Somewhere in the Arabian Desert, a Rolls-Royce rockets along the highway under a smuggler's moon. The driver is a Savile Row-suited ex patriate. By day, he teaches English. By night, he transports illegal consignments of alcohol from Bahrain into Saudi Arabia's capital city, Riyadh, through biblical sandstorms. The expatriate is found dead in his flat a week later.

This story of the eccentric Englishman who was a teacher by day and a smuggler by night is often told by expatriate teachers in Saudi Arabia as one of several cautionary tales about the dangers of living and working in the kingdom. William Sampson is another - a Canadian national who was wrongly arrested over a car bombing, imprisoned for two and a half years and sentenced to death, before being granted clemency. Five Britons and a Belgian were arrested at the same time over a spate of bomb blasts that the Saudis claimed was a result of rival western gangs involved in smuggling illegal alcohol. However, the most gruesome is the story of the decapitated body of the US expatriate Paul Johnson, discovered in a remote area of Riyadh a few days after he was kidnapped at a fake police checkpoint and beheaded on film.

Riyadh is honeycombed with black markets in pirated goods, arms and munitions, drugs and alcohol. There are more guns in neighbouring Yemen than there are people; most of these guns can be purchased openly at markets and then smuggled across the border. Kalashnikovs, grenades, rocket launchers are bought by Saudis for recreational use at their desert camps, where they also chase African ostriches and hoon around on muscular quad bikes. When a student drove me home from a camp recently, I was not surprised to see a loaded revolver in the glove compartment of his four-wheel-drive - most students have their own firearms, as evidenced by the number of ammunition shells I keep finding on the ground, and even in the classroom.

Did you know that the 11 September 2001 attacks didn't really happen? Yes - this is the view of a number of students in my advanced English communication class. I am shown a documentary which purports to show that the official explanations of 9/11 simply do not support the evidence of eyewitness accounts and film footage. Explanation? The CIA created an elaborate hoax as a pretext to start the "war on terror".

The Saudis are a very insular, suspicious people. Anyone who is not a member of their large tribal groups is suspect. The 9/11 hoax is one of a catalogue of conspiracy theories the Saudis entertain involving Saudi Arabia and the rest of the world. On the other hand, students relish viewing their own bootleg copies of Borat (banned in Saudi Arabia). They adore the character: that Sacha Baron Cohen is Jewish is unknown to them. The topics some students choose to give oral presentations about - Adolf Hitler, Viagra, conjoined twins and the Bermuda Triangle - are prompting me to indulge in my own conspiracy theories. "Saudi Arabia needs more terrorists," blundered another student. He meant tourists.

Pornography is not an urban myth in the kingdom: it is beamed into every home wired up for satellite television - including mine. While women in the kingdom are covered from head to toe in black, and images of women in conservative lifestyle magazines are blotted out by the censors' black markers, a galaxy of hardcore porn programmes is available on subscription. There are also dozens of free-to-air channels that promote phone sexlines. Pirated copies of Hollywood films featuring flesh scenes are, of course, available under the counter at video stores throughout the kingdom. And although the internet is officially censored, there are dozens of proxy websites circulated by students, which provide an anonymous, uncensored portal into everything on the web.

For those who know where to look, there are unlimited opportunities in the kingdom that let you take the step from illicit fantasy to reality. On a recent train journey to the east coast, my colleague and I encountered many truly hospitable and sociable Saudis. We were having our breakfast at Starbucks in the coastal town of al-Khobar when a Saudi gentleman offered us a ride along the Corniche beach in his four-wheel-drive. He introduced himself as a doctor at a military hospital. It wasn't until we were a few kilometres down the road that, from the back seat, I noticed the Saudi man's hand massaging the inner thigh of my anxious, per spiring friend sitting in the front passenger seat. Later, when I tried to explain to the Saudi man that my colleague was heterosexual, he was surprised: "Is he fasting?" He then suggested we all go swimming in the Arabian Gulf - naked.

While many compound-dwelling, western expatriates build and maintain small distilleries to produce their own home-brewed alcoholic drinks, including wine, I was invited to join the secret Single Malt Scotch Whisky Society of Riyadh. Every fortnight, a group of connoisseurs - foreign diplomats, British, US and Australian expatriate lawyers and bankers, senior government officials, prom inent businessmen and Saudi royalty - meet at an apartment in a western compound to consume dozens of bottles of the finest whisky in the world. Under a cloud of Cuban cigar smoke, interesting discussions develop - World Trade Organisation standards, the Gal ileo satellite navigation system, the looming introduction of new national Saudi identification card technology - before business cards are exchanged, secrets shared and deals made.

The eccentric Englishman who taught English by day and smuggled alcohol across the desert by night ended up dead because of his racketeering. Or did he? In Saudi Arabia, foreign nationals have been kidnapped at fake police checkpoints and British embassy staff investigated by Scotland Yard after the Saudis accused them of masterminding the bombing spree - and all the while, innocent men have languished in Saudi jails because western powers didn't want to jeopardise multibillion-dollar defence contracts.

There is no doubt that living in the kingdom is dangerous. There have been dozens of isolated, targeted killings of westerners in recent years - not including the 2003 Riyadh compound bombings that resulted in 35 casualties and more than 160 wounded (including Americans, Australians and Britons) in a single, co-ordinated attack on three residential compounds. Of the isolated murders, some people were killed in supermarket car parks, using cashpoints, shopping, sitting in their cars at traffic lights. Despite these events, thousands of western expatriates continue to live and work in the kingdom.

To leave, foreign nationals must obtain exit visas. The application process is weighed down by layers of bureaucratic officialdom. Many of the teachers at the college where I work are desperate to leave by the time annual holidays are due. They have endured stifling temperatures, which the government reportedly misrepresents to avoid declaring public holidays, and restrictions on a western lifestyle. The lucky few who know people of influence obtain their visas early and leave. The others, like the dispossessed European émigrés in the film Casablanca, wait and wait and wait.

Harry Nicolaides is an Australian writer teaching English in Riyadh