Saudi Arabia’s crown prince, Mohammad bin Salman (also known as MbS), surprised friend and enemy by locking up princes, ministers and some of the country’s richest businessmen in the country’s most comfortable prison, the Ritz-Carlton in Riyadh (according to Booking.com fully booked for the remainder of this year). One unfortunate businessman checked out of the Ritz only after paying a bill of USD 1 billion. The arrests reportedly form part of a new anti-corruption purge, although it has all the hallmarks of a political purge (Xi Jinping style) as well. Conveniently, one of the prisoners is a rival prince (Mutaib bin Abdullah). In another move, worthy of an episode in Game of Thrones, former crown prince Muhammad bin Nayef already was sidelined and kept under house arrest since June of this year. MbS effectively took control of the country’s security services by removing the head of the Saudi National Guard and he is heading the new anti-corruption commission himself, ensuring that the right people are chased (i.e. not his own cronies).
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The young and growing population (more than 50% is younger than 25 years) of the kingdom is frustrated by the corrupt clique that rules the country, so the purge is likely to be popular. Similarly, allowing women to drive a car is a political move to please the young crowd, even though this causes a rift with the powerful Wahhabi clerics. MbS bets that the majority of young Saudis want to see a change in how the country is governed and its richness is distributed. His Vision 2030 (drawn up by foreign consultants) to create much-needed jobs in non-oil sectors like tourism and defense (Saudi Arabia is the world’s third-largest spender on military kit) and his plan to construct a new city, Neom (to be staffed by robots in case Saudi’s youth by then still has not learned to work), are designed to reform the economy and draw political support. However, as we also mentioned in our blog “Desert Storm” in May of last year, executing grand plans is risky (for example, an USD 3.5 billion investment in Uber, the ride-hailing app, made in June of last year seems ill-timed). It is likely, in our view, that instead of princes other “entrepreneurs” will milk the kingdom. The Ritz itself, which reportedly costed USD 2 billion to build (including bribes), might serve as an useful warning signal. The shake-down of the Saudi elite without due legal process will make foreign investors more reluctant to invest in the country. An IPO of Saudi Aramco, the state oil company, seems a distant dream, given weak corporate governance; a face-saving private sale to the Chinese at a suboptimal price has become more likely by the day. MbS already had to backtrack on some of his cost cutting measures, including an overdue reduction of subsidies on water and energy and on cuts in salaries and benefits of overpaid civil servants. Failure to bring about economic reforms will be detrimental to the country’s financial future, with the fiscal deficit running at 9%, and to MbS’s durability.
MbS is as vigorous in respect of his foreign policy agenda as he is domestically. He seems obsessed about crushing Iran’s power in the region, willing to wage a dirty war in Yemen (using tactics that will make him eligible to a visit to The Hague), alienating former ally Qatar and interfering in Lebanese politics by forcing its prime minister to resign from his post whilst visiting Riyadh. He’s got the support from the U.S. government, itself not known for embracing sensible foreign policies under Donald Trump. But MbS needs a common enemy to forge reform in his own kingdom. Iran, an active and successful intrigant in the region, is playing that useful role. However, it is easy to imagine how such policy could get out of control (think of civil war in Lebanon, for example, with Hezbollah playing a lead role).
MbS has broken with the tradition of forging consensus within the royal family (often by handing out privileged access to government contracts). This probably is necessary to bring about the required economic change. But he increasingly seems to act as an authoritarian leader who is using anti-establishment populist rhetoric to get the buy-in from the country’s young population, for example, by allowing women to drive or to stage rock concerts. However, the (very welcome) watering down of Wahhabism might backfire if done too quickly and trigger onshore terrorist attacks. Bypassing the clergy historically has not been a very successful political strategy in the region as MbS’s archenemy Iran (then better known as Persia) can attest. Raising the Saudi-Irani conflict (Sunni versus Shia) is a very risky strategy, in our view. The economic reform plans are as grand as the Ritz but built on weak foundations. In our view, MbS should follow a more gradual approach, starting with developing the private sector, with a focus on reinvigorating SME instead of pursuing megalomanic high-tech projects, and establishing independent and fair rule of law (fighting corruption is a laudable goal but should go through the courts). His current chosen path risks ending up with the much-foretold downfall of the House of Al Saud.