Crown prince Muhammad bin Salman (universally known as MbS) affirmed his reputation of being an autocratic rascal after his regime ordered the killing of Jamal Khashoggi. Mr. Khashoggi, a Saudi journalist, self-exiled in the U.S. and writing for the Washington Post, was chopped up within 7 minutes whilst visiting his country’s embassy in Istanbul. Turkey’s president, Recep Tayyip Erdoğan, smelling an excellent opportunity to display his fondness for press freedom, volunteered to investigate the killing. This investigation revealed that a team of 18 Saudi agents had flown into Istanbul to torture and kill the unfortunate journalist. Encouraged by a suggestion from Donald Trump, Riyadh initially denied it had anything to do with Mr. Khashoggi’s disappearance and then claimed that he was killed by accident and his death covered up by rogue operatives. The latest news from Riyadh is that the killing was premeditated without disclosing who approved the plan (anybody but MbS, we guess). Surely, Mr. Erdoğan most likely will not find any evidence linking MbS to the crime, so that he can cash in on this story.

Can we chop CNN as well, please…?

Timing of the killing was a bit unfortunate as it preceded a high-profile investment conference, the so-called Future Investment Initiative (otherwise known as “Davos in the desert”). CEOs of large banks and corporates, led by British business guru Richard Branson, deserted in droves, afraid of being seen as too close to the savage ruler of the Saudi Kingdom. However, to make sure they would not lose out on any business, minnows were ordered to attend instead. Not entirely without risk as the conference was held in the Ritz-Carlton hotel which at times doubles as a prison.

The global outrage apparently came as a surprise to MbS, as killing a critical journalist should be small beer compared to the other atrocities committed by his regime. Beheadings by sword are common (146 people in 2017, according to Human Rights Watch) and in some cases are followed by crucifixions, where the dead body is neatly displayed on a pole for everybody to see. As recent as last August, Saudi prosecutors were seeking the death sentence for 5 human rights activists. An even bigger atrocity is perpetrated by Saudi Arabia in Yemen as indiscriminate airstrikes on vehicles, hospitals and schools kill civilians by the dozens. The UN estimates that the civilian casualty toll exceeds 15,000 (killed or injured) and 8 million Yemenis, a third of the country’s population, are at risk of famine (about 2 million people are displaced by the conflict). Sir Richard, looking for an US$ 1 billion capital injection in his galactic venture from the Saudis, apparently was unaware of all this, or maybe he didn’t care…

Donald Trump, BFF of the young crown prince, realized he was drifting into quicksand to defend MbS and abruptly changed track, calling the murder “the worst cover-up in history”. The big question now is whether sanctions will follow. It is especially interesting to see what the British government will decide to do: the extraterritorial murder of Khashoggi resembles that of Sergei Skripal, allegedly poisoned (though still alive) by Russian operatives. Best bet is that sanctions, if imposed, will not bite as financial interests of both the U.S. and Britain outweigh this bothersome murder. Mr. Trump may see his wish for higher oil production by the Saudis become reality (in exchange for maintaining BFF status) and both countries are likely to continue their profitable weapon sales to the country, despite the horrible carnage that it causes in Yemen.

The Khashoggi affair demonstrates the lack of rule of law in the Kingdom. International investors now may think twice about allocating money to Saudi projects (they weren’t doing much outside the oil sector in the first place). This could hamper the transition towards non-oil growth as was promised by MbS in his Vision 2030 reform plan. Real GDP growth is sluggish at 2% per annum and this year’s fiscal deficit is projected at -4.5%, despite much friendlier oil price levels. Unemployment remains high (about 25% for the country’s youth). Productivity and competitiveness is low. The only export from Saudi Arabia, other than oil, seems to be Islamic fundamentalism (to Indonesia, for example). In any case, we remain very skeptical about Vision 2030. High-profile projects, like building a new high-tech city (Neom, at a cost of US$ 500 billion) and developing tourism (think of penguins in the desert), seem rather risky and offer excellent rip-off opportunities for investment banks and construction companies. The sale of a stake in Saudi Aramco, the state’s oil company, remains a distant dream, given the desired price tag of US$ 2 trillion. Instead, the oil giant bought Sabic, a petrochemical company, to provide cash to PIF, the country’s sovereign wealth fund. The money is spent by PIF on highly risky investments, like Uber and Tesla (as well as Lucid, a competitor, just in case). We fail to see how this strategy creates jobs for Saudi’s youth (assuming they actually do want to work). The funds could be better used by developing the private sector with a focus on reinvigorating SME, in our view.

Lonely Planet’s next tourist hotspot…?

King Salman may scratch his head and regret his decision to promote MbS as crown prince instead of the more rational and cautious Muhammad bin Nayef. But we don’t think that MbS will be demoted as for now he is still popular with young citizens that make up two-thirds of the country’s population for reversing some of the country’s illiberal policies (e.g. allowing women to drive and cinemas to open). However, some foreign friends of the robed crown price are likely to desert him…