Tag Archives: Saudi Arabia

The End of the Mindless Self-Indulgence: the Gulf States

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Algeria needs the price of Brent crude, an international benchmark for oil, to rise to $157 dollars a barrel. Oman needs it to hit $87. No Arab oil producer, save tiny Qatar, can balance its books at the current price, around $40 (summer 2020)….The world’s economies are moving away from fossil fuels. Oversupply and the increasing competitiveness of cleaner energy sources mean that oil may stay cheap for the foreseeable future. 

Arab leaders knew that sky-high oil prices would not last for ever. Four years ago Muhammad bin Salman, the de facto ruler of Saudi Arabia, produced a plan called “Vision 2030” that aimed to wean his economy off oil. Many of his neighbours have their own versions. But “2030 has become 2020…” 

Still, some see an upside to the upheaval in oil-producing states. The countries of the Gulf produce the world’s cheapest oil, so they stand to gain market share if prices remain low. As expats flee, locals could take their jobs…

Remittances from energy-rich states are a lifeline for the entire region. More than 2.5m Egyptians, equal to almost 3% of that country’s population, work in Arab countries that export a lot of oil. Numbers are larger still for other countries: 5% from Lebanon and Jordan, 9% from the Palestinian territories. The money they send back makes up a sizeable chunk of the economies of their homelands. As oil revenue falls, so too will remittances. There will be fewer jobs for foreigners and smaller pay packets for those who do find work. This will upend the social contract in states that have relied on emigration to soak up jobless citizens….With fewer opportunities in the oil-producing states, many graduates may no longer emigrate. But their home countries cannot provide a good life. Doctors in Egypt earn as little as 3,000 pounds ($185) a month, a fraction of what they make in Saudi Arabia or Kuwait. A glut of unemployed graduates is a recipe for social unrest…

For four decades America has followed the “Carter Doctrine”, which held that it would use military force to maintain the free flow of oil through the Persian Gulf. Under President Donald Trump, though, the doctrine has started to fray. When Iranian-made cruise missiles and drones slammed into Saudi oil facilities in September 2019, America barely blinked. The Patriot missile-defence batteries it deployed to the kingdom weeks later have already been withdrawn. Outside the Gulf Mr Trump has been even less engaged, all but ignoring the chaos in Libya, where Russia, Turkey and the UAE (to name but a few) are vying for control.

A Middle East less central to the world’s energy supplies will be a Middle East less important to America. ..As Arab states become poorer, the nature of their relationship with China may change. This is already happening in Iran, where American sanctions have choked off oil revenue. Officials are discussing a long-term investment deal that could see Chinese firms develop everything from ports to telecoms… Falling oil revenue could force this model on Arab states—and perhaps complicate what remains of their relations with America.

Excerpts from The Arab World: Twilight of the Petrostates, Economist, July  18, 2020

Will Saudi Arabia Own the United States?

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In the coronavirus pandemic’s financial fallout, Saudi Arabia’s $300 billion sovereign-wealth fund has emerged as one of the world’s biggest bargain hunters, taking minority stakes worth billions of dollars in American corporations.  Saudi Arabia’s Public Investment Fund  (PIF)  in the first quarter of 2020 bought shares valued at about half a billion dollars each in Facebook, Walt Disney,  Marriott International,  and Cisco Systems.  The fund bought financial stocks, investing $522 million in Citigroup, and $488 million in Bank of America while also spending $714 million on a stake in Boeing…Crown Prince Mohammed bin Salman, the kingdom’s day-to-day ruler, tasked the sovereign-wealth fund in 2015 with diversifying the country’s economy away from oil by investing in companies and industries untethered to hydrocarbons.

PIF’s recent buying spree highlights a bold strategy of piling into global stocks even as the novel coronavirus and a crash in oil prices mean that Saudi Arabia’s financial position is now the most precarious in a decade. The Saudi government in May 2020 tripled its value-added tax rate and cut subsidies to state employees as it contends with lower oil revenue and an economy weakening under coronavirus lockdown.

Many of the stocks that PIF has targeted are trading at historic lows, bruised by the fallout from the coronavirus and rock-bottom oil prices that have battered stocks of energy companies in 2020. Teh PIF bought in 2020 undisclosed stakes in a bevy of energy companies, including Equinor (Norway), Royal Dutch Shell, Total (France) and Eni (France). The PIF invested $484 million in Shell, $222 million in Total and previously unreported stakes of $828 million in BP $481 million in Suncor Energy and $408 million in Canadian Natural Resources.

It also purchased shares valued at roughly $80 million each in: Warren Buffett’s Berkshire Hathaway; chipmakers Broadcom and Qualcom ; IBM; drugmaker Pfizer;  Starbucks; railroad company Union Pacific; outsourcer Automatic Data Processing; and Booking.com….On top of the stakes in public companies, PIF is also awaiting regulatory approval for a roughly £300 million ($363 million) buyout of U.K. Premier League soccer team Newcastle United.

Excerpts from Rory Jones and Summer Said, Saudi Sovereign-Wealth Fund Buys Stakes in Facebook, Boeing, Cisco Systems, WSJ, May 18, 2020

The Secret Powers of Saudi Arabia — Murder not Included

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In 2016 Muhammad bin Salman, Saudi Arabia’s crown prince and de facto ruler, announced the latest stage of “Saudisation”—the replacement of foreign workers with Saudi ones. It now appears the policy does not stop at swapping out bankers and bakers, but extends to ballistic missiles.  Satellite photos analysed by researchers from the Middlebury Institute of International Studies, and reported by the Washington Post, appear to show that Saudi Arabia has been building a factory for rocket engines, at an existing missile base in al-Watah, south-west of Riyadh. It seems to be configured for solid-fuel rockets, which can be launched more quickly than liquid-fuelled ones….he rocket factory was “designed, equipped and constructed by an outside entity”. Saudi Arabia has “no capacity” for such a project. The facility, he notes, closely resembles a Chinese one in Lantian.

Saudi Arabia is no newcomer to missiles. Having watched Iran and Iraq fling them at each other during the 1980s, it bought a few dozen df-3 missiles from China in 1987. It came close to unleashing them after being struck by Iraqi Scud missiles during the Gulf war in 1991. In the 2000s it probably picked up a batch of newer, more accurate Chinese df-21s.

Iran, the kingdom’s arch-rival, has been honing its missile force despite Western opposition and un rebukes, conducting 135 test launches since 1990. On December 1st, 2018  it tested one thought capable of comfortably reaching any corner of Saudi soil….Nor is Iran the only concern. Hizbullah, a Lebanese militant group nurtured and armed by Iran, has a growing arsenal of missiles; some can already reach the north-western parts of Saudi Arabia. Israel is also armed to the teeth. Though Prince Muhammad is on good terms with the Jewish state, satellite images published in 2013 reportedly showed that one of the Saudi df-3 launching pads at al-Watah was set in the direction of Tel Aviv.

Because missiles are ideal delivery systems for nuclear weapons, news of the plant has also revived worries about Saudi Arabia’s atomic intentions…Without a doubt if Iran developed a nuclear bomb,” warned Prince Muhammad last March, “we will follow suit

So the Saudis may turn to other nuclear friends. Western diplomats and spooks have long been concerned that Pakistan, whose own nuclear programme was bankrolled by Saudi Arabia, might be a ready supplier of know-how, fuel or bombs. In 1999 Saudi Arabia’s then defence minister horrified American officials by touring Pakistan’s nuclear facilities and meeting A.Q. Khan, the scientist who sold nuclear technology to North Korea, Iran and Libya. Ties remain close. Prince Muhammad was due to agree on $14bn of investment in Pakistan during a visit to the country on February 16th.  2019. ….

Excerpts from Protection rocket Saudi Arabia’s missile race, Economist, Feb. 16, 2019