Saudi Arabia gets back to basics

The Arabian Peninsula’s largest state, both in land mass and population, the Kingdom of Saudi Arabia faces some of the region’s largest challenges in the year ahead.

While 2018 started out with a foreign policy success – the US pulling out of the nuclear deal with rival Iran – the months that followed have left the country in a damaged condition going into 2019.

A draining conflict in neighboring Yemen, the continuing fallout from the murder of Washington Post columnist Jamal Khashoggi, the suspected kidnapping of the Lebanese prime minister, a stalemate in the Qatar blockade, and defeat for Saudi-funded opposition factions in Syria all made 2018 a bruising year for the country – and for its 33-year-old crown prince and effective CEO, Mohammed bin Salman (popularly known as MBS).

These overseas issues have also left MBS’s domestic reform agenda stalled, with a need to shore up support at home, as he tries to restart a long-overdue restructuring of the highly oil-dependent economy.

Politics

After the 2016 launch of an ambitious domestic reform agenda, Vision 2030, MBS imprisoned some of the country’s wealthiest people in the Ritz-Carlton hotel in 2017. This made him some silent enemies amongst the kingdom’s elite.

His father, the ailing, 83-year-old King Salman, has played an important role in keeping potential rivals under control, taking his son on a tour of the country to shore up support for his agenda.

The king’s December 27 cabinet reshuffle also helped bolster MBS, with the appointment of more allies to key posts.

Next year will likely see King Salman continue this role, as far as his health allows.

Meanwhile, MBS’s moves to allow women to drive, open cinemas, and permit concerts have been popular amongst ordinary Saudis. Other less flashy reforms include allowing women to open their own businesses without the permission of a male family member, a major chip at the enduring guardianship system. 

“MBS has attracted a lot of support for these social changes,” Ali Jaffery, an economist with MENA Associates, told Asia Times. “I don’t think we’ll see a pause in this side of things, going forward. Indeed, theaters and concerts are absolutely packed, every night. His strongest card is in this type of reform.”

These social outlets, however, have come in tandem with an overarching crackdown on free speech and a smear campaign against activists, including against respected voices who have never challenged the monarchical system.

A group of women’s rights activists was imprisoned in 2018, exactly one month before MBS lifted the ban on women driving. There, they allegedly endured torture and sexual abuse, according to leaked testimony given to an internal human rights body. The activists remain in prison, suggesting that the crackdowns on dissent are likely to continue into 2019.

Strategy and diplomacy

While MBS was able to rely on unwavering support from the White House in 2018, the flipping of the House of Representatives to Democratic party control and bipartisan animosity toward Saudi Arabia after the Khashoggi murder place a question mark over US support going forward.

The Senate in December passed two resolutions aimed at the US-Saudi alliance, one invoking the War Powers Act to demand an end to American support for the Saudi-led war in Yemen, and another assigning blame to the Saudi crown prince for the murder of Khashoggi. The rebuke against the intervention in Yemen, long staved off by key Saudi allies in the Senate, gained new traction after the brazen killing of the well-connected columnist inside the kingdom’s consulate in Istanbul and the subsequent coverup.

Meanwhile, there may also be a general step back from overseas ventures. The kingdom may well join its strongest regional ally, the UAE, and vassal state, Bahrain, in restoring its embassy presence in Assad’s Syria, ending its backing for opposition forces, while also supporting UN efforts to end the war in Yemen.

“Saudi Arabia has been blown off course in recent times,” Kristian Coates-Ulrichsen, fellow for the Middle East at Rice University’s Baker Institute, told Asia Times. “It needs to return to the domestic agenda.”

The December cabinet reshuffle reflected this, with Ibrahim al-Assaf, a former finance minister and sovereign wealth fund boss briefly detained during the Ritz-Carlton roundup, replacing Adel al-Jubeir as foreign minister. This gives a greater economic and investment focus to the job.

Strong links between MBS and the UAE’s effective ruler, Crown Prince Mohammed bin Zayed, are likely to continue, however, keeping these two countries close in the year ahead.

Economy

The widely boycotted “Davos in the Desert” investment conference in Riyadh in October signaled the kingdom was going back to basics in its economic plans. Most of the key deals were in the petroleum sector, struck between Total and Aramco, and many of the event headliners, such as Pakistani Prime Minister Imran Khan, were there thanks to checkbook diplomacy. 

It was a far cry from the diversification promised by MBS the year before. The futuristic NEOM project remains a dream. While recent years of low oil prices have underscored the importance of diversification, the kingdom continues to rely heavily on oil revenues to fund jobs for its growing population and cradle-to-grave subsidies.

“They had no idea how to carry the Vision out in 2016 and they still don’t,” said one regional economist who refused to be named due to the sensitivity of the subject.

Diversification requires attracting more foreign investment, while radically changing the balance between public and private sector and oil versus non-oil activity. Yet, after moves such as the Ritz-Carlton detentions, investors have been extra cautious, while threats to subsidies risk stoking domestic discontent.

To head off the latter, the 2019 budget proposes more government spending. Yet, to fund this, “the government seems to be relying on the optimistic assumption that oil prices will rise to almost $80 per barrel,” Jason Tuvey, senior emerging markets economist with Capital Economics, told Asia Times.

Currently, they are at around $53 a barrel. “While there may be some fiscal loosening in the first half of next year, we think that austerity will probably resume in the second half of 2019.”

Markets

The Saudi authorities are hoping that a planned production cut by oil producers in early 2019 will push oil prices up again. Yet, recent times have demonstrated increased volatility in the oil market, with factors such as US shale oil production placing a cap on price rises.

The oil market has long been dominated by the Organization for Petroleum Exporting Countries (OPEC), which, in turn, has long been strongly influenced by Saudi Arabia. Yet, with OPEC now having to strike deals with Russia in order to influence prices, this market is also changing. Another sign of this was Qatar’s decision to leave OPEC in late 2018, while anti-cartel moves by the US in the coming year may also have an important impact on the future of the organization – and Saudi Arabia.

US President Donald Trump has regularly employed his Twitter account to castigate Saudi Arabia when he believed the oil price was too high. The Saudi crown prince, having tied his fortune to the Trump administration, will work to maintain that alliance while looking for a wider relationship with Moscow in the New Year.