Fear and hope grip king­dom af­ter night of the long knives

Sunday Independent (Ireland) - - WORLDWIDE - An­drew Critchlow is head of Energy News EMEA at S&P Global Platts © Tele­graph

An­drew Critchlow THERE is a sense of fear and hope in Saudi Ara­bia af­ter the ar­rests of dozens of princes and min­is­ters in an un­prece­dented cor­rup­tion crack­down.

It is hoped that the purge, which has been de­scribed as a “night of the long knives”, will sweep away the old guard of roy­als ac­cused of crony­ism and blamed for drain­ing wealth from the world’s largest oil pro­ducer.

But hand­ing a younger lead­er­ship free rein to push through broader eco­nomic and so­cial re­forms also brings with it gi­ant risks in the tra­di­tion­ally con­ser­va­tive king­dom.

For the bil­lion­aire roy­als and once pow­er­ful tech­nocrats cur­rently be­ing held in the lux­u­ri­ous tem­po­rary prison of Riyadh’s Ritz Carl­ton ho­tel, the fu­ture seems bleak.

Ac­cord­ing to the Saudi at­tor­ney gen­eral’s of­fice, more than 200 of­fi­cials were seized and ques­tioned last week­end. Those be­ing held in­clude mem­bers of the up­per ranks of the king­dom’s Al-Saud no­bil­ity. Their bank ac­counts were frozen as the state moved quickly to be­gin claw­ing back bil­lions it alleges have been si­phoned out of its cof­fers.

“Based on our in­ves­ti­ga­tions over the past three years, we es­ti­mate that at least $100bn has been mis­used through sys­tem­atic cor­rup­tion and em­bez­zle­ment over sev­eral decades,” said Sheikh Saud Al-Mo­jeb, the king­dom’s top pros­e­cu­tor.

More ar­rests are ex­pected and over­seas banks in the re­gion have been in­structed to freeze the ac­counts of many of those al­ready be­ing held.

Oil — the best barom­e­ter for sta­bil­ity in the world’s largest ex­porter of crude — jumped $2 fol­low­ing news of the ar­rests, to a new two-year high close to $65 per bar­rel as traders di­gested the un­fold­ing events.

Some an­a­lysts have ar­gued that the crack­down is part of Crown Prince Mo­hammed bin Sal­man’s plan to con­sol­i­date power be­fore he suc­ceeds his 81-year-old fa­ther who is ex­pected to ab­di­cate im­mi­nently.

The vig­or­ous 32-year-old prince — who is known by his ini­tials as sim­ply MbS — ousted his elder cousin Mo­hammed bin Nayef to be­come first in line to the Saudi throne in June. He has now seized con­trol of al­most all el­e­ments of gov­ern­ment from de­fence to oil pro­duc­tion pol­icy and the Mutawa re­li­gious po­lice.

But of the 11 high-rank­ing princes ar­rested, only Mitab bin Ab­dul­lah — who was si­mul­ta­ne­ously re­moved as head of the Na­tional Guard — posed a se­ri­ous po­lit­i­cal threat to the cur­rent line of suc­ces­sion. How­ever, their sudden in­car­cer­a­tion has ef- fec­tively ended any re­al­is­tic aspi­ra­tions any may have had to chal­lenge the new regime.

“This is about con­sol­i­dat­ing power under Mo­hammed bin Sal­man,” said one source.

The sudden na­ture of the ar­rests may cause con­cerns, along with Saudi Ara­bia’s poor record on hu­man rights, but a sus­tained top-down cam­paign to tackle sys­temic cor­rup­tion in the king­dom is prob­a­bly long over­due.

Scru­ti­n­is­ing the fi­nances of the army of Al-Saud princes and hang­ers-on could also help boost the pub­lic purse, which is still strug­gling to come to terms with lower oil prices. Fund­ing of the royal fam­ily has also be­come un­sus­tain­able in a coun­try that is be­ing forced to im­pose aus­ter­ity mea­sures.

MbS has time to steady the ship. The first major test of con­fi­dence in the new Saudi Ara­bia be­ing shaped will come in its plan to sell a stake in state oil driller Aramco. The world’s largest sin­gle pro­ducer of crude is big­ger than Exxon Mo­bil, Royal Dutch Shell and BP com­bined. How­ever, its plans to list a 5pc stake in the com­pany by the end of 2018 on an in­ter­na­tional stock ex­change have met with a cool re­sponse. The ini­tial pub­lic of­fer­ing — which is ex­pected to value the com­pany at $2 tril­lion — is the brain­child of Mo­hammed bin Sal­man.

The big­gest im­me­di­ate im­pact of the up­heaval in Saudi Ara­bia and the con­sol­i­da­tion of power under MbS could be on long-term oil prices and pol­icy. The prince has sig­nalled his wish to see the Or­gan­i­sa­tion of the Pe­tro­leum Ex­port­ing Coun­tries (Opec) ex­tend its agree­ment with Rus­sia and other major pro­duc­ers to limit out­put by 1.8m bar­rels per day. That deal has helped push crude prices closer to the $70 per bar­rel fig­ure that Saudi Ara­bia re­quires to bal­ance its bud­get and pursue its ex­pen­sive proxy war against Iran and its Houthi rebels in Ye­men.

Those higher prices will also be cru­cial to solv­ing some of the king­dom’s press­ing eco­nomic prob­lems. Plans to cut un­em­ploy­ment to around 7pc, from 12pc at present, will re­quire more fund­ing and pro­vide more op­por­tu­ni­ties for women to par­tic­i­pate in the work­place.

‘This is about con­sol­i­dat­ing power under Mo­hammed bin Sal­man’

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