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Cyril Widdershoven

Cyril Widdershoven

Dr. Cyril Widdershoven is a long-time observer of the global energy market. Presently, he holds several advisory positions with international think tanks in the Middle…

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Middle East At Point Of No Return As Saudi-Qatar Rift Deepens

Saudi

Saudi King Salman’s decision to appoint his son Mohammed Bin Salman (MBS) as the new crown prince did not come as a surprise. For months, the power struggle between former crown prince Mohammed Bin Nayef (MBN) and MBS happened in plain sight, and a confrontation was imminent. However, King Salman made his own calculations and decided to remove MBN in favor of MBS, providing a continuation of his own family line in the future. Over the last week, the media has been overwhelmed with assessments of the House of Saud and the role MBS will play or has been playing. The family feuds in the House of Saud are notorious, whenever a king dies an internal power struggle will emerge, regardless of what strategies have been implemented before.

At present, the Young Prince of Riyadh, Mohammed Bin Salman, has been given the key to power. This has happened at a very difficult time for not only the Kingdom, but also for the whole Gulf region and its neighbors. The choice made by King Salman to promote his son is a remarkable one but could, from a Saudi perspective, be the only viable choice. The need for a 180 degree change in the economic and social policy which keeps Saudi Arabia a strategic regional player is essential. Without radical changes, such as those presented in Vision 2030 or the Aramco IPO project, the Kingdom’s future could be bleak, as the era for “Rentier States” is over.

The challenges MBS faces are enormous. Due to lower hydrocarbon revenues, he will need to change an oil-based economy into a more open, liberal and high-tech economy, capable of taking on global competition in these fields. By opening up the Kingdom via Vision 2030 and the expected billions of dollars from IPO revenues, this could become a reality, not a fata morgana.

A successful economic transformation and increased participation of Saudi youth (including women) could stabilize the Kingdom in the future. MBS relies on this economic transformation to silence opposition inside the House of Saud, as other princes are vying for the crown. While the Saudi leading ulema have pledged allegiance to the new crown prince, the reality remains complex.

Even though MBS holds vast powers and influence at present, the situation is far from stable. King Salman’s royal decree to extend the Eid al Fitr holidays by a week or the reinstatement of financial perks for the military and other government officials, should be assessed as a pay-off and cooling-down period to quell possible opposition.

At the same time, the region is at a point of no return if the Syria-Iran and Qatar issues are not solved soon. The Qatar–Saudi confrontation is still heating up, already threatening a regional conflict, with the possibility of bringing in Iran and Turkey at the same time. Mohammed bin Salman has already been able to tackle the Qatari issue inside of the Kingdom, as former crown prince Mohammed Bin Nayef openly criticized the Arab pressure on Qatar.

After the (perceived) removal from power of MBN, the new crown prince will be able to continue with his own regional strategies, which don’t lack some confrontational features as we have seen already. MBS will for sure up the pressure on Iran, not only in the Syrian proxy war but increasingly in Yemen. The intensifying operations by Houthis and others in the Bab Al Mandab, and a growing missile capability onshore, is not taken lightly by the Saudi military command and MBS. Last week’s terrorist act against a Saudi offshore oil field in the Gulf by Iranian (some indicated Qatari) assailants has only put new oil on the fire. Some could argue at present - without the possible mitigating political cloud of MBN - no real soft approach is being discussed in Riyadh.

MBS will pursue a hardline power strategy to block Iran, Syria’s leaders and Shi’a opposition, while trying to force all Sunni Arab states in the region to follow suit. According to Saudi analysts, one of the main reasons for the current Qatari conflict is the rapprochement with Iran and a growing military presence of Turkey on Qatari soil. Related: The World Is Millions Of Barrels Away From Peak Oil

At the same time, the rapprochement between Saudi Arabia and Egypt, as shown by the legalization of the two island deal (Sanafir and Tiran), is another major support for the current hardline position against Qatar. It seems that the Egyptian president and the two young wolves, MBS and Mohammed Bin Zayed (Abu Dhabi), are working well together. A new kind of power brokerage has emerged in the region, the period of traditional Arab politics (based on the Shura approach) is over. Arab regional politics in the 21st Century seems to have embedded Sun Tzu and Clausewitz, leaving no room for traditional pow-wows but only a political and economic Blitzkrieg, until now without diplomacy by other means (military).

On a totally different level, beyond his heavy hand in the Vision 2030 strategy and the defense strategy, MBS is also very well inclined and positioned to decide the coming Saudi strategy for OPEC’s production agreements. The blooming friendship between Russia’s Putin and MBS will strengthen in - the short term - the cooperation between OPEC’s leader and non-OPEC member Russia. Both have the same target, a stabilization of the oil and gas markets, not only to support their own economies, but also as a means to reinforce their military capability. Without a coordinated effort, oil and gas prices will be in limbo. MBS’s love for Putin is also based on the possibility of weakening the Moscow-Tehran cooperation, which is seen by Saudi Arabia and its allies as the main cause of instability in the region.

In stark contrast to former Saudi princes and kings, MBS seems to be able to understand the options of playing many cards at the same time. While putting on a charm offensive for U.S. president Trump, which seems to have worked without any flaws, Riyadh’s new crown prince is opening up to Moscow. A multibillion investment spree partly focused on oil and gas followed. Next to this, the Saudi market opened up for Russian companies such as Rosatom. The combined Russian-US technological push will support Saudi Vision 2030 and will also strengthen the Kingdom’s military power in the region. At the same time, Russian oil companies and technology institutes are preparing themselves for a major gold-rush in the Kingdom. Gazprom, Rosneft, Transneft and others are already booking their tickets to Riyadh and Dammam as the gates to oil and gas heaven have cracked open. A stronger Russia-Saudi oil and gas cooperation is in the offing, leaving less room for others to spoil the fun. Related: Goldman Sachs: Oil Crash Unlikely To Continue

How far the current power surge of the new crown prince will be successful is unclear. MBS is a young prince, even for European standards. If he would become king soon, it is possible that instability would hit the streets before too long. However, if he is able to force Qatar to its knees, removing the possible opposition in Doha and anti-Saudi/Egypt groups (Muslim Brotherhood), some room will be available to deal with the other issues. Looking at the signs in Arab media, a peaceful solution is still far from reachable. Arab leaders show an increasing reluctance to become soft with regards to Qatar. A possible unexpected move should be expected if the demands currently on the table are not met. A full military confrontation could ignite the region.

The latter could involve both Iran and, another major Sunni power, Turkey. Ankara’s ongoing support for Qatar’s political standpoints and support of the Muslim Brotherhood, is not taken lightly by MBS, Sisi and Mohammed Bin Zayed. Turkey’s ongoing cooperation with Russia (military) and Iran (economically) could lead to a confrontation with Saudi-UAE and Egypt in due course. The combination MBS and Sisi should not be underestimated, they are smelling blood already. Putin and Trump are currently sidelined by the ambitions of a young Saudi crown prince. Support for his economic dreams could however take some of the sharp (military) edges of his current strategies. All in all, MBS economic and societal changes are worthwhile to pursue.

Hopefully MBS’s ambitions are not standing in the way of progress. Stability is supportive to global oil and gas markets. Cooperation between OPEC and non-OPEC is needed, not only for financial gains but also to support a sustainable supply of oil and gas in the future. Military conflicts in the Gulf region or instability in Saudi Arabia would destroy this for a long time, without any real other solutions or supply options in the short term. A major disturbance of oil and gas (LNG) supplies from the Gulf could stymie global economic growth. The young prince is ambitious, but hopefully his shoulders are strong enough to bear all the global and regional pressure currently put upon him.

By Cyril Widdershoven for Oilprice.com

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Leave a comment
  • Bob on June 27 2017 said:
    Excellent article on the changing of the guard in Saudi Arabia and what it means. One question: As per Russia invite to the golden market in SA, isn't the price of admission severing the ties with Iran? If so, what's your estimate of the odds of Russia dropping its relations with Iran?
  • cyril widdershoven on June 28 2017 said:
    Bob, dont think the price of admission at present is already severing ties with Iran. However, for sure this has been part of the ongoing discussions between Riyadh and Moscow, but think that as MBS is playing a full deck of cards, the Russian chess master is not yet put in a corner. Putin will be assessing the situation for a while longer, as his stakes are also very high as Iran = Syria (military bases). Still Riyadh's move will be not giving Tehran a cosy feeling. If need more, get back to me via email

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