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CWA # 304, 28 June 2020

MIDDLE EAST
Yemen and Oil, MBS’s two-path destruction in Saudi Arabia

  Padmashree A

The Crown Prince, who decided to enter the conflict in Yemen for regional power gains, has become a bog for Saudi Arabia. After five years of continuous war and exhausting its reserves and allies, the country has called for a ceasefire.

The devasting and ill-timed war in Yemen, falling oil production, and the unveiling of Vision 2030: the political specter of the Crown Prince of Saudi Arabia Muhammad bin Salman (MBS) has taken a hit as the global tide is fast-changing against him. Until recently MBS was seen rapidly ending the regressive national laws such as flogging, allowing women to take up driving jobs and promising to uplift Saudi Arabia at national, regional, and international levels. In a few years, the future king now looks to bear the cost of his own political and economic blunders. What lies behind MBS motives to withdraw from Yemen? How far can the leadership, sustain the economy with a hit in oil prices? Will the economic recession prolong jeopardizing his Vision 2030?

From a Bang to a Whimper, Saudi Arabia’s Costly Yemen Intervention

The Crown Prince, who decided to enter the conflict in Yemen for regional power gains, has become a bog for Saudi Arabia. After five years of continuous war and exhausting its reserves and allies, the country has called for a ceasefire. In the process, an alternative was opted by the Prince to contain the advancement of the Houthis by imposing economic blockades that choked the country of food and medical supplies. The strategic choking by MBS backfired not only due to the domestic pressure, but it also drove the Houthis closer to Iran, allowing the extremist groups to get control in Yemen. 

The global image of MBS was tarnished after the conflict in Yemen coincided with a famine, turning it into a humanitarian crisis. The reckless actions of the Prince came under criticism by many humanitarian crises groups. For MBS the chances of winning looked thin, but he continued for the fear of losing the status quo. This vindicates the short-sightedness of the Prince to go ahead with a costly and devastating engagement in Yemen. The fall in arms supply and loss of goodwill has made Salman realize that Yemen can no longer be his game. 

A short-sighted economic decision in oil exports

The energy dominance of the country has diminished by the short-sighted economic policy of MBS. Without anticipating the Covid-19 situation or the fragile state of the economy, MBS decided to fill his buyers with cheap oil. Provoked by Russia to compete in the oil market, the oil price war has cost his entire country to lose its oil industry. As countries went under lockdown, shutting their industries and working from home, the need for oil went below the demand curve. But never did the young ruler realize, what will happen if there was no storage left and demand remained deficient. 

Saudi Arabia was majorly dependent on oil exports and its non-oil sectors such as construction industries were linked to the revenues from oil. If the demand tends to stay critical, the country's budget will dive short estimating 2 billion dollars per week thereby making it vulnerable to face the pandemic. Although in recent days with ease in lockdown, the demand for oil has begun however there can be no affirmation for the prices to rise. 

Economic recession challenging the leadership

The fall in the demand curve of oil and the pandemic has overturned the economic promises with which he was able to politically consolidate as a leader. This is only an addition to the weight of the economy because the country has been under a slump in the last two decades. When Prince Salman was made the de facto ruler, he chose to open up the economy and created the Vision of 2030 to bring a new look to Saudi Arabia. In his vision, the Prince first aimed to break from being an oil producer by privatizing Aramco and diversify into other industries such as entertainment, sports, and films. Secondly, he sought to reduce youth unemployment by turning Saudi Arabia into a center for investments. But all seems to be in vain due to misdirection of the kingdom’s asset reserves. 

Starting with the miscalculation of intervening into Yemen that led to heavy economic costs and the pandemic further weakened its oil industry. The oil shocks seem to have an asymmetrical impact on its economy thereby affecting the government expenditures. The main reasons for the recession are the existing lapse in the growth of the Saudi economy followed by the actions of a self-centered young ruler to portray his lavish image to become the future king.

Saudi Arabia’s staggering future with MBS

This crisis poses a critical question on the leadership of Saudi Arabia as tripling VAT and cutting subsidies cannot be an answer to the economic recovery. The lapse in the economy must be altered with growth in non-oil GDP. It should privatize transport, telecommunication, and construction. And only through a redirection of the country’s sources towards the development of the economy and redrafting the foreign policy towards the US and Russia, will Saudi Arabia make substantial realignments. 

The political system has been unclear and the coronavirus crisis makes it more doubtful on MBS to carry out various divisive measures. As a Prince, his power to influence and status has grown weaker in the Middle East. Despite his efforts to bring foreign investments through social and cultural openness, the economic recession will be a challenge for the future king. But in the view of internal and external events, it is clear that Muhammad bin Salman as a de facto ruler has failed to use his power productively. His decisions have become a deadlock for Saudi Arabia and the Vision 2030 seems bleaker.

About the Author

Padmashree A is a Research Intern at NIAS. She is pursuing her Master's in International Relations from Stella Maris College, Chennai.

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