“The World’s Most Dangerous Man” Makes His Move

In June, I called him the world’s most dangerous man.

And he lived up to that moniker this past weekend.

He is the Saudi Crown Prince Mohammed bin Salman (“MBS”), the de facto ruler of Saudi Arabia. His father is the actual king, but he is in poor health and everyone knows that the crown prince is running the show.

This past weekend, MBS opened our eyes to just what he might be capable of.

And it is now very clear that this 32 year old is willing to do whatever he damn well pleases…

You Are Supposed To Do Things Like This Quietly

For more than seventy years, Saudi Arabia has practiced what can be described as collective leadership. It was by design, with stability being the desired result.

Leadership was split in a manner that made sure power was not concentrated too heavily with any one individual or branch of the royal family.

Power was separated amongst branches of former King Abdulaziz’s family tree through his sons.

  • The foreign ministry had long been controlled by Prince Faisal
  • The defense ministry was the responsibility of Prince Sultan
  • The interior ministry and security forces were under Prince Nayef
  • The Saudi National Guard belonged to Prince Abdullah

Smart right? Absolute power in the hands of one individual has to create potential for serious trouble.

While the ruling Saudi monarch has always had formal power, the king was always expected to consult with the senior members of the royal family and rule through consensus.

You probably noticed that my description of the power split used past tense.

That is because everything changed this past weekend…

Under the guise of combatting corruption, the crown prince fired key senior ministers and had dozens of Saudi Arabia’s richest, most important men arrested.

Included were at least 11 members of the ruling family, government ministers, ex-ministers, billionaires and key members of the business community. Many of these men are known on a global level.

In doing so, the Prince has completely consolidated power.

Gone is a system of checks and balances that has worked for the Saudis for seventy years.

Now all three of the Saudi power ministries (Defense, Interior and National Guard) are in the hands of just one branch of the royal family. A branch controlled by Mohammed bin Salman.

The breathtaking part of this power consolidation is that it was manner in which it was done.

Out in the open, with the intent of the moves very clear.

MBS drew up a list of people who were threats to his power and took them down in front of the whole world.

You Have To Admit That He Has A Point. But…

Saudi Arabia needs to change.

The country has been rotten with corruption for decades. A ridiculous amount of wealth and power has been controlled and wasted by the extended royal family.

The men that the crown prince has arrested are undoubtedly part of the problem.

All of that wealth has come from the natural resources of the country.

Meanwhile, the vast majority of Saudi citizens have a terrible standard of living.

With an extremely high birth-rate, the population of this country is surging and the majority of people are under the age of 30 years old. These young people are restless.

The crown prince is smart and he sees this. He is not content to sit on his oil wealth like past generations and hope that everything works out for the best.

MBS sees what is happening in the world. Electric cars are a threat. Climate change is a threat.  Oil may not be the answer forever.

The Arab Spring opened his eyes to the fact that Saudi Arabia needs to move forward. The young people of the country need good paying jobs and a better quality of life.

This anti-corruption campaign is going to be very popular with the young people of Saudi Arabia. The people being arrested are those that have been given wealth while the majority of people have none.

MBS is further courting support from the young people with promises of social liberalization and faster change. In September it was announced that women would finally be allowed to drive.

Good things may result from MBS consolidating power.

Now here comes the but…

Sharing power has underpinned stability in Saudi Arabia for a long time. Stability in this part of the world is not something to take for granted.

It is very hard to see how MBS consolidating power is going to do anything but lessen stability in the Middle East.

He is the mastermind behind the disastrous war that Saudi Arabia is bogged down in with Yemen. A Harvard study has estimated that this war is draining $200 million per day from the Saudi coffers. Not to mention killing thousands of people.1

He is aggressive, not necessarily intelligently so.

And then there is Iran.

MBS has been openly hostile towards Iran on a regular basis. By consolidating power he may become more aggressive.

This week he said that a Houthi rebel missile that targeted Saudi Arabia’s main airport was an “Act of War” on the part of Iran (who is believed to have supplied the missile) and vowed retaliation.2

Given the inclination of this man to act, those words are concerning. These are two military powers that we do not want going to war with each other. That is especially true given that Russia and the United States would be backing different sides in this conflict.

A Bullish Situation For Oil

The crown prince has a very clear economic and social transformation plan in mind for his country.

For it to work he needs to jump start the Saudi economy and job growth immediately.

But in order to do that MBS needs higher oil prices now.

With the IPO of a portion of Saudi Aramco planned for next year, MBS needs oil prices to be as high as possible in order to maximize the value of that public offering.

The Saudis can’t be selling off a piece of the crown jewel into a weak oil market.

The very long term view of the crown prince is to wean the Saudi economy away from oil. In order to do that he is going to need to milk the Saudi oil cash cow for as much cash as he can in the short term.

Since the beginning of the year the Saudis have curtailed production to support oil prices. That is going to have to continue. The risk for Saudi Arabia is to not tighten the oil market enough.

That is why we can expect to see the Saudis tighten the oil market too much.

The short term looks very bullish for oil and if conflict with Iran ratchets up who knows what might happen. With MBS in full control of Saudi Arabia we are going to need to keep a constant eye on news flow from that part of the world.

Here’s to looking through the windshield,

Jody Chudley

Jody Chudley
Credit Analyst, The Daily Edge
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1An American Report Reveals the Daily Financial Cost of Saudi Arabia in War Against Yemen, Yemen Press
2Saudi Arabia calls missile launch ‘act of war’ by Iran, vows retaliation, Fox News, Gregg Re

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