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Saudi Arabia’s New Deal With The US: Averting Implosion?

Trump bin Saud

Saudi Arabia’s de facto head of government, Deputy Crown Prince and Defense Minister Prince Mohammed bin Salman bin ‘Abd al-’Aziz al Sa’ud, has gambled the survival of the House of Sa’ud on winning US support for the transformation of the Kingdom’s strategic fortunes.

The commitment of some $200- to $350-billion in investment in, and purchases from the United States — including some $110-million of defense procurement over 10 years outlined during the visit by US Pres. Donald Trump to Riyadh on May 20, 2017 — was made during the visit by the Deputy Crown Prince (the King’s son, often referred to as “MBS”) to Washington on March 17, 2017. Trump White House sources had been unimpressed with the young Prince, who had engineered the Kingdom’s highly-expensive military intervention into Yemen, but were willing to accept his offer.

The essence of the deal which Prince Mohammed reportedly felt that he made was that the US would help extricate the Kingdom from its strategic impasse with Iran, from its war with Yemen, and from the reality that — absent the US — Saudi Arabia had no major power ally on which it could rely. Its attempts to switch allegiance to Russia were rebuffed, given Moscow’s clear understanding that its strategic necessity has always been to control the Northern Tier states of Iran and Turkey. The People’s Republic of China (PRC) had determined similarly.

And Egypt, which had fallen out with Saudi Arabia, was also clearly more significant, geopolitically, as an ally to Washington than Saudi Arabia, and the incoming Trump Administration had gone to great lengths to woo it back as a US ally. Saudi Arabia, in effect, was becoming isolated at the same time that it was running gradually out of funds. Even the slight recovery of oil prices in 2016 did not halt the slide in Saudi foreign exchange reserves, which were constantly being depleted by the war in Yemen and Saudi engagement in the conflicts in Iraq and Syria. At the same time, the Kingdom faced increasing pressure for economic reforms which would alleviate pressures from the bulk of the Saudi population — which is predominantly non-Saudi — for better incomes and conditions.

Saudi foreign currency reserves reached a high of $797-billion in 2014, and had declined to $536-billion in December 2016, and then down to $523.8-billion in January 2017. Thus, the commitment of some $200- billion to win back the US as an ally can be described as a high-risk gamble. Some $110-billion in defense acquisitions from the US were outlined in the Riyadh meeting.

Prince Mohammed’s other very big gamble is to transform its oil and gas company, Saudi Aramco, into a publicly-held corporation valued at $2-trillion (the Initial Public Offering hoped to sell only five percent of the company, for $200-billion). International estimates, however, value Aramco as much as 80 percent less than the $2-trillion the Kingdom claimed. Related: Russia’s Economy Minister: Russia Can Live Forever At $40 Oil

So, at a burn rate of more than $100-billion a year from its foreign exchange reserves, due to deficit budgets to fund the wars and the social demands, the Kingdom faces an imminent crisis. Dep. Crown Prince Mohammed — in his additional capacity as Chairman of the Council of Economic and Development Affairs — is keenly aware of this, which is why, apart from regional military adventures, he launched Saudi Arabia’s Vision 2030 in 2016, designed, among other things, to give the Kingdom a balanced budget by 2020.

Budget expenditures were to be reduced 71 percent to achieve this goal — presumably separate from defense expenditure — with anticipated social repercussions. Capital expenditure would fall to $20.6-billion (75.8-billion riyals) in 2017, compared with $70.2-billion (263.7-billion riyals) in 2015. In FY 2014, Saudi capital spending was $98.6-billion (370-billion riyals).

On May 2, 2017, Prince Mohammed declared an end to Saudi military ambitions in Yemen, noting that the Kingdom-led Coalition (particularly built around the Saudi- United Arab Emirates core force) had relinquished its plans to escalate the war in Yemen. He told al-Arabiya television that plans to escalate the war would result in unacceptable casualties on both sides. Plans to seize and occupy the northern Yemeni port city, Hodeida, would now, apparently, be abandoned. And yet the Saudi-led attempts to quarantine Yemen from the sea would apparently continue, presumably with the assistance of the US Navy. [The US has, since the conflict began in 2015, consistently supplied non-kinetic support to the war, in the form of the maritime blockade and aerial refueling, and the provision of ordnance.]

Prince Mohammed’s commitment to provide $200-billion in various forms of investment in, or purchases from, the US was only part of the program to re-engage the US. He promised to deliver the Islamic world into a new relationship with the US, and the Trump visit to Riyadh — accompanied by the key leadership from Washington — was part of the Arab-Islamic-American Summit held in Riyadh which Pres. Trump addressed on May 21, 2017. But at that summit, Pres. Trump also met privately again with Egyptian Pres. Abdul Fatah al-Sisi to confirm the strength of the US-Egypt bilateral relationship and to commit to a Trump visit to Cairo. He also met privately with, among others, King Hamad bin Isa al-Khalifa of Bahrain. Related: Clash Between Qatar And The Saudis Could Threaten OPEC Deal

But the major defense deals which Riyadh announced with the US were also designed to be a centerpiece of the Vision 2030 program, not just as defense hardware acquisitions per se, but as the start of a Saudi commitment to creating a viable defense industrial base in the Kingdom, to make the country self-sufficient in national security terms by 2030 as well as an exporter of defense technology. The real question of the validity of this — as with the similar defense industrial program of Turkey — is whether this is viable in a country which lacks a balanced and growing general economy.

There is little evidence that the Trump Administration has bothered to determine the viability of the Saudi defense, strategic, or economic plans built around Vision 2030. Or even that it cares. This was a deal which Washington could not refuse because it put the US “back in the game” in the region. Questions arise, including what this means for US-Turkish relations. Can Washington now “let go” of Turkey? Will that be a next step? Will Washington be able to avoid becoming embroiled in the Yemen conflict, other than just maintaining a quarantine of it?


The US expression about deferring important decisions — kicking the can down the road — out of political expedience is à propos. Have Saudi Arabia’s problems been eased or worsened by the deals?

By Gregory Copley via Defense and Foreign Affairs Special Analysis

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Leave a comment
  • Bob on June 05 2017 said:
    An interesting and intriguing article. It would also be interesting to see your view on the new split between the Saudi and Qatar.
  • Mike on June 05 2017 said:
    Good article. Both Saudi Arabia and the US are the creators of terrorism and they both know that. Their common goal, along with Israel, is the total destruction of the Middle East.

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