ENERGY INTERNATIONAL RISK ASSESSMENT (EIRA)
AN INDEPENDENT MONTHLY REVIEW
November 2016
VOLUME 4
ISSUE 11
 
Saudi Arabia is racing against time

A new Finance Minister was designated in Saudi Arabia. Mohammed Al-Jadaan replaced Ibrahim Al-Assaf who was running that department for the last two decades. The new financial chief of the Kingdom is not a neophyte: since January 2015, he was the Chairman of the Capital Market Authority, or CMA, equal to a minister by rank, and before he was pursuing a lawyer’s career as partner in a law firm, Al-Jadaan & Partners.

The appointment was perceived as a new step in modernizing the Kingdom’s mechanism of governance launched by the Deputy Crown Prince, Mohammed bin Salman, the King’s Salman youngest son. The new Finance Minister would be in charge, together with the new Oil Minister, to put into practice ambitious economic reforms’ plan, known as the Saudi Vision 2030. It is supposed that his main task would be to manage and regulate the announced privatization of a small share of Aramco, the Saudi oil monopolist entity. The asset is considered to be the most valuable energy company in the world.

Privatization is regarded as the key element of the economic program initiated by Deputy Crown Prince and aimed at diversifying financial flows while decreasing dependence on oil revenues.

In mid-October, the first Saudi State bonds emission was a success raising $17.5 billion.

This move was due to falling oil prices and the poor shape of the Saudi budget burdened with the necessity to finance an unsuccessful war in neighboring Yemen and to cover less and less affordable internal expenses.

The nation’s gold and currency reserves have melted in 2 years from $732 billion to $562 billion. The International Monetary Fund announced that the Kingdom would need, until 2021, $390 billion in order to finance the investments programs.

Prince Mohammed bin Salman has started kind of a modernization program attempting to have the upper hand on all fronts, in the military field, foreign policy, and the economy too. He’s parting with the customs of the Royal family and is rumored to push aside the Crown Prince, his cousin Mohammed bin Nayef. However, the poor health of King Salman could interfere with these plans and bring things back to the previous status quo. If Deputy Crown Prince runs out of time in his bid to strengthen his positions as ‘heir apparent’, he could be demoted in the case of King’s death.

Currently, Saudi Arabia, the biggest oil producer in the world, is in a very delicate position and is facing hard choices. The Kingdom…

  1.      Is uncomfortable with the present oil prices having no more an unlimited cash-flow coming its way;
  2.      Is losing, at least, not winning wars in Yemen and in Syria.
  3.      Is ceding its previously dominant position to the main regional rival, Iran, including on the terrain in Iraq;
  4.      Is having political problems with Egypt, the most populated Sunnite Arab nation, where the military regime is attacked by Islamists and in response is countering religious extremism supported by Saudi clerics;
  5.      Has lost the unambiguous support of Turkey, which has started to play a different role in the region;
  6.      Has difficult relations with the US and Europe.

In that context, Riyadh has to take pragmatic decisions with the purpose of stabilizing oil prices, curtailing the offensive by Iran, and bring to an acceptable finale the unfinished wars in the neighborhood. An additional problem is to re-establish workable relationship with the new US Administration for years to come. It is hardly feasible that Saudi Arabia would abandon religion-driven diplomacy and would stop spreading Wahhabi Islam. However, today the House of Saud realizes the need to strike a deal with Russia to boost oil prices and find a compromise on the Syrian quagmire; bounce back to its former prominence in the region; and find accommodation with the more skeptical than ever Western nations.

The Kingdom will face an epic fail if it strives to achieve all these strategic goals without a significant overhaul of its internal and foreign policy priorities.

 

 

 

 

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