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Background: Saudi Arabia was formed in 1932 by King Abdel-Aziz al-Saud. The support of the clerics and the maintenance of a conservative interpretation of Sunni Islam (often unofficially known as Wahhabism, after a leading 18th century cleric, Mohammed ibn Abd al-Wahhab) are the traditional cornerstones of the Al Saud family's legitimacy. Since the beginning of large-scale oil production, the distribution of oil revenue has also become a key factor underpinning the Al Saud's maintenance of power. Saudi Arabia is the world's leading oil exporter, and has the largest proven crude oil reserves. Oil wealth has transformed the country's economy, although its politics and society remain highly conservative.

Political structure: Formally, the monarchy has absolute executive power, although the king's legislative ability is constrained by the need for any legislation to be compatible with Islamic law (usually interpreted according to the Hanbali school of Sunni Islam). Under the 1992 Basic Law, the Quran and the sunna (tradition) form the official constitution of the state, and in practice the king therefore requires support from the clerical establishment (the ulema). The king is also prime minister, and appoints the Council of Ministers. In addition, the king chairs the Supreme Economic Council, which advises ministers. The national Consultative Council has only a limited impact on decision-making. However, its influence could increase. Municipal councils are partly elected by male citizens. There are no political parties.

Policy issues: The government is expanding the country's oil and gas industry while also trying to diversify the economy by developing the non-oil sectors, including manufacturing and services. Although the state retains a dominant role in the economy, the government is seeking to foster the development of the private sector, particularly in services and utilities. Reducing the unemployment rate among Saudi nationals is a main priority, and the government imposes some quotas (which vary by sector) on the employment of expatriates, who nonetheless make up 88% of the private-sector workforce.

Taxation: Citizens and Saudi businesses pay no tax on income and are only liable for zakat (an Islamic tax) of 2.5% of net worth. Non-Saudi businesses are subject to corporation tax up to a maximum of 20% (with the exception of profits in the hydrocarbons sector, which are taxed on a sliding scale between 30% and 85%). There is no value-added tax.

Foreign trade: Higher oil prices and output pushed the trade surplus up to US$123.3bn in 2005, and the overall current-account surplus reached US$87.1bn, or 27.6% of GDP. Average oil output fell from 9.5m barrels/day (b/d) in 2005 to 9.2m b/d in 2006, but higher international oil prices more than offset the negative impact on oil export revenue.