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Wed Sep 13, 2017, 05:28 AM

The Saudi Trillions: the new Crown Prince, UAE influence, and Aramco, the world's largest IPO

But the last few months have seen a series of changes in the kingdom that make its future more unpredictable than ever. At the beginning of June, Saudi Arabia severed diplomatic ties with its neighbour Qatar, demanding that its al-Jazeera network be shut down for broadcasting propaganda and launching a regional stand-off that is far from being resolved. Then, two weeks later, there was what appeared to be a palace coup. Since the death in 1953 of the modern kingdom’s founder, Abd al-Aziz Al Saud (generally known as Ibn Saud), succession has passed down the line of his sons. The present king, Salman, reportedly Ibn Saud’s 25th son, inherited the throne in 2015 on the death of his half-brother Abdullah and is close to being the last of his generation. At 81 Salman is in fragile health: he has had two strokes and suffers from Alzheimer’s. On 21 June the doting king promoted his favourite son, the 31-year-old Prince Mohammed bin Salman (widely known by the initials MBS), to the position of crown prince, putting him in line to be the first of the third generation – Ibn Saud’s grandsons – to occupy the throne. According to the New York Times, MBS’s elevation at the expense of his older cousin, Crown Prince Muhammad bin Nayef (known as MBN), was the result of a well-executed plot. MBN had been highly regarded by the US and its allies: as head of the interior ministry and chief of Saudi intelligence he presided over operations against al-Qaida in the Arabian Peninsula (AQAP); he had attended training sessions with the FBI and was a powerful advocate of continued close relations with the Americans. In February the CIA honoured him with the George Tenet medal, in recognition of his ‘excellent intelligence performance in the domain of counterterrorism and his unbounded contribution to realise world security and peace’.
While not dismissing the claims about his health, at least one foreign diplomat and a well-placed Saudi source suggested that MBN had opposed the Saudi-led embargo on Qatar, and that this was the real reason for his fall. As in early modern Europe, palace politics in Arabia and the Gulf are not driven just by private ambitions but reflect wider geopolitical struggles. MBS is said to be close to his mentor Muhammad bin Zayed, crown prince of Abu Dhabi and deputy commander of the armed forces of the United Arab Emirates, the region’s most effective – and most interventionist – military power. Recent Emirati successes include taking the ports of Mukalla and Shihr in southern Yemen from AQAP, as well as two strategic islands in the Bab al-Mandab strait between Arabia and Africa, through which tankers carrying four million barrels of oil pass each day. Bin Zayed is thought to be the driving force behind the UAE-Saudi rivalry with Qatar which MBN was resisting. As one commentator tweeted after the coup, ‘bin Zayed has become the real ruler of Egypt and Saudi Arabia, the two largest Arab countries. Congratulations to the people of these two countries …’
Last year MBS – by then already in charge of economic policy – announced plans to implement ‘Vision 2030’, a formidable project aimed at weaning the kingdom off hydrocarbons at a time when the price of oil hovers at less than $50 a barrel, driven down by the fracking revolution in the US and the falling off in global demand. Oil won’t sustain the Saudi economy for ever, and MBS’s programme – developed with considerable input from McKinsey – is aimed at curbing public spending and diversifying the economy. The plans include investing in Islamic tourism and in a revamped financial district in Riyadh, as well as expanding revenue streams generally and increasing job opportunities for young Saudis. Blue-collar foreign workers are to be replaced by Saudi nationals in areas such as mobile phone technology and engineering. As the Economist noted, though, Saudis tend to lack the technical skills needed for such a programme: ‘Schools stuff young heads with religion, but neglect more practical subjects such as maths and science.’

All this investment will require significant resources, and a central part of the plan is to sell off 5 per cent of Saudi Aramco, the world’s largest corporation, worth possibly $2 trillion, dwarfing Apple, Google, Amazon or ExxonMobil, and listing it on a foreign stock exchange in the world’s biggest ever IPO: Hong Kong, Singapore and London are among the contenders for the listing. Oil revenue – until recently Aramco’s profits were taxed at 85 per cent by the Saudi government – will be replaced by a vast sovereign wealth fund, to be invested in property and businesses abroad as well as at home, much as Qatar already does; the as yet relatively small Saudi fund began its overseas adventures last year with a $3.5 billion investment in Uber. But getting hold of the hundreds of billions that would be generated by an IPO means acceding to transparency rules that a company still 95 per cent owned by the Saudi state would find it hard to comply with. The London Stock Exchange, in its desperation for the prize, has shown that it is perfectly prepared to bend the rules in Aramco’s favour. Even so, a public listing – at the level Saudi Arabia expects – depends on the price of oil rising or at least not falling further; it also depends on the Saudis’ oil reserves being quite as large as they claim. In the face of all this uncertainty, Nick Butler, an ex-BP executive, recently suggested in the Financial Times that Saudi Arabia’s best option may be a private sale to China.


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