Saturday, January 9, 2016

A new Saudi Arabia is suddenly in a hurry in era of cheap oil

January 8, 2016


DUBAI — Saudi Arabia, one of the most tradition-bound societies on the planet, where family structure and tribal patriarchy differ little from a century ago, is suddenly in a hurry. It has done more in the past week than in most years.

Over eight days, it has executed dozens of militants, severed ties with Iran and announced numerous steps for a radical rollback of the state that may include privatising oil giant Saudi Aramco, among the world’s largest companies.

The flurry of action, a result of tumbling oil prices, shifting US interests and regional upheaval threatening rulers across the Middle East, appears to be the largely the work of Prince Mohammed bin Salman, the 30-something son of King Salman, in office less than a year. And while his ambition to modernise has drawn praise, some fear he is in over his head.

“The Saudis had a reputation of being kind of cautious, secretive,” said Mr Eckart Woertz, a senior researcher at Barcelona Centre for International Affairs. “Right now there are some concerns about rash decisions.”


Among 47 executions, many of which included convicted terrorists and which were strongly supported at home, was Nimr al-Nimr, a Shiite cleric and activist on behalf of the Shiite minority in the Sunni-ruled kingdom.

Protests erupted throughout the Shiite world, especially in Iran where a mob set the Saudi embassy on fire. The Saudi foreign ministry sent a text message to reporters in Riyadh on Sunday (Jan 3) calling a press conference 30 minutes later to announce it was cutting ties with Iran. It thus escalated years of verbal sparring between regional powers on opposing sides of wars in Yemen and Syria.

Alarms went off in the US and Europe, concerned that efforts to end those conflicts were set back. Some analysts noted, however, that the move was aimed partly at the US, that the new muscular Saudi style results from its feeling abandoned.

“The US is and remains their primary security patron,” Mr Reva Bhalla, a geopolitical analyst at the strategic advisory firm Stratfor in Austin, Texas, said by phone. But the Iran nuclear deal “meant Saudi Arabia would have to take more matters into its own hands, knowing they couldn’t rely on the US exclusively to back up their interests”.


Then came the next bombshell: Prince Mohammed’s announcement, in an interview with the Economist, that an initial public offering in Saudi Aramco may form part of the kingdom’s privatisation plans. A decision will be taken in the coming months, he said.

He called his plans a Thatcherite revolution, like the overhaul of the UK economy in the 1980s, saying private investors will be invited to play a bigger role in health care, education and some defense industries; state land will be sold off; and sales taxes introduced on consumer goods.

The new government is rapidly abandoning its old slow style, said Mr Saud Al Tamamy, a political theorist at King Saud University in Riyadh.

He noted the sudden change in gasoline, which cost pennies due to a government subsidy whose removal has been under discussion for decades. In a single day last week, a cut was announced and implemented, sending drivers speeding to gas stations and spurring a spate of company statements on how the change would affect them. In November, an annual fee on undeveloped urban land intended to transform the kingdom’s property market was approved by the cabinet after years of talks.


Pressure for change is coming from a budget deficit that reached 15 per cent of economic output last year, as oil fell by about two-thirds from mid-2014 levels. Saudi Arabia has dipped into its savings to cover the shortfall — reserves declined for 10 straight months through November, sometimes at an unprecedented pace.

Investors began to question whether the Saudis would be forced to devalue their currency, or make an about-turn at OPEC and sanction production cuts that would push oil prices back up. Saudi credit-default swaps spiked this week to the highest since the global slump of 2009, and riyal futures have weakened on speculation about the dollar peg.

Some wonder whether the economic changes will occur. A few weeks ago, Prince Mohammed made an unexpected announcement, telling a hastily assembled press conference that Saudi Arabia would head an Islamic military coalition of 34 nations to combat terrorism. Several of the countries knew nothing about it.

Meanwhile, war in Yemen — still largely under the control of the Shiite rebels the Saudis are fighting — is set to drain the same budget that the kingdom is seeking to shore up. And tensions over Yemen and Syria, now heightened by al-Nimr’s execution and the severance of ties, won’t help efforts to attract the cash that Prince Mohammed’s ambitious plans will require.


Prince Mohammed came to power with little experience, yet has titles that put him in control of the army, the oil industry and most other areas of the economy.

“We’ve seen fairly unprecedented consolidation of power in the hands of a fairly young prince,” said Ms Allison Wood, Middle East and North Africa analyst at Control Risks in Dubai.

The other leading figure among the younger generation of Saudi royals is Prince Mohammad bin Nayef, who as heir to the throne outranks the other Prince Mohammed Nayef is a longtime point-man for the US on counter-terror issues and is in charge of internal security. Primarily, that means the fight against al-Qaeda and Islamic State, which have sought recruits in the kingdom and carried out attacks there.

So far there’s been no public indication of disagreement between the kingdom’s two rising stars, though there have been mutterings of unrest among some more junior royals at the changes since King Abdullah’s death a year ago.


But opening up the economy in the ways proposed by the young prince may be anathema to Saudi conservatives. The kingdom’s clerics enjoy an exalted status in return for their backing against radical Islamists such as al-Qaeda who have challenged the Al Saud family’s legitimacy.

Bhalla of Stratfor said Prince Salman’s plans made her think of how other second-generation Middle Eastern leaders with big ideas for their economies lost their way — the potential succession of Egypt’s Hosni Mubarak by his son Gamal, the darling of business elites, was derailed by the Arab Spring; Bashar al-Assad promised to liberalise Syria and ended up leading it into civil war.

Prince Mohammed “comes off as a very westernized young leader, and maybe a little naive,” Mr Bhalla said. “Some people are going to feel very threatened.” 


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