Monday, March 27, 2017

End Game for the Saudi Kingdom of Arabia by Christopher Davidson



Even in the most bearish scenario of a fully moth-balled US shale oil industry, a consensus began to emerge that such reversals would only be temporary as even modest future price rallies would soon see idled rigs roaring back to life. Moreover, with such new technologies spreading across the world, shale and other new oil production methods were thought to unlikely to remain a US-phenomena for much longer. In this sense Saudi Arabia had already lost its long-held status as the world’s sole ‘swing-producer’ capable of influencing prices on its own. Further eroding the kingdom’s historically privileged position in Western policy circles, the impact of the new oil era on its domestic economy was beginning to undermine rapidly its ability to keep recycling oil revenues back to its Western allies. Certainly even in the most bullish scenarios of oil; prices eventually trebling or quadrupling, it became evident that Saudi Arabia would soon have little or no surpluses left to keep financing its historically massive arms purchases or overseas investments.

Already there were signs that Riyadh’s difficulties were going to jeopardize its standing as the US’s primary Middle Eastern client. With several indications by the end of 2015 that Saudi Arabia had either begun to withdraw or had begun to consider withdrawing some of its holdings in US  treasury bonds.  In something of warning shot for Saudi Arabia, within weeks of these rumors the first ever mainstream media coverage of these secretive investments began to appear, with former and current US officials calling  for more details on the true extent of the kingdom’s investments in the US – an unpalatable prospect for a regime presiding over millions struggling with unemployment and poverty.

As a series of unprecedented Bloomberg reports described, the bond purchases had been part of a special agreement reached between Saudi Arabia and the US after the 1973 oil price shocks, which allowed them to remain above scrutiny and not fully included  in the Department of the Treasury’s otherwise comprehensive breakdown of more than a hundred other sovereign investors. “It’s mind boggling they haven’t undone this special agreement, its hard to justify such special treatment at this point,” argued one former  Dept. of Treasury assistant secretary in January 2016.

In March 20-16, following a fresh flurry of 9/11- related accusations about Audi Arabia in the mainstream media, Saudi Arabian officials became a bit  threatening, telling US lawmakers that if US courts too any further 9/11-related actions against the Kingdom, then Riyadh would be ‘forced to sell; up to $750 billion [sic] in treasury securities and other assets in the United States before they could be in danger of being frozen by American courts. A few weeks later the Saudi foreign minister  warned  that such actions could cause ‘an erosion of investor confidence in the US.”

Unfazed, on 17 May 2016 the Senate unanimously passed a bill allowing the families of the 9/11 victims to sue the state of Saudi Arabia for any role it may have had in the attacks. Perhaps coordinated, just five days earlier one of the 9/11 Commission members came forward in what was described ass the ‘first serious public split among the ten commissioners since they issued their 2004 reports.’ John F. Lehman claimed ‘there was an awful lot of participation by Saudi individuals in supporting the hijackers, and some of those people working in the Saudi government.” He also revealed that the commission had been aware of ‘at least five Saudi government officials who were strongly suspected of involvement in the terrorists’ support network’ and that although ‘they may have not been indicted . ,. .they were certainly implicated . . .there was an awful lot of circumstantial evidence.” More cautiously, two other commissioners also stated that ‘when it comes to the Saudis, we still haven’t gotten to the bottom of what happened on 9/11,’ and that ‘lines of investigation pursued by Congress were never adequately explored by the commission.”

Less than twenty-four hours before the Senate’s vote, and this time almost certainly in co-ordination, the Department of the Treasury chose to respond to a Bloomberg freedom of information request and finally ended forty-three years of secrecy on Saudi Arabia’s treasury bonds which, unsurprisingly, had already declined by 6% from January to March 2016.

Straining the relationship further, the new oil dynamic and mounting pressure on Riyadh was also beginning to raise the prospect that Saudi Arabia might finally have to ‘de-peg’ its riyal currency from the US dollar. Throughout 2015 speculation grew that the kingdom would eventually have little choice in the matter, as it would inevitably need some fiscal autonomy and a currency devaluation inn order to buy breathing space. Indeed, having run out of options, oil-exporting Kazakhstan and Azerbaijan had already done that, while rumors whirled that other ‘petro states’ would soon follow suit. By January 2016 the riyal was certainly more volatile, hitting an all-time low against the dollar in forward markets and with the Saudi Central Bank then warning all commercial banks in the kingdom against betting on future currency depreciation. Sensing the danger PointState Capital’s Zachary Schreiber revealed that he was shortening the Saudi riyal. As he saw it, the kingdom’s economy would be ‘structurally insolvent in two or three years,” its central bank’s asset sheet was ‘much lower than expected,’ and any selling of the Aramco ‘golden goose’ would be insufficient to meet the deficits.’

How exactly Saudi Arabia’s dramatically changing fortunes would factor into the US Middle East policy was not clear, as for some the existence of a functioning Saudi state was undoubtedly still perceived as the best option, not the least for the exploitation of its remaining hydrocarbon resources at a time when its stricken economy and major assets were about to be prized open by foreign investors. Furthermore, for those who saw the Saudi-Iran stalemate and the associated sectarian conflict as the best way to retain regional balance, the survival of Saudi Arabia as a military power was obviously preferable, especially if, as already seemed the case, it could be left to its own devices on the battlefield and corralled into further wars of attrition. Hinting at his support for such a strategy, in an exclusive conversation with the Atlantic published in March 2016, Barack Obama agreed with his interviewer that he was less likely than his predecessors ‘to axiomatically side with Saudi Arabia in its dispute with arch rival, Iran.’ He also called on Riyadh ‘to find an effective way to share the neighborhood and institute some sort of cold peace with Iran.’ Moreover, he described how ‘sectarian conflicts continue to rage and our Gulf partners, our traditional friends, do not have the ability to put out the flames on their own or decisively win on their own,’ but made it clear that if this meant the US needed ‘to start coming in and using our military power to settle scores’ then this would ‘be in the interest neither of the US nor of the Middle East.”

Not all, of course, have seen things this way, as the US and other Western powers have long planned for the prospect of the Saudi state’s collapse and, of course, how best to benefit from it. Undoubtedly by the late 2015 there were stronger signs than ever that influential elements in the West believed the kingdom must soon be framed as a former ally and perhaps even a rogue state. Riding on a relentless media wave of ‘Saudi-bashing’ articles and even denunciations of the US-Saudi alliance in the New York Times and Washington Post editorials, numerous officials and politicians, including US presidential hopefuls and British opposition leaders, all began to stake out their anti-Saudi positions.

Providing additional indications of this shift of mood, in January 2016 the British government announced it was launching a full investigation into the foreign funding and support of jihadist groups in Britain. As something that had never happened before, even after 9/11 and the July 2005 London bombings, the British press predicted its findings were likely to lead to a stand-off with Saudi Arabia. Beyond Britain, the German government also seemed to be hedging its bets, with Vice Chancellor  Sigmar Gabriel telling the media that ‘the Saudi regime poses a danger to public security through its support for Wahhabi mosques around the world’ and that ‘we have to make clear to the Saudis that the time of looking away is over.’

More subtly there is evidence that Western intelligence agencies had also begun to harden up their positions and were more willing to spill the beans on Saudi Arabia. In December 2015, for example, German intelligence uncharacteristically issued a statement declaring that Saudi Arabia was ‘destabilizing the Arab World’ and that its deputy crown prince was pursuing an ‘impulsive intervention policy.’ Starkly different to all previous public Western criticism of Saudi Arabia, it did much to shift opinion further against Saudi Arabia. Equally out of place. A few weeks later a length report in the New York Times that was ostensibly focused on Saudi Arabia’s support for CIA-backed rebels in Syria, but in fact went much deeper. Citing unnamed former diplomats and intelligence officials, it not only reminded readers of the kingdom’s role in financing the Afghan jihad but also printed the first mainstream acknowledgement of Saudi intelligence’s old “Safari Club’- an organization that used to run covert and black operations in Africa on behalf of several other countries. Going further, it also made the allegation that a former Saudi ambassador to the US had personally helped fund the Nicaraguan contras and broker the Iran-Contra deal.

If the large body of existing proof of Saudi Arabia’s activities does end up being more widely publicized, and Western governments are obliged to take action, there are it seems only limited options available to them beyond publically chastising the kingdom or perhaps imposing Iran-style sanctions. Destroying it from the outside, or mounting a Henry Kissinger-style ‘teaching it a lesson’ operation, appear distant prospects, especially given the West’s proxy-based Middle East Policy. Much more likely in this scenario is for Saudi Arabia to be maneuvered into a position in which existing regional forces are more able to degrade it from within and, if necessary, eventually destroy it. Naturally the 2008 long war re[port had considered such an outcome, with its scenario of a ‘major Muslim state going bad’ having specified the prospect of jihadist as launching a successful ‘fundamentalist uprising’ in Saudi Arabia.

In this sense, the Islamic State (of its next incarnation) may be poised to serve another important strategic function, so it is undoubtedly one of the best placed organization to drive a wedge through Saudi Arabia. AS discussed, the Islamic State not only enjoys a significant support base within the kingdom, including elements of the religious establishment, but any Saudi sponsors that it has seem to be much more diffuse and some steps removed from the sort of state-backed institutions that had historically helped finance al-Qaeda. Moreover, in the etes of many of the country’s more restive conservatives, the Islamic State’s ideologies and seductive sectarian rhetoric offer something  of a purer and more consistent vision of an ultra-conservative Sunni Islamic state than that currently being administered by the financially and militarily struggling al-Saud regime and its McKinsey-advised deputy crown prince.

The divisions certainly run deep, with fifty-two senior Saudi clerics, including associates of the royally appointed Council of Senior Scholars, and some with millions of Twitter followers, jointly issuing a pointedly sectarian statement in October 2015 asking the public to ‘answer the call to jihad’ and go to Syria to ‘aid the oppressed and the mujahideen.” Although neither the Islamic State nor any other group was mentioned by name, it was still a significant step as it brazenly undermined a 2014 Saudi decree that had designated such entities s terrorist organizations and had criminalized any attempt by Saudi citizens to go and join them. Only a few months later, a former preacher at Mecca’s Grand Mosque declared that ‘we follow the same thought as the Islamic State . . . we do not criticize the thought on which it is based.’ Reflecting on who actually started it all, however, he latter suggested that ‘intelligence agencies and other countries may have helped it to develop,, providing them with weapons and ammunition, and directing them.’ Soon after this, with the Western media reporting on a ‘flurry of new fundraising campaigns in Saudi Arabia in the wake of an Iraqi army advance on the Islamic State stronghold in Fallujah, even a spokesman for the kingdom’s ministry of interior admitted that ‘you can not control the sympathies of the people.”

From the Islamic State’s perspective, much as al-Qaeda had eventually seen it, the destabilization and the the occupation of Saudi Arabia would be a grand prize given its resources and control over the holy cities of Mecca and Medina. Though not a priority in the early days, with Iraq and Syria as the main focusm\, by 2015 Abu Bakr al Baghdadi had nonetheless begun to increase the pressure on Riyadh. Most of the Islamic State’s early attacks on the kingdom were aimed at the Shia minority in the East or the ‘rejectionist Ismailis’ in the South in an effort to underscore its better anti-Shia credentials and prove al-Saud weak. But more worryingly for Riyadh there were soon also a number of attacks on Saudi military and security targets, with a mosque frequented by special forces being blown up in August 2015, and two Saudi generals assassinated separately on the northern and southern borders, along with numerous killings and car-bombings in other cities across the kingdom. By early 2016, the frequency of such attacks had noticeably increased, with repeated gun battles taking place in and around Mecca, Bishah, and even outside the capital.

Unable to mount a convincing response to the Islamic State’s challenge and the rather asymmetrical nature of the threat, Riyadh has done little more than make mass arrests of suspects hooping at least some are key Islamic State operatives, along with issuing hollow warnings that the Saudi government will sue those who dare to compare the kingdom to the Islamic State. Meanwhile, the al- Saud regime has been goaded further by the Islamic State, which has issued maps depicting the country as a future governorate – Wilayat Najd – and has released numerous propaganda videos laying claim to Mecca. More provocatively, and something of a departure from earlier attacks on Houthi  targets in Yemen, the Islamic State also began to target Saudi-liberated Aden. By late 2015 Saudi-led forces were being killed in coordinated suicide bombings while wave of assassinations commenced, including  that of the city governor. In January 2016 the Islamic State even mounted an assault on the presidential palace while President Abd Rabbo Mansour Hadi was still inside it.

In these circumstances Saudi Arabia’s riskiest move would be to end up militarily confronting the Islamic State, either in Yemen or even worse by taking the fight to its heartlands in Syria and Iraq. With little chance of overall victory, especially if the Islamic State morphs into a more diffuse insurgency, and with Riyadh having to sustain a concurrent struggle against Iran and its allies, such a campaign would only serve to weaken the kingdom further. Nonetheless, for those who seek the demise or further debilitation of Saudi Arabia, it is certainly possible that Riyadh may buckle under pressure, as many of its concerned citizens have been calling for firmer action, while numerous Western officials and politicians have demanded it takes a more active role in cleaning up its own backyard. As US secretary of defense Ashton Carter contended, the kingdom and its Gul allies needed to stop complaining and to ‘get into the game,’ while Obama implied Riyadh was a ‘free rider’ on US foreign policy.

By the beginning of 2016 it seemed at least some senior Saudi officials had begun to think the unthinkable, with cautious statements made that the kingdom would consider deploying thousands of special forces troops to Syria to ‘fight the Islamic State.” Although the proviso was made that this would only take place under the banner of an ‘international US-led coalition,’ and even though Washington was already aware that the Syrian and Iraqi armies had managed to begin clawing back at least some territory from the Islamic State, the prospect of direct Saudi intervention, no matter how potentially calamitous and unnecessary, still seemed to be music to the US’s ears. As a Department of State spokesman put it, “We welcome this proposal by the Saudis to intensify their efforts by introducing some sort of ground elements into Syria . . .[but] exactly what that’s going to look like and how that’s going to play out I just don’t think we can say right now.”

Alea iacta est?


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