‘Nervous’ Saudis fret over leadership amid oil price turmoil
Government rolling out bigger budget, more spending on health care and education to calm fears
The Saudis are bracing themselves for a possible change in leadership as their 90-year-old king remains in hospital while the world’s largest oil exporter copes with crude prices that have lost 50 per cent of their value within the past six months.
King Abdullah bin Abdulaziz al-Saud has been suffering from pneumonia — he was admitted to hospital on New Year’s Eve — while his kingdom wages a battle for oil market share, flexes its financial, military and diplomatic muscle on regional fronts and struggles to appease a young domestic population that’s 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, D.C.-based Foundation for Defense of Democracies.
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 $50 US 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 six per cent 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 with the previous year, raising expenditures on health care, education and infrastructure, even as oil proceeds were expected to decline.
While Saudi Arabia can likely withstand a prolonged period of low oil prices given its $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 Persian 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.”