The Shifting Sands of Saudi Arabia

Since the discovery of oil in Saudi Arabia seventy nine years ago, the country has been synonymous with oil. But now the sands under which 16% of the global proven oil reserves lie are beginning to shift under the feet of its leaders.

Saudi Arabia is now embroiled in a crescent of conflicts involving Iran, Iraq, Syria, Yemen and now Qatar not to mention its uneasy relations with the United States and potential power struggle during the leadership succession.

The country’s oil and foreign policies are in shambles. Its misguided oil strategy of flooding the global oil market between 2014 and 2016 in defence of its market share, trying to damage Iran’s economy and slowing down if not killing US shale oil production inflicted huge damage on the Saudi economy and the economies of all oil-producing countries of the world. And its current foreign policy has led the country to crises from which it does not know how to extricate itself.

Crown Prince and Defence Minister Prince Mohammed bin Salman (the king’s son) and the real power behind the throne is gambling on winning US support for the transformation of the Kingdom’s strategic fortunes.

The commitment of some $200- $350 bn of investment in the United States and arms purchases agreed during the visit by US President Donald Trump to Riyadh on May 20, 2017 and aimed at winning back the US as an ally, is a high-risk gamble.

The United States has been milking Saudi Arabia’s oil wealth for ages under the pretext of being the country’s most important ally and protector. However, any Saudi investment in the US may be regarded politically as hostage capital.

Saudi investments in the United States could be at risk by the legislation passed by the US Senate on the 17th of May 2016 that would allow families of September 11 victims to sue the Saudi government for damages. It must next be taken up by the US House of representatives. If it became law it would remove the sovereign immunity, preventing lawsuits against countries whose citizens were found to be involved in the attacks. The minute one law case is launched by an American citizen against the Saudi government, all Saudi assets in the US will be frozen.

Moreover, the United States considers Egypt more significant, geopolitically, as an ally of Washington than Saudi Arabia, and the Trump Administration has gone to great lengths to woo it back as a US ally.

And to add to Saudi Arabia’s woes, its foreign currency reserves have declined from an estimated $743-billion in 2014 to $493-billion in June 2017 as a result of low oil prices.

Prince Mohammed’s other very big gamble is to transform the country’s giant oil company, Saudi Aramco, into a publicly-held corporation valued by the Saudis at $2 trillion as part of Saudi Vision 2030. The Initial Public Offering (IPO) hopes to sell only 5% of the company’s assets for $100-billion. However, in the absence of an independent auditing of Saudi proven oil reserves, international estimates value Saudi Aramco far less than $2 trillion.

During his visit to Saudi Arabia, president Trump made it clear that he is aligning US foreign policy with that of the Gulf Cooperation Council (GCC) countries regarding Iran. Trump describes Iran as a state that supports terrorism and which has not abandoned aspirations to build nuclear weapons.

In the aftermath of the visit, a sudden diplomatic crisis broke out in the Arabian Gulf on June 5, as a coalition of countries moved to isolate Qatar. The official justification was Qatar’s alleged support for terrorism and its ties with Iran.

Other than Oman and Dubai, Qatar has perhaps the closest relationship to Iran. Qatar and Iran cooperate over sharing the massive North Field/South Pars natural gas field, from which Qatar draws most of its natural gas exports and thus its immense wealth.

Then there is the Yemen conflict. Saudi Arabia’s involvement in Yemen was prompted by allegations that the Northern Yemeni tribes known as the Houthis who seized the Yemeni capital, Sanaa in 2011, were armed and supported by Iran. But the war, costing Riyadh tens of millions of dollars a day, has turned into a stalemate. However, it transpired later that the Houthis insurgent movement emerged independently of Iran.

After King Salman departs the scene, a power struggle within the royal family is likely. No one can say how intense or violent it might become, but the prospect of crisis comes at a time of rising tensions in the region and plummeting oil prices.

Political instability in Saudi Arabia is growing as King Salman continues to overhaul the Saudi government, appointing his sons into positions of influence. In a major reshuffle on Wednesday the 21st of June 2017, King Salman removed his nephew Crown Prince Mohammed bin Nayef as next-in-line to the throne and replaced him with his son Prince Mohammed. King Salman’s appointment of his other two sons, Prince Abdulaziz and Prince Khaled as Minister of State for Energy Affairs and Ambassador to the United States respectively, could be viewed as a direct move to increase the influence of the Salman branch of the Al Saud family tree.

Though opposition in Saudi Arabia is extremely quiet at present, the current situation could be the quiet before the storm. Internal unrest in Riyadh could start a bushfire which would be difficult to extinguish.

Moreover, the new royal succession reshuffle is viewed by some of the Saudi neighbours as a drive for Saudi hegemony in the region.

Meanwhile, the newly-appointed Crown Prince is also known to be extremely hawkish towards Iran. It is not really a question of if but rather when a new escalation with Iran starts. There is no way to predict how a confrontation between the two countries would play out, but it would certainly have an impact on the region’s stability and the security of the Strait of Hormuz through which 30% of the world’s tradeable oil passes each day.

For Saudi Arabia, the United States is part of the problem. For more than half a century, Saudi leaders appeased the United States by feeding its oil addiction, helping to finance American wars and buying billions of dollars in weaponry from US companies. Now the sand is beginning to shift under their feet.

Rather than putting all their trust in the United States, the Saudis should accept a multipolar world and build strong relations with China, the European Union and Russia rather than allying themselves solely with the United States

From Syria to Iraq and from Yemen to Qatar, one could not but notice a common denominator: Iran. Saudi-led GCC countries should have the confidence and far-sightedness to build bridges of trust and understanding with Iran. It is far more economical and beneficial and strategically desirable to talk to Iran rather than invite a potentially devastating war to the Gulf region. Such an approach could ease tensions in the Gulf region and indeed the whole Middle East and alleviate Saudi isolation and current problems.