The King is dead

Long live the King!

King Abdullah bin Abdulaziz Al Saud dies. RIP. Ailing Crown Prince Salman bin Abdulaziz Al Saud takes over as the King of Saudi Arabia. Long Live the King!

His Highness Salman bin Abdul Aziz Al Saud, 79, has been the Governor for Riyadh for five decades, give or take. People speak well of him as managing “the delicate balance of clerical, tribal and princely interests that determine Saudi policy, while maintaining good relations with the West,” as notes Pakistan Today in a report on January 22, 2015.

If some people are holding their cumulative breaths for any monumental changes in the days to come, relax, breathe in and breathe out. Nothing is changing in a hurry. Some things will not. This includes a strong anti-Iran stance, a partnership with USA that is based on mutual security interests and its commitment to ensure a strong and stable oil market.

USA and Saudi Arabia go back a long way. Till 1945, to be exact, when the late King Abdullah’s father Abdulaziz bin Saud met with President Roosevelt and reached a mutually beneficial understanding of Saudi Arabia being the supplier of regular oil whereas the USA would ensure security for the Kingdom. An understanding that has weathered decades since.

Saudi Arabia is uncomfortable with USA’s recent overtures to Iran. Saudi Arabia may be fearful of an American administration that allows softening towards Iran’s nuclear programme. Of course Saudi Arabia would not want Shi’ite Iran go nuclear. Michael Crowley, writing for Times, says, “In recent months, the American approach to three regional hotspots – Iran, Syria and Egypt – has shaken the US-Saudi relationship to its core. Obama’s diplomacy with Tehran, the hated Shi’ite Muslim enemy of devoutly Sunni Saudi Arabia, has alarmed Riyadh no less than it has Jerusalem. Obama’s failure to follow through on his threat of military strikes on Syria last year inflamed worries about Washington’s willingness to use force in the region. And Saudi leaders deride Obama’s criticisms of the Egyptian generals who seized power last summer and are cracking down on their rivals. Throw in America’s growing energy independence, shrinking military budget and talk of a strategic shift toward Asia, and Saudi Arabia is wondering whether it can still rely on Washington’s longtime security guarantees or if it needs to form new alliances – and perhaps go nuclear itself.” (Published March 27, 2014)

The same article also shares, “The Saudis see Iran’s hand in stirring up the Shi’ites of Yemen and neighbouring Bahrain, where Saudi forces helped quash Arab Spring protests in 2011. A US diplomatic cable leaked in Obama’s first term revealed that as far back as April 2008, Abdullah implored American officials to launch a strike on Iran’s nuclear programme. Meanwhile, Saudi Arabia is one of the world’s top buyers of American arms. In late 2011, the US inked a $29.4 billion sale of F-15 fighters to the Kingdom, and last October – just as Saudi grousing about Obama’s Syria policy was peaking – the Pentagon announced an $11 billion deal to sell cruise missiles and bunker-buster bombs to the Saudis and the neighbouring United Arab Emirates. Those and other American-supplied arms, including Apache and Black Hawk helicopters, come with teams of US trainers and technicians who help keep the governments in close touch.”

In years to come Saudi Arabia will face many issues because times change and communications are fast, geographical barriers notwithstanding. These include greater female empowerment and job availability for young Saudis. According to a report in Al-Monitor, there are shortages of water, energy and housing that need to be dealt with in due course of time.

Saudi Arabia maintained the quantum of oil production in a hope that it will maintain its market share and it will be the high cost of oil producers in the west who will lose their market share as a result of falling oil prices. Resultantly, prices of oil have fallen drastically.

Saudi Arabia’s policy on oil is not likely to change in short term. On January 6, 2015, news flashed, “Saudi Arabia’s heir apparent Crown Prince Salman bin Abdulaziz said that his country would stay the course as it dealt with the “new developments” that had appeared on the oil market – an oblique reference to the recent price collapse.” (Argus News)

Saudi Arabia may stick to this course of action as a lesson taught to them by history. Back in early 1980s, prices of oil crashed. Saudi Arabia cut back on its production of oil in order to arrest the falling prices based on the theory of supply and demand. However, this did not happen and the prices still fell. What did happen then was that Saudi Arabia lost its market share to other oil producing nations. Understandably, Saudi Arabia would want to avoid making the same mistake again.

A report at CNBC states, “While the short-term plan is likely to attempt to hurt frackers, Iran and Russia via an over-supplied market, the longer-term implications are for oil supply policies that are more hostile towards western consumers. In addition, the appetite for bringing the proxy war to Iran and other Shi’ite factions in the region will rise, which will result in a return of the geopolitical risk premium in the years ahead.” (January 22, 2015)

Decisions on Saudi oil policy is made by a Supreme Petroleum Council. The Council is headed by the King and members comprise of ministers, leaders of the industry and members of the royal family. With a reported 46 per cent of Saudi Arabia’s GDP coming from oil revenue, any decision relating to the subject has to be made very, very seriously.

“I think (Salman) will continue with Abdullah’s reforms. He realises the importance of this. He’s not conservative in person but he values the opinion of the conservative constituency of the country,” said Jamal Khashoggi, head of a news channel owned by a Saudi prince, states Reuters. (Jan 23, 2015)