Saudi Arabia and the crisis in the desert

Doing the right thing with Saudi Arabia risks destroying the house of cards that is the global economy.

Article updated: 19 October 2018 7:00am Author: Michael Baxter

Whenever I speak to westernised individuals, whose roots lie in the Middle East, they get quite animated whenever the words ‘Saudi’ and ‘Arabia’ get mentioned.

They see Saudi’s integration into the western economy as a classic example of Western hypocrisy. Here is a region whose approach to human rights are down there with those parts of the world that western sensibilities mean we are supposed to abhor. We go to war with regimes that commit atrocities that may be no worse than those we see in certain countries we count as close allies.

The snag, of course, is that Saudi is rather important to the global economy, not to mention stability in one of the world’s most unstable regions.

The Crown Prince

Crown Prince Mohammad bin Salman bin Abdulaziz Al Saud, is the second most powerful man in Saudi, but given that his father, King Salman, suffers from Alzheimer's disease, the Crown Prince seems to be the real power in the kingdom.

I had thought he was going to make a difference. He made the right noises about human rights, slowly Saudi seemed to be changing. As a general rule, it is better to encourage regimes to reform by cooperating with them than declaring war on them. Carrot often trumps stick. The West’s biggest error regarding Russia was not applying enough carrot during the 1990s.

It seems almost laughable, but the decision to allow women to drive in the Kingdom was a big deal. But the fact that this rule change is being heralded with such a fanfare highlights the massive gulf in cultural values. While the West has its ‘Me too’ movement, Saudi allows women drivers.

The Crown Prince has been busy trying to reform the economy, moving away from its reliance on oil — with plans to float Aramco, and creating Neon, a gleaming technology city in the desert. But then he has apparently been behind interventions in Yemen and random arrests of members of his family — although the resulting money paid out for their release did the Saudi Treasury no harm.

Aramco

The Aramco float seems to be in reverse gear, it may or may not happen, but there are serious problems floating a company when such a flotation will require one of the most secretive organisations in the world to become transparent.

There has even been talk that the Crown Prince has lost a degree of power, that it was his father’s decision to put the Aramco float on ice.

Jamal Khashoggi

We don’t know for sure what happened to missing Saudi journalist, and big critic of Crown Prince Mohammad bin Salman, Jamal Khashoggi, but to my way of thinking it does seem as if he accidentally got entangled in a chain saw while visiting the embassy. These things can happen so easily!

It is both outrageous and unsurprising. His treatment is wholly in keeping with the kind of activities we regularly see in Saudi.

World reaction

And so leading world figures pull out of Saudi’s so called Davos in the Desert. This is the summit that the Crown Prince introduced as a way to showcase Saudi, how it is changing, how it is so important to the world. The great and the good are pulling out, Liam Fox isn’t going, US Treasury Secretary, Steve Mnuchin isn’t going. For the Crown Prince, it is a catastrophe, it’s like having your baby’s christening snubbed.

Meanwhile, the US President told the New York Times, “This one has caught the imagination of the world, unfortunately. It’s not a positive. Not a positive.”

So will we see sanctions?

Saudi fighting talk

Meanwhile, Saudi comes back fighting. In a recent statement, it said: “The Kingdom affirms its total rejection of any threats and attempts to undermine it, whether through economic sanctions, political pressure or repeating false accusations.

“The Kingdom also affirms that if it is [targeted by] any action, it will respond with greater action.”

The statement also reminded us that it “plays an effective and vital role in the world economy”.

Doing the right thing

Let’s take the moral high ground for a moment, and assume the West ditches hypocrisy and decides to treat Saudi in much the same way that it treats Iran.

I am guessing the oil price would shoot up, pass $100 a barrel, go past $150 and may even reach $200. This will be like a hammer blow to the global economy.

Political instability in the region will reach a new level of danger. Who knows what will result. For all I know, the end result maybe a democratic, human rights loving Saudi Arabia. More likely, we will see extremists, masquerading as religious fighters, creating chaos, with terrifying implications.

Of course, the West could counter sanctions aimed at Saudi by being all nice and forgiving towards Iran, but hell might have to freeze over first.

Technology

Whatever happens long-term between the West and Saudi, and I suspect we will see very little change, there are important implications for tech.

Saudi has already pulled its investment into Virgin Hyperloop, or so reports the FT. The decision is hardly surprising. The deal was meant to be sealed at the Davos in the Desert event, but Richard Branson said he would suspend working with Saudi after the Khashoggi matter.

But Saudi is a major backer of tech initiated worldwide — via, for example, its investment into SoftBank.

There could be long-term repercussions here, especially if the often liberal-minded types that run tech firms are unwilling to mince their words regarding Saudi.

The longer-term

Doing the right thing can be hugely costly. And taking the moral high ground with Saudi could create a global crisis, far more serious than the issues that are worrying stock markets at the moment.

But then, across the world, fascism is slowly making a return. In such times, appeasing the Saudi dictatorship may be a prudent course, at least that is what this new breed of anti-liberal, not so bothered about human rights, politicians might conclude.

Either way, I am not so chuffed about the long term implications.


These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees

Michael Baxter portrait photo
Michael Baxter

Economics Commentator

Michael is an economics, investment and technology writer, known for his entertaining style. He has previously been a full-time investor, founder of a technology company which was floated on the NASDAQ, and a director of a PR company specialising in IT.

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