Brunei Grapples With New Oil Realities

Why you should care

Because the sultanate must navigate a future of low energy prices, high unemployment and increasing Chinese influence.

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Geo facts & figures

The sultan of Brunei marked his golden jubilee last year in a gilded chariot hauled by dozens of subjects — with pretty much the same amount of pomp and ceremony as when he celebrated his silver jubilee a quarter of a century earlier. Nevertheless, a new theme has recently emerged in this tiny, oil-rich Southeast Asian state: moderation.

The 71-year-old Hassanal Bolkiah’s authority appears as strong as ever, but his nation has been buffeted by bigger global trends. The plunge in world energy prices, Chinese expansionism and a younger generation’s restlessness have chipped away at the old model of oil-fueled consumption and welfarism — presenting the world’s longest-ruling absolute monarch with a puzzle.

“The oil prices have been a real wake-up call,” says Mustafa Izzuddin, a fellow at Singapore’s ISEAS-Yusof Ishak Institute. “There are certain pressing issues they have to address. They are not going to collapse anytime soon — [but] their natural resources are being depleted.”

The financial squeeze and rising youth unemployment have added urgency to slow-burning efforts to wean people off state money.

The sultan looms larger than ever in a nation where he has had complete control since independence from Britain in 1984. Giant images of him gaze out from four neighboring towers in the small waterside downtown of the capital, Bandar Seri Begawan. Brunei has been in a state of emergency since a failed uprising against his father in 1962.

But the nation, made up of two enclaves on Malaysian Borneo, has also become a microcosm of the trouble faced by oil-dependent states the world over as crude prices have more than halved from 2012 highs. The International Monetary Fund estimates oil and gas revenues in the sultanate fell by three-quarters in the four years to 2015–16.

The price collapse has complicated Brunei’s ability to keep a friendly but arm’s-length relationship with Beijing, whose vast territorial claims in the South China Sea include some of the sultanate’s oil-producing waters. Brunei’s wealth has historically allowed it to avoid the economic dependence on China experienced by some other states in the region.

“They [the Chinese] come and say: ‘We will build you a city!’” says one government official. “And we say: ‘But we don’t want a city.’”

Now, Chinese investment has begun to grow, with projects including bridges, a spice export factory and a $3.5 billion petrochemical plant. One venture is highly strategic: Guangxi Beibu Gulf Port this year came in as a partner to operate the sultanate’s largest container terminal as part of China’s Belt and Road project to build infrastructure across Asia.

The oil price also threatens Brunei’s social contract, to which authorities have forestalled opposition with subsidies for housing, health care and consumer goods. A liter of car fuel can cost less than the same amount of water.

But the younger generation already knows it will not be getting pensions like one retired teacher’s B$5,000 ($3,650) a month. Public spending is being quietly trimmed, and more cuts are expected. “A lot of projects are being canceled,” says one businessman. “I’m not looking forward to the next few years.”

The financial squeeze and rising youth unemployment have added urgency to slow-burning efforts to wean people off state money. At a recruitment event last summer, tradespeople from carpenters to pipeline painters demonstrated their work. Hazim Samsulbahrin, a 19-year-old welder, laid aside his blowtorch to explain how younger people needed to overcome their aversion to manual jobs. “They have no choice,” he says. “If they want to earn money, they have to go for this change.”

Authorities are making parallel efforts to diversify the economy by promoting entrepreneurship and industries such as ecotourism, but these are still in their infancy. Asked whether oil money has held back economic development and made people less hungry to work, energy minister Mohammad Yasmin Umar replied: “Definitely … this is the error of the $100 oil price.”

The more pinched times also mean the royal family can ill afford more scandals like the one that enveloped the sultan’s younger brother. Prince Jefri Bolkiah denied claims by Brunei authorities that he misappropriated billions of dollars from the Brunei Investment Agency he headed for 15 years until 1998. The case was eventually settled and the prince rehabilitated, but allegations of debauchery and lavish living that emerged from lawsuits in London and elsewhere tarnished the royal family’s reputation.

In recent years, Brunei’s rulers have taken the country in a more avowedly Islamic direction, spawning other problems. A plan to introduce harsh punishments including amputation and stoning to death appears to have been put on ice after protests in the West, including a consumer boycott of the Brunei-owned Dorchester Collection hotel group that includes the Beverly Hills Hotel.

It all adds up to a very different world from the one that confronted the young sultan when he took power in the then British protectorate of Brunei in 1967. The next few months are a test of whether the ruling family and the wider population are willing to adapt to changed realities — or whether the lure of the old model of endless oil wealth will prove too strong.

“We will ride it out until the next boom,” says one young professional. “And then everything will be all right again.”

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By Michael Peel

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