Saudi Arabia: Night of the Long Knives

Published on November 6, 2017

The events of the last 48 hours in Riyadh have been without parallel in Saudi Arabia and are alarming in their implications for Saudi political stability, Al Saud succession, and oil prices.

A stunning sweep of arrests, including eleven Al Saud princes, a half dozen standing or former Cabinet officials, and dozens of high profile media executives and prominent businessmen, were undertaken across the capital late Saturday night by security forces loyal to Crown Prince Mohammed bin Salman. The arrests came within a few hours of a Royal Decree issued by King Salman, the Crown Prince’s ailing father, ousting Prince Miteb as head of the National Guard and sacking the Economy and Planning minister.

Oil prices have already popped up in the first hours of trading this morning.

*** The arrests, taken under the guise of a very high profile anti-corruption drive only thinly disguise their profound political motives, a calculated pre-emptive strike to remove the last remaining pockets of potential opposition to the enormous consolidation of power in the hands of the ambitious, 34-year-old Crown Prince. The dramatic moves, without legal process or formal charges, means MbS, as he is widely known, has with remarkable speed established a firm grip over the military, intelligence, and security forces of the Kingdom as well as put himself in charge of every lever of economic and financial policy making. ***

*** The Crown Prince’s frenzy of promised economic and social reforms is said to be immensely popular with younger Saudis who have yet to reap the benefits of the Kingdom’s wealth. He has already reined in the Mutawa, or religious police, and has promised women the right to drive among other secular oriented reforms. Breaking up the established old guard of the economy, eradicating the extensive corruption of middlemen and commissions to well-placed Princes are all good, even noble, and certainly necessary ambitions if Saudi Arabia is to finally adjust to a more modern, diversified economy. ***

*** In the process, MbS has torn up the Saudi rulebook of incremental change in a still enormously conservative society and a long established, carefully balanced rule by the Al Saud based on coalitions and allegiances among the key branches of the sprawling Royal Family. MbS is now on his own, and must deliver on his social and economic promises. Indeed, we fear the dramatic purge in Riyadh this weekend and its political consequences will invariably take some time to play out domestically, and the tail risk of counter moves within the Royal Family to resist or reverse the enormous consolidation of power with MbS cannot be ruled out. ***

*** What’s more, the pace of promised changes of an economic and social transformation — amid an economy that is in fact in recession, coupled to the disastrous war in Yemen and a flailing confrontation with Qatar — are raising serious questions over the economic outlook. Private sector uncertainty — who is next? — is likely to stall economic activity at least to some extent in the near term and could swell capital outflows as well as restrain foreign investors waiting for any political fallout. What’s more, there is always a risk the Kingdom’s enemies, be it ISIS or its regional rival Iran, may seek to exploit perceived Saudi political vulnerabilities. ***

*** The dramatic turn of political events, as well as Riyadh’s harsh rhetoric blaming Iran for the dramatic, Houthi-launched ballistic missile strike on the capital, is already putting a higher risk premium into oil prices that is likely to be sustained over the near term. MbS’s high stakes gamble should also underscore how committed the Kingdom is to an “all in” oil price strategy. While we understand the Saudis and Russians are firmly committed to extending the current oil output agreement, rising oil prices will tend to undermine output discipline that is likely to translate into highly volatile oil prices over the coming months. ***

Unprecedented High Profile Arrests

Some seriously high profile Saudi private sector names were among those swept up in the midnight arrests on Saturday, among them Osama bin Laden’s cousin Bakr bin Laden, chairman of Saudi Binladin Group; Saleh Kamel, the billionaire head of the Dallah Baraka banking group who pioneered Islamic banking and who has major projects in Mecca; and all three heads of major Saudi media companies.

The arrests were made within hours of the establishment by royal decree by King Salman on Saturday of a new anti-corruption committee chaired by MbS. Its mandate is “identify offenses, crimes, persons and entities involved in cases of public corruption,” including what is described as “administrative corruption.”

It is empowered with the right to issue arrest warrants, freeze bank accounts and securities portfolios, and impose travel restrictions. It is also empowered to prevent the transfer of funds or the liquidation of assets, and take other “precautionary measures” until cases are referred to the judiciary.

The arrest of Prince Alwaleed bin Talal captured most of the headlines in the US press due to his extensive investments in the West through the Tadawul-listed Kingdom Holdings, as well as his very public spat with then Republican presidential candidate Donald Trump who has closely aligned the US with MbS.

Alwaleed is in fact less known inside the Kingdom than his father, Prince Talal bin Abdul Aziz, the infamous “Black Prince” who in the 1960s fled to Cairo to join the Egyptian President Gamal Abdul Nasser and call for the overthrow of King Faisal to create a democratically elected Saudi government.

Closer to home, Prince Talal is also believed to have been among the three dissenters last June on the Al Saud Family Allegiance Council opposing the elevation of MbS to Crown Prince when King Salman issued the decree ousting MbS’s arch rival for power, the then Crown Prince and powerful Minister of the Interior Prince Mohammed bin Naif.

No further dramatic big name action is said to be contemplated, and the Saudi legal and court system is hardly prepared to handle a huge number of anti-corruption cases. It is also not clear what formal charges will be filed against Alwaleed, or indeed if any charges will ever be filed against him or any of the others arrested over the weekend.

There is likewise no harsh prison terms or imprisonment expected for those arrested, and indeed, they were all put up in the five star Ritz Carlton in Riyadh and other high end hotels. (Ironically, the hotel was where MbS held his international conference promoting Saudi Arabia as an investment destination, including the grandiose plans for an entire, liberal-envisioned city to be built on the Red Sea on the northern border, less than two weeks ago).

But casting out a further anti-corruption net of the middle and lower echelons of both princes and businessmen could still take place to further send a signal that all those involved in corruption will be caught. This next wave of anti-corruption efforts may start with those involved in last year’s fiasco in Jeddah projects that failed to save the city from flooding, resulting in the loss of a large number of lives. This will be another popular move by MbS, as the Jeddah debacle still rankles many Saudis.

In any case, the objective behind the arrests was more for a public political chilling effect. MbS does not tolerate anyone being in the limelight too much, and more to the point, wealthy prince or high profile Saudi businessmen could use their wealth to fund media and other challenges to MbS and his economic and social policies. The removal of the part owners the Al Ibrahims of the MBC media network underscored this intended message.

Political Moves to Consolidate Power

As dramatic as the anti-corruption arrests were, the more lasting moves made on the weekend were more overtly political in the further consolidation of MbS’s power.

The most significant move this weekend was the ouster of Prince Miteb bin Abdullah, the son of the former King, as head of the Saudi Arabian National Guard, or SANG, the Kingdom’s long standing tribal-based internal security force that acted as a counterweight to the army. It is not clear if Prince Miteb has actually been arrested as well as dismissed, but if so, it would have to be very delicately handled as some of the tribal forces could resist orders not issued directly by the King.

SANG has been in the hands of the Abdullah clan for most of Saudi Arabia’s modern existence while the Saudi military has long been under the control of the Sultan wing of the family, at least until King Salman put his MbS in charge of the defense ministry in 2015, while the third pillar of the Saudi security, the Ministry of Interior, was under the helm of the al-Naif clan. That too changed with Crown Prince Mohammed bin Naif’s ouster last June.

Miteb had effectively been in command of the National Guard since his father, then Crown Prince, became the country’s de facto leader in 1996 after King Fahd’s stroke. Miteb’s position was bolstered in 2013 when the then King Abdullah elevated Miteb to ministerial rank and the National Guard was given its own ministry.

Miteb’s removal from power removes the last potential hard power threat to MbS and eliminates Abdullah’s Shammar branch of the Royal Family from the senior echelons of Al Saud power, as Miteb’s brothers, Mishaal and Turki were already removed from their positions in 2015. The Abdullah clan’s chief ally within the family, Prince Muqrin bin Abdul Aziz, was removed as Crown Prince by royal decree shortly after King Salman ascended to the throne. As fate would have it, his son, Prince Mansour bin Muqrin, the deputy governor of the Asir province bordering Yemen, was killed in a helicopter accident this weekend as well.

Prince Khalid bin Abdulaziz bin Ayyaf, whose father is from one of the lesser wings of the Al Saud and lacks any important independent power base or wealth, has been appointed as Miteb’s replacement. Even in the last few years under Prince Miteb, SANG’s independent arms procurement had been sharply curtailed and taken over by the Ministry of Defense under MbS ever since MbS wrestled control of budget policy a few years ago, and most believe the tribal units will be slowly merged with the existing Army command.

The weekend arrests even reached into Saudi Aramco, by including Ibrahim al-Assaf, the former finance minister who was until yesterday a serving member of the Saudi Aramco Board of Directors. Assaf’s arrest is said to be based on charges of corruption in contracts awarded to an expansion projects in Mecca. But his lack of enthusiasm for the Saudi Aramco IPO may have been a factor in his arrest. Al Assaf was also one of the last Cabinet ministers not hand-picked by MbS, having served as finance minister for 13 years during the reign of Abdullah.

He reportedly defied an attempt by Adel Fakeih, an MbS protege appointed to head up the Economics and Planning Ministry at a meeting of the Cabinet of Ministers early last year, to take control of the Saudi Arabian Monetary Agency’s management of the Kingdom’s vast foreign reserves and oversight of the Saudi riyal currency policy. Al Assaf successfully rebuffed the effort as a jurisdictional issue, but it perhaps was a foreshadowing of his fate to come.

Ironically, Fakeih has himself been sacked, after a meteoric climb into the highest ranks of cabinet ministers under MbS. Besides his position as Economic and Planning minister, Fakeih also served on the supreme council that oversees Aramco, created in September 2015 and headed by MbS. Some reports were circulating that Fakeih was arrested as he was heading to the airport for a trip to New York.

Whether true or not, his demise underscores the widening gulf between the ambitious aspirations of the fast paced reforms promised to MbS by Fakieh and his army of foreign advisors (that allegedly cost hundreds of millions of dollars) and the reality of such limited progress to date. Someone had to take the blame for the setbacks and Fakeih’s lack of inter-ministerial relationships made him an easy target.

A Politically Uneasy Near Term

It is unclear how the stunning moves will play out in the coming weeks. We will be watching closely for countermoves within the Family or appeals by senior members of the Royal Family to the King to limit his son’s powers. Likewise, MbS’s control and command over all the units of the tribal National Guard, especially those drawn from the northern al-Shammar tribes most loyal to the Abdullah clan will be critical.

Again, the popularity of the promised economic and social reforms across the broader Saudi society beyond the Princes and the established business interests should not be overlooked. At the same time, moving too rapidly, especially on social reforms like the right for women to drive or the curtailment of the Mutawa, or any evidence of Saudi Arabia becoming too quick to embrace secular changes could bring out considerable, even violent resistance from the religious right.

As a reminder, it was this month less than 30 years ago that the Mecca complex was seized by Juhayman al-Otaybi and some 500 supporters seeking to overthrow the Al Saud and Wahhabi Ulema in fierce accusations of royal corruption and for allowing the Kingdom to slide towards becoming an infidel state.

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