Crown Prince Muhammad bin Salman's Palace Coup in Saudi Arabia Lombardi Letter 2017-11-13 23:46:30 Crown Prince Muhammad bin SalmanMbSPalace Coup in Saudi ArabiaSaudi ArabiaMuqrinRiyadhPresident Donald TrumpTrumpPrince Alwaleed bin TalalPrince Alwaleed There are justified suspicions that the arrests in Saudi Arabia are a preemptive measure to ease a power grab by Crown Prince Muhammad bin Salman (MbS). 2017,News,World Politics https://www.lombardiletter.com/wp-content/uploads/2017/11/mohammed-bin-salman-150x150.jpg

Crown Prince Muhammad bin Salman’s Palace Coup in Saudi Arabia

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It’s Not a Corruption Purge, But a Palace Coup in Saudi Arabia

The sudden and dramatic wave of arrests that Crown Prince Muhammad bin Salman (MbS) allegedly ordered on November 4 caught many by surprise. While MbS was not formally named as the instigator of the purge, the fact that he has just become the head of a new committee to tackle corruption leaves little doubt about who launched the arrests.

Observers have dubbed the arrests of the kingdom’s wealthiest princes and businessmen as part of the anti-corruption move that has been already called “Black Saturday for corruption and the corrupt.” (Source: “Saudi Arabia’s young prince tightens grip with lightning crackdown, Financial Times, November 5, 2017.)

All of the arrested businessmen and princes share an important characteristic; they have billions or millions of dollars in assets. And that’s just the assets in Saudi banks. Riyadh police arrested dozens among the Saudi Kingdom’s leading figures. Some of these are powerful princes, who wield political and financial power. A literal Who’s Who list of the most influential people in Saudi Arabia was affected. Others, like Bakr bin Laden (the last name should be familiar—he’s Osama’s brother), are powerful businessmen who’ve held longstanding ties to the al-Saud dynasty.

The arrests concerning many billionaires and multimillionaires were accompanied by the freezing of some 1,700 bank accounts. This raises few doubts about the motivation behind the purge and goes far beyond the declared goal of combating “corruption.” Certainly, in a related tweet, U.S. President Donald Trump shows that he’s not too surprised. More than that, he agrees with the plan.

But, in the language of Arab states, anti-corruption campaigns have typically accompanied more politically charged motivations. They often involve insider coups, as it happens. There has already been a coup of sorts in the Kingdom. Last June, King Salman—likely guided by the beneficiary of his actions—allegedly “prompted” Crown Prince bin Nayef to abdicate. He placed his son Mohammed bin Salman in that prestigious seat.

As it happens, it’s MbS himself who is leading the anti-corruption investigation. What are the chances that he will absolve those who have already been targeted? Indeed, the investigation is only starting. It has already spread beyond Saudi borders. United Arab Emirates (UAE) authorities are complying with Saudi demands to investigate Saudi bank accounts in that country. (Source: “Saudi Arabia’s corruption crackdown spreads beyond its borders,” Business Insider, November 9, 2017.)

There’s little doubt that corruption has long existed in Saudi Arabia. There are few countries that can claim not to have a corruption problem. After all, that’s why there are so many governmental and non-governmental agencies devising ways to either prevent or control it. But the overall context in which the probe is happening forces the analysis to go beyond the relatively narrow target of corruption.

The House of Saud Is Trying to Raise Funds for a Bigger Political Project

Mohammed bin Salman is no doubt consolidating his power over Saudi Arabia. He’s ambitious but appears to be sincere about modernizing Saudi Arabia—if for no other reason than because the Saud Royal family will collapse without major changes. Therefore, this is not just a power grab; there is a long-term logic behind it.

Mohammed bin salman

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At the heart of the problem is the fact that Saudi Arabia doesn’t have an income tax. MbS wants to reform his country. He has huge plans to build new cities, using the latest in so-called “green energy generation.” But oil profits have been suffering for the past few years. Salman has targeted the richest princes and is essentially extorting them out of a few billion dollars to make up some of the shortfalls in oil revenue.

But he may also be reaching a new kind of deal with them. They won’t be able to get away with amassing their fortunes as easily now. The Saudi purge, according to rumors, could generate $800.0 billion in additional revenue for Salman. (Source: “Saudi Arabia’s Corruption Crackdown Could Be Hugely Profitable for the Kingdom,” Fortune, November 8, 2017.)

Then there’s Salman’s “Vision 2030.” This is one of the key ideas through which to interpret the Saudi purge. It’s a massive project to reduce Saudi Arabia’s reliance on oil extraction—it currently holds about a fifth of world reserves. King Salman, who is 81 years old, is ever less involved in the decisions of the monarchy. MbS is now considered by many to be the country’s leader and has decided to put his foot down. I see it as a kind of a “palace coup,” like what happened in Qatar in 1995. It’s more of a blow to the old system than an anti-corruption “jihad.”

Justified Suspicion That the Arrests Are a Pre-Emptive Measure to Ease a Power Grab

The arrests were certainly “pre-emptive” because they happened suddenly. The new government anti-corruption commission was created just a few hours before the arrests were made. The abruptness of the arrest wave allowed no time for the princes and other figures caught in the net to leave. After all, many, if not all, have a wide range of properties, assets, and homes outside the Kingdom.

Prince bin Muqrin: His Helicopter May Not Have Crashed by “Accident”

Then there’s the issue of Prince bin Muqrin, who died in a helicopter crash near Yemen. The circumstances are already suspicious, recalling a famous Francis Ford Coppola movie about cosa nostra. At first, it was reported as an accident. But new reports claim that the helicopter was deliberately shot down by a Saudi air force jet. All of this happened just as the anti-corruption purges were being deployed. (Source: “Saudi Purge: Reports claim Prince Muqrin helicopter did not crash, was shot down,” India Today, November 9, 2017.)

There are rumors that Prince Muqrin did not support MbS’s virtual coup as Crown Prince. Well-informed rumors allude that the now deceased Muqrin sent a letter to some 1,000 princes—all of whom could have rightfully filled the role of Crown Prince. In it, Muqrin urged them to repudiate MbS’s takeover of the House of Saud. (Source: “Sources: Saudi prince’s helicopter was targeted by Bin Salman,” Middle East Monitor, November 8, 2017.)

There’s a twofold strategy at the heart of MbS’s purge. He is launching a major cash grab to make up for oil revenue shortfalls. But he’s also removing powerful figures who might get in the way as he tries to consolidate power over the world’s leading oil exporter. Perhaps there is a third aspect. The market’s perception of internal and regional political instability has raised the entire Middle East’s risk profile, especially in the Gulf. That tends to push oil prices higher; hopefully for MbS, not high enough to make North American shale competitive.

Prince bin Salman may be shaking up the Kingdom but he would not have launched this radical move without alerting Washington. MbS is keen on establishing the best of relations with President Trump. The Americans would also have had to be alerted because of their military presence in the Kingdom. But as much as MbS can buttress his gamble, the political and economic earthquake is massive. Saudi Arabia is still one of the world’s top oil producers and still invests heavily in the major global markets. The global financial community is no doubt worried. One of the arrests includes Prince Alwaleed bin Talal.

Through his Kingdom Holding Investment Company, he controls major positions in companies that are among the most active on Wall Street: Apple Inc. (NASDAQ:AAPL), Twitter Inc (NYSE:TWTR), Rupert Murdoch’s News Corporation, and Citigroup Inc (NYSE:C). While Alwaleed is a social reformer, he may have favored the old guard. Certainly, he may not have cared to contribute some of his personal wealth to make up for lost petrodollars. By the way, Alwaleed doesn’t like Trump and the feeling might be mutual.

The Context That Could Wreck MbS’s Plans

Salman is a gambler. He has been one of the leading actors in the push for the rather disastrous Saudi military and regional “remapping” campaigns. The Saudis have lost in Syria—and they’re moving in on Lebanon for a second go at stopping the Iranians. They miscalculated that Russia would not intervene. Russia intervened, and along with Iran, Hezbollah, and the Syrian army, were the most important actors in crushing ISIS and the other militants. Russia also managed the wider diplomatic framework to sustain Asad and the Iranians’ interests in Syria.

Salman has decided to play a complicated match. Seeing how he handled the previous situations in Syria and the truly disastrous Yemen, wiser gamblers than Salman will be hedging their bets because there is a greater risk that the Kingdom could implode now.

Prince MbS’s Purge and Saudi Aramco’s IPO

Certainly, it has something to do with Saudi Aramco. Among the arrested is Finance Minister Ibrahim al Assaf, who is part of the board of directors of Saudi Aramco oil company. No doubt Prince MbS understands that the market perception of Saudi Arabia now is that the Kingdom and the Middle East are in a precarious situation. Thus, they will have postponed whatever plans they had for an Aramco IPO until the storm is over.

Salman seems sure that he can control the situation, which could yet prove counterproductive if not fatal. Aramco is one of the keys to renewing the Kingdom. Its IPO is expected to generate some $100.0 billion, which, invested in its sovereign fund, represents a keystone of the Saudi Vision 2030 strategy. Donald Trump has urged Salman to choose Wall Street, or the New York Stock Exchange, to launch his IPO.

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