by Yusuf Dhia-Allah (News & Analysis, Crescent International Vol. 49, No. 4, Shawwal, 1441)
Two countries have been particularly hard hit by the coronavirus pandemic for their own peculiar reasons: the US and Saudi Arabia. While the US leads the world in the number of infections and deaths, Saudi Arabia’s problems are of a different kind but no less serious.
They could be summarised in two words: oil and MbS. The medieval kingdom is totally dependent on oil, accounting for nearly 87 percent of its budget revenues. With crash in oil prices both as a result of reduced global demand because of the pandemic, and crown prince Mohammed bin Salman’s (MbS) price war with Russia, the bottom has fallen out of the price of oil. Hundreds of tankers loaded with oil are standing idle around the world.
According to the International Monetary Fund (IMF), the breakeven point for Saudi Arabia to balance its budget this year would be $76 a barrel. Crude oil prices are currently hovering around $30. True, other countries are in even more dire straits but unlike Saudi Arabia, they are not totally dependent on oil for revenues. And there is little prospect for oil prices going back to the pre-pandemic levels anytime soon.
These are not the only challenges MbS faces, serious as they are. Ever since his father became king in January 2015 and handed over responsibility for virtually all state affairs to him—from the defence portfolio and the war on Yemen to Aramco, economic affairs, internal security as well as charge of the royal court—MbS has messed up everything. Not particularly bright, he has made too many enemies including senior members of the royal family. He has used brute force, coercion and imprisonment to extort money out of them alleging corruption (no doubt true) while MbS has gone on extravagant purchases from the Chateau in France to a luxury yacht worth hundreds of millions of dollars and an equally expensive Leonardo Da Vinci painting. What does this Bedouin know about paintings?
He has also embarked on other extravagant projects like his plan to build a futuristic city on the Red Sea Coast to be called Neom. It will cost $500 billion. And then there is his ‘Vision 2030’, a grandiose plan that is unlikely to be realized under present circumstances.
It was, however, the murder of Jamal Khashoggi in the Saudi Consulate in October 2018 that brought to the fore the brutal nature of MbS. Khashoggi, a journalist who was once a loyal insider but became disillusioned with the kingdom’s affairs and left the country. He started to write a column in the Washington Post. He wrote nothing earth-shattering but he had to be eliminated because as a former insider, he knew too many embarrassing secrets. The brutal manner in which Khashoggi was murdered and then his body dismembered and dissolved in acid sent shudders down the spines of MbS’ most ardent supporters even in the West. The Khashoggi murder hangs over his head like the sword of Damocles.
The financial meltdown has exacerbated MbS’ problems. Hitherto, people’s loyalty and acquiescence were bought through handouts. With high oil prices, the kingdom was awash in petrodollars. Even if the royal family stole the bulk of oil and pilgrimate income, there was still enough to go around. People were given lavish salaries for doing nothing. Electricity, gas (petrol) and other commodities and services were heavily subsidized. Even though there was no representation for people, there was also no taxation.
With the plunge in oil prices and no prospects of improvement in the near term, the regime has had to resort to desperate measures. On May 11, it announced unprecedented measures never resorted to before to prevent an imminent meltdown of finances. Starting on July 1, Value Added Tax (VAT) would go up from five percent to 15 percent. It was introduced only a year ago resulting in much muttering of discontent.
The regime also suspended the 1000 riyals (US$266) per month cost of living allowance for state employees starting on June 1. Similarly, handouts to tribes to buy their loyalty have been drastically reduced. All these measures point to the dire financial straits the regime finds itself in. This was capped on May 15 by a report on Arabi21 news website that the regime had asked Yemeni officials of the puppet Abdrabbuh Mansur Hadi’s group housed in palatial homes in Riyadh to leave. Their financial support was also withdrawn immediately.
Figures released by Saudi finance officials early last month indicated a $9 billion deficit in the first quarter of 2020. And in another blow to the regime, Moody’s downgraded its credit rating to negative.
Saudi Finance Minister Mohammed al-Jadaan also said in an interview with the government-financed TV channel, Al-Arabiya that government spending would need to be “cut deeply.” He admitted that “the kingdom hasn’t witnessed a crisis of this severity over the past decades.” Such admissions by Saudi officials are unprecedented and point to the desperate situation the kingdom is facing.
All this can only spell more trouble for MbS. Most people would welcome this and hope this blighter would get his just desserts sooner rather than later.