Remarks to Participants in the Saudi Aramco Management Development Seminar
Ladies and gentlemen, I congratulate all of you on your participation in Saudi Aramco’s management development seminar. Your selection marks you as future leaders of your country’s premier institution. As such, some of you will become important actors on the world stage. It is an honor to have been asked to speak to an audience of your caliber about the global geopolitical outlook.
It is also an impossible intellectual challenge. We are at so many historical turning points:
· The 500-year domination of the globe by Europe and Western culture has ended. Previously subjugated civilizations are resurgent and gaining sway in both their respective regions and globally.
· The “American century” is behind us, as the United States trashes the world order it once sponsored, adopts mercantilist trade and investment policies, reenacts the opening stages of the late, unlamented Cold War with all-too familiar enemies, and separates itself from foreign allies, partners, friends, and followers.
· A once-globalized world is fragmenting into sub-global economic, financial, scientific, technological, and politico-military spheres of influence. Established leaders in each of these arenas can expect escalating challenges from innovative upstarts.
· Global problems requiring a global response – like climate change, mass extinctions, pandemics, and the displacement of human populations – are visibly worsening, but nationalism and the disintegration of institutions of global governance are rapidly reducing the capacity of our species to address them.
· Economic warfare is proliferating. Coercive confrontations now affect capital markets as well as trade, investment, science, and technology exchanges. There is a rising danger that they will become military conflicts.
· The United States has systematically dismantled every element of its international power and appeal other than the military. Whatever America now is, it is not “great again.”
· The global economy is entering a depression of unknown depth and duration. This is disrupting long-established balances between supply and demand for energy, goods, and services and redistributing wealth between countries and regions in unpredictable ways.
· The presumptive contenders to fill the current leadership vacuum – the United States and China – are in different ways each discrediting themselves. But lesser powers with stronger and more effective social compacts, human and physical infrastructures, surge capacities, and diplomatic practices and styles are gaining prestige and appeal.
The third quarter of the 20th century saw the end of European colonialism. The sole exception was the colonization of Palestine by European Jewish settlers, followed by the in-gathering of Arab, Persian, Turkish and other Jews, and their assimilation into the Zionist version of Western culture. But there are no surviving empires or further colonial projects anywhere in prospect.
The U.S. turn to protectionism and diplomatic vandalism under the Trump administration has now reduced America’s global or regional influence to levels last seen just before its late 1941 entry into World War II.
In your own region –West Asia and North Africa – imperial powers like the Mongols, Ottomans, Portuguese, French, British, Germans, Italians, Russians, and Americans long called the shots. No more. Those of you who live in the so-called “Middle East” now determine what happens in it. If it’s a mess, as I suspect you may agree with me it is, it’s up to you, not Americans or other outsiders, to fix it.
Your future will be decided by the outcomes of contention between Islamist democrats and oligarchs; Arabs, Berbers, Kurds, Persians, and Turks; multiple schools of Sunni and Shi`i Islam; quietists and terrorists; the rulers, regimes, and states of the Gulf and Levant; Jews, Christians, and Muslims; and the foreign patrons of all of the above. The rest of the world wishes you luck in untangling all this, if only because your contradictions continue to produce violent consequences beyond your region.
But the rest of the world has learned that it doesn’t have what it takes to address any of the contentions of your region effectively. America has repeatedly failed and is tired of trying. Europeans prefer to wring their hands while sitting on them. Russia has the diplomatic skill to make a difference, but not the political or economic power. China is focused solely on defending itself and considers foreign entanglements to be liabilities. (After all, they might pull Beijing into quarrels of no direct interest to it.) India is even more selfish and self-centered. Turkey is off its meds.
So, you Saudis are finally on your own and free to make mistakes, produce solutions, remain at odds with your neighbors – or come together with them, as you choose. This is the first time this has been the case since Mohammad ibn Sa`ud and Mohammad ibn `Abd-al-Wahhab joined hands to create the first Saudi Kingdom nearly three centuries ago.
This strikes me as an opportunity for regional statecraft. At the height of the Cold War, the West was able to mitigate its civilizational conflicts by affirming its common values in the Conference on Security and Cooperation in Europe. The rifts in West Asia might find similar repair through the collective affirmation of essential Islamic values. With the right diplomatic approach, Islam could – as is said – be the answer.
In any case, to exercise its new independence wisely, the Kingdom needs institutions that it does not now really have. It must develop an invigorated civil society, a more comprehensive research university system (King Fahd University of Petroleum and Minerals shows the potential in this regard), and a think tank community from which Riyadh can draw thoughtful policy advice and develop integrated strategies to advance Saudi interests. There is an urgent need for the Kingdom to strengthen and professionalize its intelligence and foreign relations management capacities and to link its economic and military capabilities to feasible political strategies.
If past experience is any guide, the king will look to Saudi Aramco and its uniquely competent staff to help expand these and related competencies. So, you will not lack opportunities for interesting service to your country, of whose wealth and power your company and you are the foundation.
The Kingdom now faces regional challenges and geopolitical constraints it must soon address on an urgent basis. Let me mention just two: the confrontation with Iran, and the increasing risk for China – your major market – of relying on energy from the Gulf rather than Russia and other sources.
First, Iran and Saudi Arabia.
· The costs to both Iran and Saudi Arabia of escalating confrontation are becoming unsustainable. Iran has been impoverished by U.S. unilateral sanctions and military pressure but has not retreated from Iraq, Lebanon, Syria, or Yemen, where the Kingdom can find no exit from a bloody, expensive, reputationally damaging, and unwinnable war.
· The conflict between Iran and Saudi Arabia has taken on aspects of a proxy war, as contending great powers maneuver to exploit it for their own strategic purposes. The parties themselves can no longer control such outside involvement.
· Both Iran and Saudi Arabia are experiencing falling revenues from oil exports. Neither can afford its currently budgeted expenditures, still less the ambitious economic restructuring and modernization each seeks.
· The GCC has splintered and weakened, precluding cooperation among its key member states to balance Iran. Some in both the contending Iranian and Gulf Arab coalitions have begun to have second thoughts and can’t be counted on to stay the course.
· The conflict has come to threaten essential infrastructure in Iran, Saudi Arabia, and other Gulf countries. Tehran has already demonstrated a willingness to mount crippling strikes on the Kingdom’s oil facilities and to hold its desal plants hostage. Washington has struck Iranian leaders and forces in Iraq and come within hours of crippling air and missile strikes on major targets in Iran itself. If one side or its ally attacks the other, the other will retaliate.
Second, changes in global geopolitics are beginning to affect trade in oil and gas. These increasingly disadvantage the Gulf in comparison to other producers, especially in China – your largest and fastest growing export market.
· Iran’s harassment of shipping in the Strait of Hormuz no longer draws the decisive response from the U.S. Navy it once would have. The risk that conflict might close the Strait appears to be rising.
· As military confrontation between China and the United States escalates, so does Chinese concern that the U.S. Navy, rather than protecting China’s seaborne energy imports as in the past, might seek to interdict them. China is shifting toward less vulnerable sources of supply, including greater reliance on overland pipelines from Russia and Central Asia.
· America has decided to confront Russia and China simultaneously. This gives both an incentive to strengthen strategic and economic cooperation. This dynamic will continue regardless of what happens in the Gulf.
· The United States has “weaponized” the dollar to disrupt trade in oil and gas, not just with Iran and Russia, but with Venezuela. Concerns about the possible effects of dollar-based sanctions on economic security are rising in China, India, and elsewhere. Russian willingness to settle energy trade in ways that avoid the dollar makes Russian sourcing more attractive.
· An outbreak of warfare between Iran and Saudi Arabia or other GCC member states could knock out oil and gas production for an extended period, further incentivizing a turn by China and other importers to sources where such risks are low or nonexistent.
Clearly, it’s time for all sides in the Gulf to reflect on how to end face-offs that promise to cost all concerned much more than any could hope to gain.
Beyond the immediate issues, the politico-economic environment in which your careers will unfold is certain to be exceptionally challenging. The Trump administration came into power proclaiming that there was no international community, only rivalry among nations. Its subsequent actions have made this a self-fulfilling prophecy. Its radical attacks on global interdependence and supply chains first pushed the world into recession. The COVID-19 pandemic then took us into the current economic depression.
The complex origins of this situation make predicting its future course particularly difficult. Both financial and consumer capitalism have now been severely wounded. Many of the jobs lost in the closure of retail outlets, restaurants, and recreational facilities may never return. Other services, like air travel and tourism, are unlikely to be fully restored in any reasonable time frame.
If supply chains are repatriated, it will most likely be to highly automated production facilities that employ few workers. The replacement of human labor by robots seems likely to accelerate in both the manufacturing and service sectors. As happened in agriculture, capital investment and the productivity it enables will reduce employment in industry to previously unimaginable levels. Services seem unlikely to be far behind.
If there are no jobs, who will have the money to buy goods and services? If the future is uncertain, people will hedge by saving more and consuming less. The current economic system based on mass employment and high levels of private consumption will not survive. It will undergo a painful evolution into something different. The contradictions between private affluence and public squalor, plutocratic privilege and hopeless poverty, financial engineering and the real economy, and unrestrained monetary policies versus fiscal fecklessness have become unsustainable. There will be change, some sudden and radical.
If the advantages of international differences in labor costs are erased by automation, businesses will seek to reduce transportation expenses through shorter supply chains, located closer to both sources of industrial inputs and markets. Meanwhile, some level of telecommuting seems bound to continue as an alternative to physical movement to and from the office. Ships, trucks, trains, and cars will all travel shorter distances, less frequently. Even if the current drive to replace the internal combustion engine with electric power falters, the demand for oil and its derivatives, which are uniquely suited to transportation, will continue to shrink. Meanwhile, corporate demand for office space and the heating and cooling of it will wither All this, as renewable energy resources achieve efficiencies that make them competitive with hydrocarbons.
Oil prices and supplies will inevitably contract to match declining demand for liquid fuels. The challenge will be to manage the transition to other uses of hydrocarbons. I am reminded of a remark by Sheikh.Ahmed Zaki Yamani when I called on him in Jeddah exactly thirty years ago. He told me that future generations would curse us for carelessly burning up a substance that could be made into so many useful things.
Now that there is no choice, I am confident we will find many better, higher value uses for hydrocarbons than igniting them. But we are likely entering a period of intensified technology-led competition, investor skepticism, and increasing government intervention to mitigate the climate and environmental impact of fossil fuels. Saudi Aramco will remain profitable, though less so. Many of your competitors will not be so lucky. Some will go bankrupt.
Of course, the extent and pace of such disruptive changes will depend on how long the pandemic lasts, whether the virus becomes a permanent feature of human existence, and whether and when a vaccine and treatment can be developed and made available to billions of people. Most epidemiologists measure the time for accomplishing this in years rather than months. If we are lucky, we may have several workable vaccines before the end of this year to be deployed in succeeding years. But it seems clear that the economic effects of the pandemic will be with us for at least a decade.
So will its political and military effects. Well before anyone had ever heard of COVID-19, the world was obviously entering a period of escalating tensions. The rules, regulatory systems, and international understandings that had constrained economic, political, and military conflict in previous decades were visibly breaking down.
In 2017, the United States proclaimed Russia once again to be its adversary and launched an ever widening “defensive counterattack” on China that appeared to aim at beating it back into underdevelopment. Washington disparaged its own alliances, repudiated the idea of multilateral cooperation in favor of combative bilateralism, abrogated agreements on issues like trade liberalization, dispute resolution, climate change, and arms control, and sabotaged or withdrew from a growing number of international organizations. In doing so, the United States was effectively containing itself rather than China and beginning a process of disengagement from longstanding international partnerships. Ironically, as Americans began to pursue revolutionary upheaval in the global order they had helped create, China emerged as that order’s most vociferous – if not always most convincing – international defender.
The pandemic has since taken Sino-American contention to levels not seen since soon after the Korean War in the 1950s. Both countries have behaved like schoolyard bullies, alternately exchanging unscrupulous insinuations and insults and browbeating others to back them in their efforts to realign global trade, technology, finance, investment, and governance against each other. This undignified and uncouth behavior, added to constant reminders of the domestic injustices in both societies, has cost both China and America much international respect. Each seems to be willing to court armed conflict if the other does not conveniently do itself in, as the Soviet Union did.
The combined effects of the pandemic, economic stagnation, domestic lawlessness, and the sorting-out of the international pecking order now in progress guarantee that the rest of the world will see neither a resurgent China nor a post-crisis America as fit to lead it. No “Pax Sinica” [السلام الصيني] will replace the Pax Americana [السلام الأمريكي], nor will the world soon look again to America for inspiration as it once did.
Warren Buffett, called “the Sage of Omaha” for his long-demonstrated acumen as an investor, famously remarked that “when the tide goes out you can see who’s been swimming naked.” After a close call as the water level began to drop, China managed to wriggle back into its bathing trunks without giving much away. Not so the United States, all of whose deformities and weaknesses have now been on lurid display for months.
I’m not going to waste time talking about China’s many faults and problems. Too many Americans are doing that, in part to distract attention from our own difficulties. The fact is that, in recent decades, the Chinese have established an enviable record of surveying and selectively adapting the world’s best practices to correct their shortcomings and improve their performance. I see no reason to believe they will not keep doing so. China can and will take care of itself.
But I am deeply concerned about both the incapacitation and disgrace of my own country evident in recent events. The United States quickly became the largest reservoir of COVID-19 contagion in the world. The American share of the world’s cases has since fallen from about one-third to a bit more than one-fourth, but this is not because Washington has overcome its initial incompetence at coping with the pandemic. It is because the governments of some other countries, like Brazil, Russia, and India, are doing even worse.
The United States’ role as the leader in spreading rather than containing this global pandemic has revealed huge weaknesses in its socioeconomic system and human and physical infrastructure as well as in the caliber of its current political establishment. Washington’s incompetence has delighted its adversaries and dismayed all who previously deferred to it as a reliably competent bulwark of global stability. The response of the American political elite to its failures has been to point the finger of blame at others – the Chinese Communist Party, domestic political opponents, foreigners, scientific researchers, anybody – and everybody – but themselves and their cronies in power. But when you blame others for what you yourself have done or failed to do, you both compound your error and create excuses for not taking action to prevent its repetition.
Success in combatting the pandemic has varied greatly from country to country. This doesn’t seem to have much to do with the taxonomy of their political systems. Some democracies have done remarkably well, and others miserably. Some autocracies have come out well, while others have clearly not risen to the challenge. Saudi Arabia has many of the attributes that have brought others relative success. But you know better than I where the Kingdom fits in this spectrum.
It’s far too early to draw conclusions. But I strongly suspect that after the pandemic is past us, research will show that success in dealing with it depended on more than just the universality and ease of access to primary health care. It was also determined by the quality and levels of citizen trust in government, state capacity to set goals and mobilize resources to achieve them, public morality and supportive social discipline, scientific and technological literacy, contingency planning and preparedness, and the truthfulness and credibility of the national leadership and media, among other factors.
Success in the international competitions to come will depend on recognizing and overcoming shortfalls in these aspects of national capacity. In this context, as in so many others, complacency is a sure path to greater adversity. No nation can any longer afford not taking a hard look at itself as well as at its rivals. Certainly not the United States.
America needs to find – and fund – ways to mitigate police and vigilante racism, gun massacres, and shocking levels of inequality while reforming a catastrophically inadequate public health system and social safety net. Restoring the battered moral authority of the United States is the prerequisite for any resumption of American global leadership. Regime change abroad was never a sensible American priority. In their own interest, Americans must now turn attention to regime reform at home.
For its part, to restore its prestige and regain influence, China must recover its decorum and humility. Beijing must rediscover the merits of reacting to views it considers politically incorrect with dignity rather than hysterical hectoring and imperious bullying.
But, while the world waits for the American and Chinese leviathans to get their separate acts together and help repair the collapsing global order, no one should fail to notice that other, less self-important powers are emerging from the current turmoil with greatly enhanced reputations. Societies like Germany, Japan, South Korea, New Zealand, Singapore, and Taiwan are showing themselves worthy of global respect and emulation. This is an invitation – for those smaller and middle-ranking nations who wish to take it – to act. They have a chance to restore decency, respectful cooperation, and prosperity to at least part of the world by forming coalitions to reformulate, reknit, and reapply the recently shredded rules of international behavior as best and wherever they can.
In a fragmented world order, the fragments need not wait for the whole to act to mutual advantage or to set an example that others will be inspired to replicate or join. Ironically, in the new world disorder, smaller and middle-sized countries may have the potential to punch above their weight in ways they couldn’t when they were subordinated to great power overlords. In a world in which the greatest powers are flirting with war, middle-ranking powers need to build regional balances buttressed by the capacity to unite in response to external threats. The Kingdom of Saudi Arabia is surely among the candidates to join with others in creating rule-bound oases of peace and cooperation that exclude the chaos now replacing global governance and institutions elsewhere.
This is a moment of global and regional peril but, for those who are alert to its possibilities, it is also a moment of unprecedented global and regional opportunity. I look forward to your ideas, comments, and questions.
Ambassador Chas W. Freeman, Jr. (USFS, Ret.)
By video from Washington, DC to Dhahran, Saudi Arabia, 15 June 2020
