After a year in power, King Salman’s economic reforms are key

Dr. John C. Hulsman

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For most Western observers, the analysis of Saudi Arabia has long been a comfortably stable pursuit. Saudi foreign policy centered almost exclusively on its close ties with the U.S., a constant since the presidency of Franklin Roosevelt, just as its energy policy was focused on keeping global oil prices stable, with Riyadh using its heft as the swing producer of OPEC to do so. This trade—agreeing to safeguard global energy prices in return for the close alliance with a world superpower--amounted to a coherent, enduring fusion of Saudi foreign and energy policies during the whole of the Cold War era, and the brief period of American predominance that followed.

But time waits for no one. With the accession to power of King Salman a year ago, things began to change and quickly. His son and Deputy Crown Prince Mohammad bin Salman has come to play a vital role in setting both the new Saudi foreign and energy policy. Now both planks of long-term Saudi analysis are increasingly open to analytical question, as Riyadh is increasingly pursuing a more assertive and independent foreign policy, at the same time as the country has gone its own way on energy issues. Western analysts, long used to yesterday’s truisms, have yet to intellectually catch up.

It is this slate of far-reaching economic programs designed to bolster Saudi Arabia in the new age that is the single most important initiative the government of King Salman could hope to undertake.

Dr. John C. Hulsman

In the understandable rush to implement new policies fit for purpose in the dawning multipolar era, the new regime does have an important contradiction to overcome. For all the newfound friction with a Washington wishing to play a more passive role in the Middle East, there remains absolutely no doubt that ties with America remain central to both Saudi security and foreign policy thinking. At the same time the new Saudi energy policy is explicitly designed to ensure and enhance Riyadh’s energy market share. The problem is that one of the new contenders to Saudi energy dominance is the dramatic rise of American shale. It is difficult to see, over the long term, how a Saudi foreign policy focused on America as ally can co-exist with a Saudi energy policy explicitly designed to challenge the rise of America as a major energy producer.

Bold and energetic

But it is this intellectual conflict that has led to the most dramatic—and likely the most enduring—set of reforms yet instituted by the bold and energetic new leadership. For, amid Saudi efforts to ride out the storm that the collapse of global oil prices has caused, Prince Mohammad is about to implement far-reaching economic reforms, making a virtue of the newfound Saudi necessity.

It is this slate of far-reaching economic programs designed to bolster Saudi Arabia in the new age that is the single most important initiative the government of King Salman could hope to undertake. For all the hoopla surrounding the meaningful changes in foreign and energy policy, it is by these new economic policies that history will judge the present regime.

And in a very real sense, the scope of the daring nature of Prince Mohammad is breath-taking, recalling in a very different context the heroic days of Margaret Thatcher. In a nod toward the market, the Saudi 2016 budget includes steep increases in the prices of petrol, electricity and water, though they do remain subsidized to a large extent.

The Deputy Crown Prince has gone on the record, saying he is committed to new taxes (in an effort to bring stability to the country’s budget), vitally a VAT surcharge of five percent, as well as new levies on sugary drinks and cigarettes, and vacant land. All these dramatic steps to stabilize the country’s finances will be greatly welcomed by foreign investors, as they amount to a real effort to master a budget deficit that now amounts to 15% of GDP in 2015.

Most arrestingly, the Deputy Crown Prince has talked openly about the partial privatization of Aramco, the jewel in the crown of the Saudi energy empire. This could amount to the new big economic event on the planet, as Aramco is among the biggest and most important companies in the world.

The Deputy Crown Prince signals that the state wants to retain overall control of the company, while allowing the private sector a possible minority stake that would expose Aramco to the rigors of the market, enabling it to better compete around the world. If this were to happen, the proposed Saudi economic reforms would amount to a historical sea of change, the first major definitive good news in a region crying out for a new positive narrative. In such a case, the hopeful and dramatic first year of King Salman would be historically fulfilled.

Dr. John C. Hulsman is the President and Co-Founder of John C. Hulsman Enterprises, a successful global political risk consulting firm. An eminent foreign policy expert, John is the senior columnist for City AM, the newspaper of the city of London. Hulsman is a Life Member of the Council on Foreign Relations. The author of all or part of 11 books, Hulsman has given 1500 interviews, written over 510 articles, prepared over 1280 briefings, and delivered more than 470 speeches on foreign policy around the world.

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