Saudi Arabia: Into the unknown
The crown prince’s domestic and regional policies are taking the kingdom along several new and uncharted paths
It's time to take the reference books off the shelf and rip out the pages on Saudi Arabia. They're all out of date. The changes over recent weeks—Crown Prince Mohammed bin Salman's consolidation of power and the arrests of hundreds of people on corruption charges—have taken the kingdom past the point where the traditional structures and symbols of Saudi leadership can be seen any more. The kingdom of Saudi Arabia is becoming more akin to a modern authoritarian republic than an old-fashioned Gulf monarchy.
Against the backdrop of what in Saudi terms represents a leadership revolution it's easy to overlook the fact that another cataclysmic change is on the cards: the initial public offering of 5% of Saudi Aramco, the bedrock of the kingdom's vast energy sector. Beyond oil and gas, for many decades this vast state company has been the provider of vitality and guarantor of efficiency for a range of economic and social projects. Way back in 1949, American writer and traveller Kermit Roosevelt remarked on the "valuable contribution Aramco has made in encouraging local initiative and industry".
The prospect of outsiders taking a share of the company is hard for some Aramco diehards to accept. More unsettling for the kingdom as a whole is uncertainty over where and when the IPO will take place. As with the recent mass arrests, and promises of social and economic reform—not to mention the alarming prospect of increased taxation—no one is quite sure where things are going.
As far as the IPO is concerned, the official word is that everything is proceeding as planned. "We are on track in 2018," the crown prince told Reuters recently. "But the listing is still under discussion." And that's the point. It's all rumour and speculation. The company's chief executive, Amin Nasser, wouldn't even take questions on the IPO in a recent interview with Petroleum Economist. London has been lobbying hard to host the offering. So has New York, with Donald Trump's support. "Would very much appreciate Saudi Arabia doing their IPO of Aramco with the New York Stock Exchange," the US president tweeted. "Important to the United States!"
But New York is by no means a certainty because of the Justice Against Sponsors of Terrorism Act, and the possibility of legal action against Saudi Arabia related to the 9/11 attacks. There are suggestions, too, that the IPO might be postponed to 2019 or even that the 5% will be sold privately, perhaps to China. No one knows what China's president Xi Jinping said to King Salman when the two men spoke on the phone on 16 November. But it's a fair bet that Aramco was on the agenda.
Even if the where, when and how issues are settled, there are still outstanding matters. Questions pertain to the value of Aramco and the nature of the company. Is it really worth the $2 trillion that Mohammed bin Salman suggested? Is Aramco really prepared to open up all its books for inspection? And is investment in an oil company such a wise move in an era of energy transition? The Saudi leadership must surely be pondering the significance of Norway's sovereign wealth fund—the world's biggest—proposing to pull its assets out of oil and gas companies to make them "less vulnerable to a permanent drop in oil and gas prices".
This clear signal that Norway can spy the end of the oil era on the horizon will underline the urgency of Saudi Arabia's desire to end its own dependence on oil income—with the IPO and the package of reforms contained in Vision 2030 at the core of the initiative. This, in turn, brings the subject back to the recent arrests and the campaign against corruption.
The crown prince's view is that the radical changes urgently needed to restructure the foundations of the Saudi economy before oil income runs out couldn't have happened under the old, consensual style of leadership. Nor could a forceful campaign against those syphoning off state funds. From Mohammed bin Salman's perspective, tackling corruption is as important as eliminating individuals who might seek to sabotage the mission he's set for himself. Princes, he's made perfectly clear, can expect the same treatment as commoners.
Ali Shihabi, a Saudi and founder of Washington-based think tank Arabia Foundation, articulated the crown prince's views in a recent blog. The unprecedented arrest of senior members of Al Saud, he wrote, "while clearly authoritarian and also populist in nature, is necessary to bring about the type of social and economic transformation the kingdom needs to restructure the social contract between the throne and the people".
Shihabi acknowledged that the actions were risky, "but when comprehensive reform is required to safeguard the kingdom's post-petroleum future, and when the status quo (with, at best, a glacial approach to reform) threatens the country's present, decisive action is not only preferable to inaction, but also far less risky".
The detention of prominent Saudis on corruption charges shocked the kingdom's population. It was meant to. The move was also widely applauded. It was, as Shihabi said, a populist measure. For young people in particular, with scant employment prospects, there was satisfaction seeing some of those who had creamed off the kingdom's wealth being locked up. But it's not just the young, many older Saudis-business people, members of the consultative Shura Council-agree that something needed to be done to root out corruption.
Aloof from the family
This isn't to say that the transition to authoritarian rule will be without difficulties. Mohammed bin Salman's actions, even before the arrests, made him enemies. The relentless stripping away of the authority of former crown prince and interior minister Mohammed bin Naif, the wholesale bundling of the political, energy and economic reins of power into the royal court-the king's young son didn't care whose toes he trod on. But despite having antagonised hundreds of Saudis, a challenge to Mohammed bin Salman's power from inside the royal family while his father is alive is out of the question. Even after that it's hard to think how a prince or princes could stand up to a leader who has isolated himself from the traditional family institutions.
One major worry for the king-to-be is time. The war in Yemen continues to bleed money from the state purse, as do a range of costly public projects. Foreign-currency reserves have crashed to $470bn, from $0.740 trillion in 2014, and the economy is in poor shape. Even if oil prices remain in the $60-a-barrel range, economists reckon the crown prince has only a three-to-four-year window to turn things around. If, by then, the promise of more jobs and more houses hasn't been fulfilled and the taxation burden has significantly increased, the story could be different.
At that point, disgruntled princes and their extended families who've lost money and influence in publicly humiliating ways might find common cause with an increasingly disaffected public. It will be clear by then, too, that the price for widely applauded reforms like the curbs placed on the power of the religious establishment and the go-ahead for women driving is a tighter control on personal political freedom. Mohammed bin Salman favours social and economic reform, definitely not political liberalisation.
Another worry should be about investor confidence. From being a quiet and dependable kingdom, keeping its hands out of regional crises, Saudi Arabia now throws up surprises by the day. Aside from the domestic upheavals of recent weeks and the war in Yemen, the kingdom's blockade of Qatar and the increasingly bellicose tone of public comments about Iran do nothing to reassure firms that might be considering investing in Vision 2030 ventures. In short, the future of the kingdom is changing fast, in an uncertain and unpredictable way. Which is why the old reference books are now redundant.