Weaning Saudi Arabia off oil

Published: May 13, 2016 - 17:48 Updated: May 13, 2016 - 17:49

Prince Mohammad bin Salman's Vision 2030 document outlines a number of significant reforms that seek to change not only the Saudi economy, but state-society relations more broadly, in a way that hasn't been done since the Kingdom’s founding
Shrinivas S Sohoni Delhi

The Kingdom of Saudi Arabia is the home of Islam’s holiest places attracting millions for Hajj and Umra, and, as the world’s largest producer of oil as well, is thus a pivot of the global economy and intercontinental politics.

Saudi Arabia, however, stands now at a precarious juncture - in a rapidly morphing economic and political situation.  A variety of inter-connected factors have a bearing on what is happening in Saudi Arabia.  Some of these are: Oil production and pricing; Saudi-Wahhabi phobia and enmity vis-à-vis Shi’i sects, the Shi’i Islamic Republic of Iran, and President Basher Al Assad’s regime in Syria; Operations of the so-called ‘Islamic State of Iraq and Syria’ (ISIS); Saudi’s self-initiated war against Houtis in Yemen; the resultant tension and turmoil, explosive situations, Terrorism and Extremism, and conflicting Insurgencies.

Following the death of King Abdullah, the ascent of King Salman bin Abdul Aziz al Saud to the Saudi throne in January 2015 brought his son, the young Prince Mohammad bin Salman, to the core of the Saud regime. Prince Mohammad bin Salman now combines in himself the roles of Deputy Crown Prince, Deputy Premier, and Defense Minister.  Acknowledged as the de facto power centre of the Saudi monarchy, he has eclipsed the designated Crown Prince and Interior Minister, Prince Mohammad bin Nayef. Known to be ambitious and bold, - considered in some quarters as rash - Prince Mohammad bin Salman launched on 25 April 2016, his ‘Vision 2030’ program – a policy paper and blueprint for growth - prepared by the eminent US consultancy, Mckinsey Global Initiative.

“Vision 2030” lays out a composite program of far-reaching structural reform designed to transform Saudi Arabia from a basically oil-based economy into a dynamic variegated industrial economy not dependent chiefly on oil revenues.

“Vision 2030” notes that the oil price boom from 2003 to 2013 fuelled Saudi Arabia’s prosperity.  Saudi GDP doubled, household income rose by 75 percent, and 1.7 million jobs were created. Within a decade, despite making substantial investments in Education, Health, and Infrastructure, the Saudi regime accumulated revenue reserves equal almost to 100 percent of GDP in 2014.

Vision 2030, however, assumes that Saudi Arabia can no longer rely on oil revenue and public spending for growth.  It estimates that the global energy market will undergo significant change by 2030, and unless drastic steps are taken to restructure the Saudi economic model, there will be a very bad, unsustainable, impact on the fiscal position of the Saudi regime, and serious unemployment. (Unrest, agitation, violence, and pressure for destabilizing the Saudi royal family’s regime, are not difficult to visualize in such circumstances. Memories of 1979, when Juhayaan Otaybi and his squad of Ikhwan terrorists seized the Masjid al Haram and declared the Al Saud regime unIslamic, corrupt, and therefore deposed, still haunt every Saudi royal. )

Vision 2030, therefore, projects a productivity-led economic transformation designed to enable Saudi Arabia to preclude such a predicament, double GDP and create as many as six million new jobs by 2030 - when the country’s population reaches 30 million.

The plan involves an investment outlay of $4 trillion, no less.

Vision 2030 identifies eight sectors: Mining and Metals, Petrochemicals, Manufacturing, Retail and Wholesale Trade, Tourism and Hospitality, Healthcare, Finance, and Construction, as having the potential to generate more than 60 percent of growth needed in Saudi Arabia. Prince Mohammad bin Salman has claimed that his Vision 2030 plan is “likely to see the Kingdom of Saudi Arabia operate without reliance on oil income by 2020”. He has stressed on revamping Education, building infrastructure for the Tourism sector, and even spoken of introducing over the next five years, a US green-card type of residency system: for Arab-origin persons and Muslims.

Also in the plan is the setting up a Public Investment Fund (PIF) of $ 2 trillion and a public offering of 5% share in the Saudi regime’s golden-egg laying goose: Aramco – the world’s leading oil company, which by itself pumps out 10% of global oil production.

Claiming Saudi Arabia has four strong inherent advantages:  “Religion, Location, Arab heritage and (Arab) ability”, Prince Mohammad bin Salman says: “Saudi addiction to oil has disrupted development of many other sectors”. (This is not unlike the perception in India that water-intensive sugarcane cultivation indulged in by rich and politically powerful landowners, is at the cost of intrinsically good and more worthwhile options in Agriculture and Horticulture.)

Pointedly advocating development of tourist attractions to boost Tourism Industry, the Prince makes bold to ask: “How can the Kingdom be the holiest place for Muslims and yet have no Islamic museum?”

Noting that Saudi Arabia is the world’s third largest purchaser of arms and military equipment, ($100 billion-worth arms were purchased from the US alone in recent years) Prince Mohammad questions why there is no arms industry in Saudi Arabia, and plans to set up a military armaments manufacturing sector.

Prince Mohammad bin Salman has also spoken of building the King Salman Bridge over the Red Sea - to link Europe and Asia, and thus open construction and investment opportunities, and help move billions’ worth cargo across the Red Sea. Also planned is an increased participation of Women in the work place from 20% to 30 %.On 7 May 2016, a major Cabinet shake-up was carried out – at Prince Mohammad bin Salman’s instance, “to align portfolios and Ministers better to the plans in Vision 2030”. This demonstrated his determination to compel the Saudi governance establishment to accord with and execute his plans, and was essentially an exercise in consolidating power.

The experienced octogenarian Minister for Petroleum for the last 20 years, Ali Al Naimi, was summarily ousted, - it being stated he had failed at the Doha meeting in April to secure an oil price-freeze with Iran also complying. Prince Mohammad is insistent that the Kingdom shall not freeze production till Iran does.

Al Naimi had protected oil pricing from the whims and fancies of Saudi princes. Oil prices were quadrupled in 1973 following US support to Israel in the Israel-Egypt war.

However, since then till recently, oil pricing had been determined on basis of market trends.

(The new Petroleum Minister is Khalid Al Fateh, an executive of Aramco.)

The Cabinet reshuffle also replaced the Ministers of Water, Transport, Commerce, Health, and Social Affairs – the portfolios being renamed to conform to terms in the Vision 2030 document.

Most of the new appointees are bureaucrats and not from the royal family – leading to murmuring in the royal family.

Prince Mohammad’s clout and determination has been proven. As long as his doting father the King, Salman bin Abdul Aziz is the monarch and ‘Khadem Al Harmayn As Sharifayn’ (Custodian of the Two Holy Mosques), he can rule the roost, and wield power across the country.

However, there is no denying that forcing top-down change is not winning him very many friends across a range of resourceful interests -- from powerful members of the expansive and immensely wealthy Al Saud family, to blinkered, dogmatic, antediluvian Wahhabi Islamists and theologians.

The Crown Prince, Prince Mohammad bin Nayef , Interior Minister, has precious little reason to be pleased, -- the more so as Prince Mohammad bin Salman does not hesitate to deal with subjects which, per tradition, are  in  Nayef’s jurisdiction, such as concerning Religion, Judicial, Social affairs, and Internal Security.

The conservative Wahhabi-Saudi Arab milieu, - medieval in outlook, and prone to react violently, -  is also not pleased about the Prince Mohammad’s emphasis on increasing the proportion of women in workplaces, and the restrictions he has imposed on the ‘Committee for Propagation of Virtue and Prohibition of Vice’.

Plans for setting up Islamic Museums are also igniting anger. Wahhabism utterly abhors and denounces as being ‘shirk’ (polytheistic) the veneration of any object or place or entity besides Allah; only Allah is to be worshipped.

It may be recalled that in 1802, Wahhabi cohorts had attacked Mecca and destroyed relics and buildings associated with Prophet Mohammad’s family – including the graves of his mother Amina, and infant son Ibrahim, and the house of his first wife, Khadija (which was turned into a public toilet), and even the place where one of the Prophet’s canine teeth was interned. (The tooth had broken off when a sword struck the Holy Prophet’s visor during a battle.)

In 1925, Wahhabis had bulldozed and leveled the graveyard of the Companions of the Prophet Mohammad where the remains of an estimated 7000 Salafs were buried. The Wahhabis had also attacked Karbala in Iraq and destroyed holy places including graves and tombs of revered Imams of the Shi’i.

(NB:  Just by way of citing a personal remembrance: On the Babri Masjid being attacked and subsequently demolished on 6 December 1992,   a statement was issued in the name of the President of India - that had the effect of helping to allay fears of Muslims throughout the country, rally “secular and democratic forces”, and enjoin the Government of India to uphold the law, protect law-abiding citizens, and act effectively against trouble-makers. 

The statement had a bigger effect outside India, in that it helped subdue anger in policy-making circles in capitals of Muslim countries, and pre-empt imposition of severe penalties on India – such as a move by the Saudi regime to shut down oil supply to India.

This, at any rate, was what the Grand Mufti of Saudi Arabia pointedly mentioned to the then President in a meeting in RB at which I was present, – that the Kingdom was on the point of issuing a condemnatory statement against the Government of India, and announcing an embargo on its oil supplies to India, -- when the news of the President’s statement, and its text, happened to come to their notice. The Grand Mufti stated he had specially come to meet and inform this to the Government of India.

In rather more informal talks several years later, when the holder of the same office, had come to Kabul to meet the President of the Islamic Republic of Afghanistan, he expressed severe contempt for “mushrikeen” (polytheists) who show themselves to be “outside the fold of Islam”, and apostates even (“murtaad”), - by reverencing buildings, objects, and places.

The Grand Mufti held forth like a pontiff on the compelling justification for removing/destroying the ‘Muqa’am Ibrahim” viz. the place of Prophet Abraham – a small shrine-like structure in front of the Holy Ka’aba in the Masjid al Haraam, Mecca, which houses a stone bearing what is regarded as the footprint of the Prophet Abraham at the place he stood observing the Ka’aba being built.

So much for the sanctity of the ‘Babri Masjid’ or ‘Hazrat Bal’ in Wahhabi estimation.)

Wahhabi ire, violent fury even, need therefore hardly be a surprise, - vis-à-vis the idea: of museums to display Islamic relics and other ‘sacred’ objects for being public viewing by masses of the faithful in the Kingdom.Also noteworthy, in this connection, of risks involved in Vision 2030, is the prognosis of financial experts about the Saudi fiscal ways and means position.

Zach Schrieber, the noted finance expert - who had predicted the oil crash two years ago when oil was priced at $100 a barrel - stated in the Sohn Investment conference last week, that: “ Saudi is ‘structurally insolvent’ and “It has two to three years before it hits a wall! Saudi needs oil prices above $ 100 a barrel to break even on budget, but the Kingdom is currently trapped between “huge spending commitments and cheap oil”. Saudi’s war in Yemen costs $200 million per day to prosecute, i.e. $6 billion per month.

Aid to Egypt, Bahrain, Jordan, and Pakistan, and worldwide funding for Wahhabi propaganda, mosques, mullahs and madrassas, also amounts to humongous financial outgo.Furthermore, Prince Mohammad bin Salman recently initiated a new grand military alliance involving 34 Islamic countries, ostensibly to wage war against Terrorism, Iran, ISIS, and Al Qaeda.(Pakistan and Bangladesh are members.  Afghanistan, Central Asian Muslim States, Algeria, and Oman are not members.)

Vision 2030 thus involves cutting of subsidies to the richer classes, increased taxation, irritating Wahhabi Arab society, and serious fiscal challenges as well.

Potential thus exists and is accumulating, for overt and covert opposition to Vision 2030 and its principal approvers and protagonists, Prince Mohammad bin Salman, and his father, King Salman bin Abdul Aziz Al Saud, and the consequences cannot be presumed to be pleasant to either of them.

What eventually is the fate of the Vision 2030 program, and what transpires in Saudi Arabia’s political economy, also concerns India in important ways.

Despite having diversified its sources of oil, India purchases the bulk of its oil supplies from Saudi Arabia. The number of Indians employed in the Kingdom is also significant, and their remittances are the mainstay of many families in India. India also has a wide-ranging trade, engineering, and manufactures under export to Saudi Arabian markets.

In any event, whether positive or negative, developments in Saudi Arabia engage vital national interests in India.

It is to be expected that, the Government of India will monitor the situation closely, simultaneously keep building strategic oil reserves, cultivate alternative oil supply sources; and devise contingency plans ahead, to deal with any eventuality. 

(The writer was formerly: Secretary to the President of India; and Senior Adviser to the President of the Islamic Republic of Afghanistan.)

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Prince Mohammad bin Salman's Vision 2030 document outlines a number of significant reforms that seek to change not only the Saudi economy, but state-society relations more broadly, in a way that hasn't been done since the Kingdom’s founding
Shrinivas S Sohoni Delhi

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