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In Saudi Arabia A Future King Makes A Grab For Power And Wealth In Effort Of Transformation

Saudi Arabian Crown Prince Mohammad bin Salman in 2017.

The Crown Prince of Saudi Arabia Mohammed bin Salman has moved for a second time in 2017, to consolidate his power. He ordered the arrest of many influential and wealthy members of society, including the removal of the chief from the National Guard. Later it was announced, the massive wealth of these individuals, was going to be confiscated as well.

In June of this year, the Crown Prince usurped his older cousin as heir apparent. He has since become an agent of change. He has begun to reign in the religious police and will soon allow women to drive and young Saudis to go to the cinema.

Despite these positive first steps, the Crown Prince still has shown little interest, in a more participatory type of government.

Although the Saudi government has promised a transparent judicial process in the prosecution of the detainees, details have not been provided. Nor have there been specific charges made, against those individuals, who are now in police custody.

The Crown Prince and his now 81 year old father King Salman bin Abdulaziz al-Saud, half-brother to the former king,came to power during a tumultuous time for Saudi Arabia. Oil prices were plummeting and the country was in dire financial straits in 2015.

King Salman bin Abdulaziz al-Saud

The national budget became impossible to balance. The pair had little choice, except to cut outlays and reduce major subsidies, for both energy and water. The reduction in government spending, brought growth in the kingdom to a halt.

Saudi Arabia had led OPEC (Organization of the Petroleum Exporting Countries) into a price war, that sent crude prices spiraling down. It was done in an effort to reduce the new competition that was arising, particularly in the oil shale sector.

The role of Saudi Arabia was crucial with crude reserves of 260 billion barrels, according to the Saudi government, which is near 25% of known world reserves. It has globally, the second largest reserves after Venezuela.

Saudi Arabian global energy exports

The kingdom also possesses the 5th largest reserves of natural gas in the world. The estimated value of their natural resources in total, is $34.4 trillion USD (United States Dollar). This is the third highest on a global level.

Meanwhile, production had been surging in North America. Output in Canada was on the upswing, due to the development of oil shale resources. In the United States, it was largely the result of a process known as fracking, which allowed American production to expand enormously.

Top 5 oil-producing states in the US.

Oil extraction in the United States in 2014, grew by 1.2 million barrels per day to 8.7 million. It was the largest one year increase, in at least 100 years. It was in fact, the biggest jump since record keeping began in 1900. It made the United States, the third largest crude oil producer globally, after Saudi Arabia and Russia.

That tacit has largely failed. There were a large number of American shale bankruptcies, mergers and reorganizations over the last couple of years, but the industry overall survived and has rebounded. Oil production is once again moving higher in the United States, negating much of the cuts initiated by OPEC.

American production now averages 9.2 million barrels a day and is due to rise to 9.9 million in 2018. The previous record of production in the United States, was 9.6 million set in 1970.

Next year, American oil output is expected to be equal to that of Saudi Arabia. Russian production has already surpassed Saudi output this year. Exports from the kingdom are at their lowest levels since 2014 and have already dipped below 7 million barrels per day. Yet, the kingdom remains the largest exporter of oil globally.

Riyadh, the capital and financial center of Saudi Arabia.

The Saudi economy at a nominal $707 billion GDP (Gross Domestic Product), dipped into a recession, beginning in 2017. It was the first time there had been negative growth, since after the global financial crisis, in 2010.

At present oil prices are still only 57% of their peak level of $112 USD from 2014.

In the name of fighting corruption, Crown Prince Mohammad bin Salman took into custody 11 princes, 4 ministers, and dozens of well known businessmen. Among them were some of the last possible rivals for power, in the royal succession that will take place soon.

The anti-corruption commission set up by the King that his son now chairs, has become the instrument in allowing the restructuring of Saudi political power. Many of the detainees have indeed been involved in questionable, if not corrupt dealings and transactions. For many of them, it has long been standard business practice.

Former King Abdullah bin Abdulaziz in 2007.

The most formidable potential adversary was Prince Miteb bin Abdullah, the former head of the National Guard. The 65 year old prince, was a favored son of the late King Abdullah,who died in 2015, at the age of 90. It was the last branch of the armed forces, not under control of the Crown Prince.

The police took into custody 3 of the 10 richest men in the Arab world in the first round of detainment.

Saudi authorities are already moving to freeze, the private accounts of hundreds of more citizens, that are suspected of ongoing corruption. It has been reported that a total of 1,800 accounts may have already been frozen.

Although many of these account owners have not yet been arrested, the inability of them to access their money, limits their available options. It will prevent many of them, from being able to leave the country.

Dammam No. 7, the first commercial oil well in Saudi Arabia, struck oil on March 4, 1938.

So many of these individuals are the very people who have forestalled the economic and societal reforms, from moving forward at a more rapid pace. According to the Crown Prince, this group on the whole, has sapped many of the incentives for entrepreneurship over the previous decades.

The Saudi economy is the largest in the Arab world. It has been dominated by numerous princes and a number of wealthy families, who have maintained control of the country, through the use of their contacts and business associations. This elite has precluded any real reform effort.

The largely closed financial system, has prevented additional foreign investment. A more open economy will become necessary, if the country is to wean itself off the financial addiction to oil.

The Crown Prince has stated, that he intends to transform the kingdom he will inherit. In order to achieve this, he will need the support of the 70% of the population, that is under 30. They comprise the generation of Saudis, who are hungering the most for change in a nation of more than 33 million.

Saudi Arabia crude oil production 1950-2012.

The proposed reforms in Saudi Arabia will be far easier, with some of the most influential people in the country under arrest. They will no longer be able to block the intended change, that the Crown Prince wants to bring about.

His stated wish is to modernize Saudi society, as he prepares the country to become financially and economically, less dependent on fossil fuel sales. He would also like to provide more job opportunities for young Saudis.

At present, 80% of the Saudi labor force of just over 12 million, is comprised of non-nationals. It would be a worrying statistic for any government.

Aramco National Oil Company Headquarters in Dhahran, Saudi Arabia.

Although there has been a recent surge in crude prices, due to rising geopolitical risks and growing global demand, international prices seem to have leveled off in the mid $60s USD.

In addition, agreed upon production cuts of 1.8 million barrels daily, agreed to OPEC and other world producers, is reducing revenues available to the kingdom.

To try to force crude prices higher, the Crown Prince has announced that beginning in December, Saudi Arabia will cut exports even further, to all regions where it presently has shipping contracts. Prices for these customers it is hoped, can gradually be raised to levels closer to those from 2013 and 2014.

Map of the Persian Gulf. The Gulf of Oman leads to the Arabian Sea.

The Crown Prince has little choice, but to make another attempt to boost oil prices higher. The country has only about 4 more years, at the current rate of deficit spending, before currency reserves will be exhausted.

The breakeven point for oil has fallen to near $70 USD for the kingdom at present government expenditure levels. This is a major reduction from the $96.60 that was needed in 2016.

Despite the new austerity, for political reasons the Saudi government felt compelled to reverse an earlier decision, to cut or freeze bonuses and allowances for state employees.

The breakeven price for the other Persian Gulf States of Iran, Iraq, Kuwait and Qatar is far lower at $58.90 USD. At present crude price levels, they will be able to balance their national budgets in 2018.

King Abdulaziz bin Abdul Rahman, founder of Saudi Arabia.

The 32 year old Crown Prince is abandoning the previous royal policy of working through consensus, begun by his grandfather Abdulaziz Al Saud. The latter was the founder of the dynasty and kingdom of Saudi Arabia, established in 1932.

Successive kings have maintained stability and power, by working with the thousands of princes, who are somehow related to the family of Saud. The balancing act has not always been easy, when opinions on religious matters, economic development, societal and tribal issues have been in wide variance.

What bonded the extended family and other influential members of society together, was the promise of being able to share in the enormous wealth, generated by the production and international sale of crude oil.

The drive for consensus, made societal progress slow in a kingdom, where the elites wanted to preserve their special political role and rights, to share in the money being generated by the extensive energy reserves.

Muhammad bin Nayef Al Saud

So to become the reformer of Saudi Arabia, the Crown Prince believes he must first become the autocrat, to force other arbitrators of power aside.

The future king is also attempting strengthen his position, by taking greater control over domestic security and the military. He became defense minister, when his father became king in 2015.

In June of this year, the interior minister Muhammad bin Nayef (a former crown prince himself), was fired and then placed under house arrest. Finally, earlier this month, the time came to take control of the National Guard.

These steps will in turn, allow the Crown Prince to have a far firmer stronger hand, in the formulation of Saudi foreign policy.

As Prince Mohammad bin Salman is tightening his grip in Saudi Arabia, he is furthermore promoting a far more aggressive stance, towards what he believes are the enemies of the country.

Saudi soldier from the First Airborne Brigade with an Emirati soldier in the Yemeni conflict.

He is largely in charge, of the 2 ½ year Saudi military effort in Yemen. The Yemeni Houthis are backed by Iran. The Crown Prince has decided that an Iranian backed government, on the Arabian peninsula, is totally unacceptable for the security of his kingdom.

It seems to be no mere coincidence, that the Saudis shot down a Houthis missile aimed at Riyadh, the very same day, the political crackdown was ordered by the Crown Prince.

In addition, the Crown Prince was an architect of the trade embargo against Qatar. He felt obligated to take this action, due to the compromising position Qatar had taken, in its relationship with Iran as well as its supposed support of Islamist groups.

The Shia Crescent. The numbers shows the percent of Shia in the population.

There are many Saudis and a number of international observers, that believe the more muscular foreign policy being practiced by the Crown Prince, will eventually lead to a general war against Iran.

This is a frightening prospect to some when considering, they will be confronting a militaristic neighbor like Iran, with more than 80 million inhabitants.

Iran is attempting to solidify its control of the Shiite Crescent. The Iranian theocracy through its control of militias in Iraq, Syria and Hezbollah in Lebanon, now have nominal control of a swath of territory, that stretches from the Persian Gulf to the Mediterranean Sea.

It is estimated that Iran has 100,000 fighters in Iraq alone. The country is being turned into a client state of Iran. This situation is making the Saudis far less militarily secure. The Crown Prince is attempting to mobilize other Sunni states, to oppose further Iranian expansion.

Domestically, Crown Prince Mohammed bin Salman is hoping to sell off a small portion (5%) of Aramco, the state owned oil company in 2018. He recently announced plans for a $500 billion USD new economic zone, that will be largely staffed through the use of robotics.

Standard of the Crown Prince Mohammad bin Salman.

Those elites remaining in power have been given notice, either support the reforms or they will face grave consequences. The authorities have already clamped down on any new political dissent towards the King or the Crown Prince.

This past September for example, police move to detained numerous critics, from Muslim clerics to self identified human rights activists.

Greater religious toleration within the confines of Islam, is now being promoted by the government, throughout all levels of society. The previous strict adherence to sharia law, is being allowed to lapse.  

If indeed, the Crown Prince decides to confiscate the holdings of all the detainees, it is estimated that could be as much as $800 billion USD, that will flow into the coffers of the government. This exorbitant amount, surpasses the annual GDP of the country

The proceeds will of course, help finance much of the economic reform program and tide the kingdom over the recent cash crunch. It will delay harsher cost savings being proposed by the government and take much of the sting out of austerity.

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