Kingdom of fear: Saudi Arabia on lockdown
Last weekend, King Salman announced the set-up of a special anti-corruption force that wasted no time in rounding up more than a dozen government officials—both former and current—five members of the royal family, and several businessmen. Since then, the list has been growing, to more than 60 as of today.
Now there are reports about the Riyadh Ritz-Carlton being turned into a luxury prison for the detainees. There are rumors—which Riyadh has denied—that one of the targets of the purge, Prince Abdulaziz bin Fahd, was killed while resisting arrest. There are also reports that the purge could fill the state coffers with as much as $800 billion in assets seized from those arrested—all members of the Saudi elite.
Speculation abounds and there is growing worry that the situation could spiral out of control. There is a constant flow of new information coming from Saudi Arabia, such as that one of the Arab world’s leading broadcasters, MBC, has been put under government control. Part of its management was removed and the owner detained. News is also emerging that even the former Saudi Energy Minister Ali al-Naimi, Saudi Arabia’s media face for decades, has been forcibly confined to his quarters.
There is talk that a travel ban has been issued for a number of government officials, including executives from Aramco. That’s on top of reports that Aramco board member Ibrahim al-Assaf, a former Finance Minister in the Kingdom, was also among those arrested.
Naturally, in oil industry circles this raises the question over the safety of Aramco’s IPO and, more than that, what will happen to oil prices if the instability intensifies. For now, the news is all bullish for prices. The purge is widely seen as a pre-emptive strike and power grab by Crown Prince Mohammed bin Salman, head of the new anti-corruption agency and heir to the throne, as well as the champion of the Vision 2030 reform program.
The Crown Prince is also the driving force behind the Aramco IPO, which should provide the funds for the reform program. Now, for the IPO to be as successful as Prince Mohammed wants it to be, global oil prices need to be high, perhaps higher than they are now.
Any political instability in the Kingdom is naturally fueling bullish sentiment. Now there are reports that some royals fleeing prosecution from the new anti-corruption agency have been offered asylum in Yemen by the Houthi rebels that are backed by Saudi Arabia’s arch-enemy, Iran. This is nothing short of astounding, since Saudi Arabia has been at war with the Houthis for two years now, with Prince Mohammed at the spearhead of the conflict.
Earlier this week, Saudi Arabia accused Iran of direct aggression, citing the missile attack the Houthis launched on Riyadh, which was intercepted by the Kingdom’s defense system.
It is difficult to predict where all this will lead. Some, like Dennis Gartman, warn that although the immediate impact of the latest Saudi events is positive for prices, it will turn negative in the longer run as this sort of instability is unsustainable. Others, such as Morgan Stanley’s commodity analysts, are revising upwards their oil price forecasts, encouraged by these same events. OPEC’s Vienna meeting, where the cartel will discuss the extension of the oil production cut it agreed almost a year ago, is less than a month away. There are voices suggesting that Saudi Arabia could make a U-turn on its support for the deal in light of the now higher prices resulting from its internal tumult and the spike in tensions with Iran.
In the meantime, the Ritz-Carlton in Riyadh is fully booked until February, as per the hotel’s website, and all guests were asked to leave or had their reservations cancelled.