King Abdullah Bin Abdulaziz Al-Saud was admitted to hospital on New Year’s Eve suffering from pneumonia, while Saudi Arabia wages a battle for oil market share, flexes its financial, military and diplomatic muscle on regional fronts, and struggles to appease a young population increasingly demanding more of its hereditary monarchy.
“The Saudis are nervous about a possible leadership transition given what’s going on in oil markets,” says David Weinberg, senior fellow at Washington-based Foundation for Defense of Democracies.
You cannot be blind to the tensions in the global oil markets
On Tuesday, Crown Prince Salman bin Abdulaziz Al Saud, who is expected to succeed the king, gave a speech on his behalf at the start of a new session of the legislature, outlining the challenges facing the kingdom.
“This meeting comes in extremely sensitive and delicate international and regional conditions,” according to a text of the speech, which focused on reassuring Saudis that their economic interests will be safeguarded despite the plunge in oil prices.
“You cannot be blind to the tensions in the global oil markets… these are not new developments and we have dealt with it in the past with a firm will and wisdom… and we will deal with the new developments in the same vein,” the Prince said in a separate speech on state television.
Brent crude prices dropped below US$50 per barrel on Tuesday, as eight of the world’s 10 largest producers maintain their output. The Tadawul, the benchmark Saudi equity market index, fell 6.5% on the day the king was admitted to the hospital, adding to the negative tone as domestic investors worried about the kingdom’s economy.
“Oil prices are now at levels that cause real concern on the streets of Saudi Arabia, with the prospect of succession the icing on top that has caused retail investors to take the [Saudi] market down another leg,” according to Emad Mostaque, strategist at emerging markets consultancy Ecstrat.
To assuage fears, the Saudi government announced a higher budget for 2015 compared to the previous year, raising expenditures on healthcare, education and infrastructure, even as oil proceeds were expected to decline.
But Prince Al Waleed bin Talal, a member of the royal family, who has stakes in Twitter Inc. and Apple Inc., criticized the government’s decision to raise spending when the country’s biggest export was facing price pressures.
“The big fear, or let’s say the big disaster, is that the ministry will continue withdrawing from the state financial reserves until they are totally depleted as was the case long time ago, when we were forced to borrow from abroad,” Al Waleed said in a letter earlier this week, which was also sent to Crown Prince Salman and other senior officials.
While Saudi Arabia can likely withstand a prolonged period of low oil prices, given its US$750-billion in reserves, markets are more worried about changes at the top in the House of Saud.
Rumours abound about the Crown Prince’s health, ranging from age-related dementia to chronic ill-health.
“He vanishes from the public eye from time to time, but he also went on a massive Asia tour last year so he clearly has some capacity to work, travel and have meetings,” says Fiona O’Brien, editor at London-based Gulf States Newsletter, which tracks the Gulf states’ political issues. “He has had a spinal surgery in 2010 and has had some health issues. There are definitely rumours all the time about his mental capacity.”
I’d be interested for your solid evidence of his incapacity
However, others dismiss the suggestion: “I’ve not met a single person who can testify to that [the Prince’s incoherence] first hand or give a concrete example — I’d be interested for your solid evidence of his incapacity,” says Robert Lacey, who wrote ‘The Kingdom: Arabia and the House of Sa’ud,’ a best-selling book on Saudi Arabia, and met the prince as recently as four years ago.
The appointment of Prince Salman — known to be hard-working disciplinarian — as King would bring the so-called Sudairi faction back to power. The Sudairi Seven are children of Saudi founder King Abdulaziz with his influential wife Hassa al Sudairi, and wield immense political power within the large royal family. The brotherly alliance has already produced a king and three crown princes, and its members often run the crucial ministries of defence and interior.
Helima Croft, head of commodity strategy at RBC Capital Markets LLC, believes Prince Salman’s rise to power “could lead to some policy shifts despite the purported consensus-driven nature of the Saudi decision-making process.”
Crown Prince’s son Prince Abdulaziz is an assistant minister for petroleum affairs, and was reportedly not supportive of Saudi Arabia’s decision to maintain output.
AP Photo/ Saudi Press Agency)
AP Photo/ Saudi Press Agency)Saudi Arabia’s Crown Prince Salman arrives for a session at the Shura Council in Riyadh, Saudi Arabia to make an annual televised speech on Tuesday, Jan. 6 that is traditionally given by the 90-year-old King Abdullah, who is in the hospital.
A recent cabinet shake-up saw oil minister Ali Al Naimi retain his position in a sign that King Abdullah was still calling the shots. However, Crown Prince Salman’s ascension to the throne may see his son eventually bring in a new oil minister.
To ensure continuity and stability, the king appointed the 69-year-old Muqrin bin Abdulaziz Al-Saud — the last surviving son of founder Ibn Saud — as the deputy crown prince in February 2013, effectively laying out a longer-term succession path.
If King Abdullah has his way, he will probably want Crown Prince Muqrin to replace him, says Simon Henderson, director of Gulf and Energy Policy Program at The Washington Institute for Near East Policy. “But there would be royal family opposition to pushing Salman to one side.”
Prince Muqrin’s appointment itself was not without its difficulties, with only three-quarters of the senior princes approving his nomination, signalling that some influential Saudis are questioning the succession line.
“It is only natural that international markets would be nervous towards instability in Saudi Arabia, and speculating about to change in Saudi oil policy at a time when Saudis themselves are deeply uncertain about the path of the country’s leadership,” said Mr. Weinberg.
And even as international markets fret over the current uncertainty, there are bigger question marks over the next generation of leaders from Riyadh.
“As the crown princes get older, there is going to be an appointment at some point of one of the juniors and their jostling for position could potentially create some tensions; and bringing in younger blood could see changes in one direction or another,” Ms. O’Brien said.
