View from Riyadh

What next for Saudi Arabia as GCC’s largest and most influential member witnesses transfer of power?




Power transition in KSA exceeds regional frames as it has been in global focus due to an ever more troubled Middle East region and the dramatic situation in the oil market. H.H. Abdullah bin Abdulaziz Al Saud passed away in January this year at the age of 91 and was succeeded by his brother, H.H. King Salman bin Abdulaziz Al Saud, who was previously Crown Prince. The third in line, H.H. Muqrin bin Abdulaziz, moved up to be the new crown prince. All three men are sons of the founder of Saudi Arabia, H.H. King Abdulaziz (usually referred to as Ibn Saud), who died in 1953.

According to Saudi sources, the Saudi succession went swiftly and smoothly setting an example to follow. This is crucial for maintaining stability in times when the country and entire region are facing major unrest. However, Simon Henderson, director of the Gulf and Energy Policy Program at the Washington Institute for Near East Policy, in remarks to  media recently said, “The transition is less likely to be smooth despite the House of Saud’s efforts to give this impression.”

Shortly after coming to power, Saudi’s new king has announced some major government shake-ups triggering many questions what the changes can mean and in which direction country may go under his lead. But at the same time the new King suggested that there will be no major shift in Saudi policy. For Dania Thafer, independent researcher on the Middle East based in Washington, the governmental changes are not surprising.

“Naturally if there is a shift in regime, there will be a shift in policies, especially at the domestic level. King Salman has instituted significant changes – he appointed new posts and also reshuffled the cabinet,” she tells bq.

The greatest surprise is certainly naming his nephew H.H. Mohammad bin Nayef – the country’s former domestic counter-terrorism chief and current interior minister, who has very close ties with very influential religious elite – deputy crown prince or second in the line to the throne. H.H. Nayef’s appointment as deputy crown prince carries special weight, says Rachel Bronson, a senior fellow at the Chicago Council on Global Affairs.

Experts believe the kingdom and the royal family will not be able to move forward unless H.H. the new Crown Prince Nayef has the religious establishment at his side. The King also appointed  one of his younger sons H.H. Prince Mohammed bin Salman as minister of defense and chief of the royal court and he is also seen as one of the key players in Saudi politics in the years to come.

Thafer believes the King intended to implement a more lean and consolidated government with these changes. “This is exemplified by him substituting several committees with two primary ones – one for political issues and security issues and the other for economic affairs, the Council of Political and Security Affairs, and the Council of Economic and Development Affairs.”

But while court rumours and gossip have always been attractive to a wide range of readers, the far more important  question is what to expect  from this power transition in the GCC’s largest state and what any possible changes may bring to domestic and foreign relations.

Slower and more cautious reforms?

king salman

Following these new appointments, many wonder if H.H. King Salman will continue on with the reforms initiated by his predecessor H.H. King Abdullah, who introduced some liberalizing reforms, which were warmly accepted especially by younger Saudis. In his first statement, the new king however, emphasized that the country “will continue adhering to the correct policies that Saudi has followed since its establishment,” – pleasing the conservatives and what could be understood as a step away from modernization.

Since its establishment, the ruling dynasty has cohabitated with the conservative clergy, which allowed them to rule and run the state in return for the clergy’s large influence over national character of the state. At the same time, H.H. King Salman has also said that his predecessor’s cautious reforms were necessary and should continue.It is essential that the Kingdom continue dialogue with liberal and conservative poles especially in the current tense situation as rising extremism and threats from radical groups in neighbouring Syria, Iraq and Yemen threaten to spill over into the Kingdom itself.

There is also a wide gap in perception of the country’s image abroad and at home, as many foreign analyses picture the kingdom as highly conservative and backward, overlooking the reforms and initiatives undertaken in previous years by H.H. King Abdullah. Therefore, many question the future reformist course of the new King, while his supporters suggest he may be the perfect choice for the country’s development, since he enjoys support from the conservative and liberal poles, and is best situated to continue his brother’s policy of “slowly opening up political and social debate without bowing to western demands.”

Thafer indicates H.H. King Salman has conservative tendencies and his appointment of relatively conservative advisors in the Court reveal this, especially when compared to King Abdullah. “He is also known to have an affinity for the tribal system and traditions and this could likely be reflected in some of his policies. Despite any educational or social reforms, similar to King Abdullah’s, it is unlikely that King Salman will implement any major political reforms – Saudi is projected to remain an absolute monarchy,” she says.

Khalid Almezaini, assistant professor of the Gulf Studies Programme at Qatar University, is even more convinced that the Kingdom will see a limited reform process indicating that reforms might be even slower than during King Abdullah’s reign. “King Salman has a more conservative vision than his predecessor,” he tells bq. What is clear, however, is that the country faces major tests, the success or failure of which will have broader consequences, especially for the neighbouring GCC countries.

Legacy of the late King Abdullah

During his nine year reign, late King Abdullah was known for his balanced approach towards liberal and conservative factions. His supporters and many Western leaders saw him as a reformer. Western leaders described him as an influential leader and close ally who significantly contributed to the peace and stability of the region.

Under the late king, the country managed to suppress Al Qaeda, capturing many of its members and forcing them to go underground. Furthermore, it is the only Arab nation with a seat in the G20 and to lead Arab countries into international coalitions to eliminate ISIS in Iraq and Syria. Backed with huge investments into army capacities, the country has become one of the world’s strongest military powers, capable of challenging any enemy in the region. King Abdullah also initiated media campaigns aimed at educating citizens about the dangers of extremism.

It was no surprise when US Secretary of State John Kerry described late Saudi King as a “revered leader” around the world, while Newsweek marked him as one of the world’s most respected leaders acknowledging his efforts “to lift his ultraconservative country from the dark ages.” During his regency he initiated a dialogue with minority communities within Saudi society (such as women, liberals, the Shia community) paving a road towards new inclusive policies. Most importantly, King Abdullah, unlike his predecessors, made great efforts trying to shift economic development of the country away from oil and investing oil wealth into creating new jobs.

International challenges

Saudi Arabia currently faces many difficult challenges ranging from struggling against ISIS on its borders; the presence of extremist elements within its own borders, which Saudis has managed to neutralize but still pose serious danger to the ruling dynasty, threatening peace and development of the country and region as well. ISIS openly denounced the Saudi monarchy and repeatedly said one of its ultimate goals is to capture Sunni holy sites in Saudi Arabia.

Potential unrest of the Shia population in the Eastern Province additionally contributes to an already complicated security situation. These issues are even more challenging in the current unpredictable situation in the oil market which would certainly hamper the oil revenues and therefore call for a more cautious and efficient approach to public spending.

In addition, raising youth unemployment requires immediate reform or the country could slip into serious trouble, which may trigger effects similar to those in North Africa. The new Saudi leadership stands in front of a long list of complicated tasks which need to be dealt with urgently in order to secure stability and its very existence.

Dr. Khalil al-Anani, adjunct professor, School of Advanced International Studies (SAIS) at Johns Hopkins University tells bq: “The power transition in Saudi Arabia’s royal court will lead to gradual changes in its foreign policy and become more accommodative than confrontational. The new king will reprioritize the kingdom’s interests and regional objectives and I think Yemen, Iran, and internal affairs would come first then other issues such as Egypt and Syria.

The shift in the balance of power within the kingdom would lead to a slightly different foreign policy that could enhance the new monarch’s internal legitimacy.” Similarly, Almezaini expects slight change in foreign policy. He says, “More action will be taken towards Jihadists and tightening of security especially in the north front (with Iraq) and south front (Yemen).

Thafer adds, “On the regional and international front there are imminent challenges and it seems the theme for these issues will be maintaining continuity.”  Due to a very hostile environment surrounding Saudi Arabia, “King Salman was keen on retaining the long-serving Foreign Minister Saud Al-Faisal and this will likely reveal continuity in Saudi’s foreign policy. This also applies to Egypt, given it is a vital ally. King Salman has reaffirmed that Saudi would promote solid backing for Egypt’s security and stability.”

Besides international challenges, one of the hottest potatoes in the future will be the reforms within the legal system, and one of the greatest challenges will be the codification of the Shariah law which will provide a unified criteria and range of punishments for various crimes. The King will however, face fierce opposition from the conservative pole, who have so far been opposed to any changes and fear westernization of Saudi’s Islamic judicial system.

Economic challenges

oil money saudi arabia

Equally demanding will be other internal challenges. “A key area of focus is addressing the youth of Saudi Arabia – there are concerns with employment, inclusion, and managing extremism.  With two-thirds of the population under the age of 30, a large constituency of the Saudi population is youth,” says Thafer.

Therefore, future policies must present opportunities for the country’s fast growing population – all GCC economies face this challenge though.  Foreign observers note that reforms must rely on healthy and realistic economic foundations shifting away from the tradition of the generous state.

However, it is necessary to stress that any increase in discontent among the younger generation and unemployment may lead to increased influence of the Islamic State and other radical groups who are recruiting its fighters and sympathizers among disappointed, jobless Muslim youth worldwide. Therefore this issue remains one of the vital tests for H.H. King Salaman’s future leadership.

Thafer says, “Evaluating the King’s appointments, it seems he acknowledges this looming concern.” She explains that the appointment of younger officials is an indicator to institutionalizing the voice of the youth. H.H. King Salman appointed Adel Al-Teraifi, 35 years old, as Culture and Information Minister. In addition, the key appointment of his son H.H. Mohammed bin Salman – who is 34 years old – indicates an attentiveness toward the demands of the youth.

Unemployment was one of the primary concerns of the late King as well. However, economists reveal that approximately 41 percent of all new jobs created since 2011 are in the public sector, while private sector growth, away from the oil industry, is 5.5 percent.  Economy and Planning Minister H.E. Dr. Muhammad Al-Jasser has earlier revealed that 75 percent of all working Saudis are employed in the public sector describing this situation as “abnormal and a legacy of the 1973 oil boom.”

The major task of the new leadership will be the strengthening of Saudi labour in the private sector, which traditionally relies on expatriates. Experts reveal progress in the last year was noticeable and hope this progress will continue under the new king.  The reformist course was also confirmed by Minister Al-Jasser, explicitly stating that policies and reforms undertaken by the late King Abdullah will continue unabated under the new king. He also noted country’s focus would be on efficiency.

The consolidation of the Education Ministry reveals there will likely be a strong focus on educational reform as well, notes Thafer and this is one approach in managing the youth. “Hopefully preparing them to contribute to a knowledge-based economy will be a priority. However, targeting the youth does not necessarily mean that Saudi will become more liberalized,” she adds.

New labour reform, initiated during King Abdullah’s reign called (nitaqat), suggests “sliding scale of penalties on companies employing foreign labour and giving them incentives to employ more Saudis.”  Reform also took decisive steps in bringing order to the black and gray areas of employment, as armies of illegal workers from abroad were returned to their country of origin, while almost 3 million expatriates legalized their documents and permits. This however caused a huge shortage of labour force in some sectors like construction, which heavily relied on cheap labour, which is among the region’s largest.

Private companies, however, complained much about the rising costs due to the new legislation. According to UNCTAD (United Nations Conference on Trade and Development), only a limited part of Saudi labour is qualified or motivated to work in government targeted industries. For many small private companies, it is just too expensive to recruit and train the domestic work force, thereby limiting the success of the labour reform.

Besides this, the Saudi government hopes the new economic zones will trigger foreign investments and new jobs solving the problem of unemployment. Five special economic zones are planned, bringing diversity to the industrial sector heavily dependent on the production of oil. This project would require regulatory reforms, besides foreign investment, in order to succeed.

According to Global Risk Insights, the Saudi government is willing to try with this new experiment, particularly in the case of King Abdullah Economic City, which is projected to be an enclave of relative liberalism, allowing foreign ownership of private companies, simplified bureaucratic procedures and more relaxed social rules.

Jazan economic city, near the Yemeni border, is planned to become a manufacturing hub in the Red Sea, while Knowledge Economic City, near Medina, will focus on modern and knowledge-based technologies. In the case economic zones do fulfill expectations and succeed in achieving their goals, the Organization for Economic Co-operation and Development (OECD) predicts around USD 150 billion in new economic activity in 2020 and 50 percent increase in Saudi GDP.  Many of Saudi Arabia’s plans, however, still rely on access to cheap energy.

What the succession means for the oil market

The death of King Abdullah comes at a critical point for the kingdom’s oil policy. Saudi Arabia adopted its long-term strategy maintaining current production and by doing this, securing its major share of the global market.

Oil moneySuch presumption is backed by many experts such as Roger Guiu from the Middle East Research Institute (MERI), who tells bq that the Saudi decision to not decrease oil output in order “to compensate for falling low prices in the second half of 2014 is in itself a novel policy, compared to what the Kingdom has been traditionally doing in such situations.” Guiu does not see HH King Salman stepping back from this since this is the most optimal oil policy that Saudi Arabia could have adopted if they still want to be influential in the market.

Thafer believes that at the international level, Saudi will work with market constraints and its counterparts in which case there is a strong likelihood the status quo with regards to production levels will remain the same in the near-term. “An indicator of maintaining the status quo is the fact that King Salman has retained the oil minister from the previous administration.”

According to David Livingstone, a prominent expert and associate in Carnegie’s Energy and Climate Program, “Any rapid change is particularly unlikely as long as the steady hand of longtime oil minister Al-Naimi remains at the head of the ministry. Al-Naimi has made a number of recent statements reiterating the Saudi government’s commitment to the current oil policy, and it would be unbecoming for the Kingdom to rattle oil markets with a sudden shift in policy when it is unneeded from a strategic standpoint,” Livingston tells bq.

However, Al Niami, 79, has headed the oil ministry since 1995, and is likely to retire in the near future.  After his departure, “the question of policy continuity becomes more uncertain,” warns Livingstone.

The current Saudi position on oil prices comes at the expense of unity within OPEC, adds Guiu. “Saudis nowadays have less trust in the usefulness of OPEC in today’s oil market due to new technological breakthroughs in oil production besides being tired of some countries (e.g. Iraq, Venezuela) that have lived comfortably at the expense of Saudi Arabia.”

In similar manner, Livingston notes that OPEC cohesion matters less to Saudi Arabia from a strategic perspective when prices are low and the pressure is for production cuts than when prices are high and pressure is for additional production. Therefore, it is unlikely to expect any significant changes despite the notable increase in dissent from certain OPEC members.

Saudi Arabia has little reason to yield to entreaties, particularly this prematurely, without getting something in return, explains Livingston. After all, Saudi Arabia is, just like the other GCC states surrounded with threats and uncertainties, protecting itself by exploiting its big advantage – huge oil reserves and low-cost production.

“Many have suggested that the stage is set for détente between Saudi Arabia and Iran under King Salman, and the first gesture could be Saudi Arabia shifting strategy and allowing oil prices to rise as an olive branch to Iran. There is a real risk, however, that this could be perceived as a gesture of weakness on the part of Saudi Arabia.”

But given that 90 percent of the Saudi budget is dependent on oil revenues, Thafer believes that   there will be salient implications on domestic policy. “I believe there will be tightening in spending at the domestic level. Although the King’s financial handout to government employees was a generous gesture, it is less than King Abdullah’s increase in salaries – a clear signal that social spending will decrease.

“Indeed, one of the first gestures of the new king was winning the hearts and minds of the Kingdom’s subjects by awarding them two months bonus salaries and pensions. Despite having large financial reserves that could last for a long time, such a gesture was, by many foreign commentators, described as a relic of old and fiscally irresponsible policies from decades ago.

Speaking of the changes in domestic energy policy, Thafer believes the area of energy subsidies will be particularly targeted. According to her it is a perfect moment to wean Saudis off these subsidies since oil prices are low and removing the subsidies would not be as intensely felt as it would if prices were high. This is a crucial issue for the midterm and long term development of the country as subsidized electricity and petrol prices are constantly increasing domestic energy consumption, spending up as much as 24 percent of the country’s oil production.

If this tempo continues in the future, the Kingdom may find itself in a tragicomic situation, pushing the largest world’s oil producer country to import oil by 2027. Thafer reminds similar measures were adopted in the past, during the price fall in 1987 and 1998 when Saudi authorities decreased subsidies and social spending while promoting private sector development. “This seems to be the direction King Salman will move towards,” she concludes.



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