There is an old story about the Saudi Arabian monarchy that retired intelligence officers like to tell. It is almost certainly apocryphal. Nonetheless, it helps to illuminate the latest spat between Saudi Arabia, the Middle East’s largest oil producer, and its neighbour Qatar.

When the price of oil collapsed in the mid-1980s, the Saudi government found itself in the unusual situation of having to rein in its spending. To prepare the way, King Fahd, the monarch at the time, summoned a majlis, or council, of the sheikhs of the eastern Nejd tribes that have always provided the bedrock support for the House of Saud’s rule.

Sensing resistance to his proposed belt-tightening among the assembled tribal leaders, Fahd expounded at length on the royal government’s generosity. He described all the schools he had built, the mosques and the clinics, the lavish subsidies he had paid, and everything he had done for the tribes over the years.

His words were met with an awkward silence, broken eventually by one elderly sheikh, who staring at the carpet asked, “Ah yes, but what have you done for us this week, O King?”

As I say, the story is surely apocryphal; it is also told about the budget reforms introduced in the mid-1960s by Fahd’s elder half-brother King Faisal. Even so, it illustrates an important point about Saudi rule: the monarchy may be absolute, but it does not rule in a vacuum. Saudi kings depend on the support of their tribal power base, and that support can be withdrawn.

When Nejd tribal leader Abdulaziz ibn Saud conquered the western Hejaz kingdom in the mid-1920s, he did so with the support of the Ikhwan, a religious organisation that knitted together the Nejd tribes into a force of considerable military prowess. Established as king, ibn Saud promptly turned around and crushed the Ikhwan with the help of the British, who were anxious that the movement should not export trouble to their client states in Transjordan and Iraq. Officially, the Ikhwan no longer exists in Saudi Arabia. Its military force was long ago subsumed within the National Guard. But tribal and religious loyalties are not so easily stamped out. It is an open secret that the Ikhwan survives in shadowy form among the Nejd tribes, and that its loyalty to the House of Saud is at best highly conditional, dependent on the continued payment of heavy financial subsidies.

And here’s the problem. Over the last three years the price of oil has fallen by 50 per cent, from more than US$100 per barrel to less than US$50. That decline has badly squeezed Saudi finances, pushing the government’s budget balance from a surplus equal to 30 per cent of gross domestic product (GDP) 10 years ago to a deficit forecast by the International Monetary Fund to hit 17 per cent of GDP this year.

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With the Saudi regime fighting an expensive war in its southern neighbour Yemen, propping up the Egyptian government of General Abdel Fattah el-Sisi and funding lavish welfare spending at home, questions are increasingly being asked about the sustainability of Saudi Arabia’s financial position.

Of course, Saudi Arabia has substantial accumulated wealth; the Saudi Arabian Monetary Authority is sitting on some US$500 billion in reserves. However, the government is burning through these fast. Its reserve pile has fallen from almost US$750 billion three years ago, a decline which helped prompt Riyadh to tap the international debt markets for the first time last year.

Suspicions are growing that if the oil price remains in the vicinity of US$50 or below, which it shows every sign of doing, something will have to give way. One option would be a devaluation of the Saudi riyal, which has been pegged at 3.75 to the US dollar for decades. A devaluation would push up the local currency value of Saudi Arabia’s oil revenues, allowing the government to maintain its domestic spending in riyal terms.

A similar policy worked in 2014 for the world’s largest oil producer, Russia. But Russia is far more able than Saudi Arabia to pursue import substitution. With Saudi Arabia heavily dependent on imports of food, especially grain imports, devaluation would sharply push up the local prices of staple foods. And Saudi Arabia’s rulers are well aware that it was rising food prices, as much as anything else, that triggered the unrest that led to the Arab spring of 2011.

Domestic spending cuts are equally unpalatable, especially in a country where half the population is aged under 25 and youth unemployment exceeds 30 per cent.

The Saudi royal family’s solution is to pin its hopes on the international capital markets and an extremely ambitious plan to diversify the domestic economy away from its reliance on oil production.

Next year, Riyadh hopes to begin the privatisation of state oil giant Saudi Aramco in what should be the world’s largest-ever stock offering, with the revenues to be invested in building new industries.

Whether the plan can work with oil at US$50 per barrel is doubtful. But for it to stand any chance of success, the Saudi government must persuade the world that it has the universal support of its own people, with negligible domestic discontent.

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This is why Riyadh is so aggrieved at Qatar. Sure, the Qatari emir’s willingness to talk to Saudi Arabia’s regional rival, Iran, is irritating, as are his attempts to build bridges to extremist organisations in Syria. But what really gets Riyadh’s goat is the refuge and succour Qatar has offered to some of the leading lights of the underground Ikhwan, as well as Doha’s support for the Muslim Brotherhood and Hamas, the loosely analogous organisations in Egypt and Palestine. The very last thing Riyadh is prepared to tolerate is a supposed ally backing anyone who looks likely to stir up political trouble within Saudi Arabia at a time of mounting economic stress. All of which goes a long way to explain the current rupture between Saudi Arabia and Qatar. While most analysis has focused on the international dimensions, at heart the split is a symptom of the Saudi government’s precarious political and economic position at home.

Tom Holland is a former SCMP staffer who has been writing about Asian affairs for more than 20 years