring their pride, soiled by their years of poverty and isolation.