* Saudi Arabia: Palace Intrigue At A Time Of Transition

from STRATFOR -- this post authored by Reva Bhalla

In the past two weeks, Saudi Arabia has outraged the world with the execution of Shiite cleric Nimr al-Nimr and sent investors into a frenzy over the possible sale of shares in the world's largest oil company, the Saudi Arabian Oil Co.
Many observers attribute the country's behavior to the dominant royal personalities of the day. Western media have described Deputy Crown Prince and Defense Minister Mohammed bin Salman, the 30-year-old favored son of King Salman, as arrogant, naive and impulsive, and they have credited him with steering the Saudi kingdom into somewhat unpredictable territory.
The young prince recently revealed himself further with a lengthy interview he granted The Economist - a stark departure from the Saudi royal tradition of delivering terse public statements to tightly controlled state-owned media. He spoke relatively freely about his desire to liberalize the economy and defended his country's policies toward Iran. However, the prince downplayed his role in building a more aggressive Saudi policy, stressing that the kingdom is "a country of institutions," where relevant ministries provide information to a king who makes the final decisions.

This is perhaps too generous a description for Saudi politics. After all, Saudi Arabia is better known for its emphasis on family and tribal politics than for its institutional maturity. However, there is certainly more driving the kingdom's actions than a novice prince with an appetite for risk.
An Uneven Playing Field

When you look at a map of the Middle East, three geographic features stand out: the Anatolian land bridge, the Iranian plateau and the Arabian Peninsula. Not coincidentally, these formations constitute the three most active powers in the Middle East today: Turkey, Iran and Saudi Arabia. But Saudi Arabia doesn't have the historical prestige Turkey and Iran do. The Turks and Persians were able to create unique civilizations and vast empires from their well-defined and buffered cores. Access to resources, popular trade routes and heavy migratory traffic gave rise to large populations and a working class. Institutions were created and refined over time to manage its citizens, its national defense and its commercial interests.

The Arabian Peninsula's story is quite different. Until oil was discovered in the 1930s, the harsh and barren landscape forming the core of the peninsula was home to only a small number of desert nomads who would survive off the camel caravan trade and raids on small oasis towns controlled and fought over by competing tribes. It was a simple, independent and rather unambitious life in this forbidding interior.

As T.E. Lawrence described in the early 20th century:
The Bedouin of the desert had been born and had grown up in it, and had embraced this nakedness too harsh for volunteers with all his soul, for the reason, felt but inarticulate, that there he found himself indubitably free ... in his life he had air and winds, sun and light, open spaces and great emptiness. There was no human effort, no fecundity in nature: just the heaven above and the unspotted earth beneath. There unconsciously he came near to God ... the Bedouin could not look for God within him: he was too sure that he was within God. He could not conceive anything which was or was not God. He alone was great, and yet there was a homeliness, an everydayness of this climactic Arab God, who was their eating and their fighting and their lusting, the commonest of their thoughts, their commonest resource and companion. ... They felt no incongruity in bringing God into their weaknesses and appetites, and invoked his name in the least creditable causes. He was the commonest of their words: and indeed we lost much eloquence by making him the shortest and ugliest of our monosyllables.

Lawrence, arguably the ultimate romanticist when it came to Bedouin life, elegantly articulates the deep religiosity in Arabia that so deeply unnerves observers in the West. It was in the upland region of the Najd - in the center of the arid peninsula, with the inhospitable al Nafud desert to the north, the Rub al Khali (or "Empty Quarter") to the south and the Hijaz Mountains to the west - where the austere Sunni sect of Wahhabism took root. This sect created a religious platform for the House of Saud to eventually carve out a state through conquest. The Najd-rooted state would include the more cosmopolitan Hijaz region - an area vital to trade and containing the holy cities of Mecca and Medina - and the fertile oasis area of Qatif and al Ahsa in eastern Arabia, where a Shiite-majority population stretches into Bahrain.
Internalizing the Iranian Threat

This historical backdrop informs much of Saudi Arabia's current behavior. The 84-year-old kingdom has been resilient in the face of jihadist rebellion, oil crashes and invasions of Kuwait and Iraq in decades past, but it is also very uneasy. Oil is the House of Saud's primary means of taming unrest at home and buying influence - and security - abroad. The majority of that oil lies in Eastern Province, where the demographic balance shifts in favor of the Shiites. The problem for Saudi Arabia is that it cannot be reasonably confident in its own military capabilities to defend those oil assets from interested parties in Tehran.



The Saudi royals remember well the last time Washington tried to work with Iran and Saudi Arabia simultaneously to manage the Middle East. During U.S. President Richard Nixon's administration, this was known as the "Twin Pillars" policy, but the Saudi royals knew that they were second-class allies to the White House compared to the Shah's Iran. In fact, Iran used its close relationship with the U.S. administration to present itself as the defender and U.S. military partner for all Gulf oil interests. From the Saudi perspective, this created the possibility that Washington would turn a blind eye and give Tehran implicit support to take control of the Arabian shore of the Persian Gulf. Today, Saudi Arabia can take comfort in the knowledge that the mullahs' Iran will not have nearly as close a relationship with the White House as the Shah's Iran. However, especially in light of the Iranian nuclear agreement, the Saudis also have to think longer term about the potential for politics to evolve in Tehran and for a deeper rapprochement to develop between Riyadh's primary security guarantor and its primary adversary. Moreover, Iran's covert arm will pose a more serious threat to Saudi interests - particularly in sensitive sectarian zones - once Tehran is no longer bound by sanctions.

Therefore, Saudi Arabia's policy is designed to take no chances with Iran. As soon as Shiite protest activity emerged in Bahrain in 2011, Saudi Arabia swiftly sent troops to occupy the island in defense of the sheikdom's Sunni rulers. When al-Nimr condemned the Saudi royals in 2012 and called on fellow Shiites in Eastern Province to rise up in protest against Saudi repression, Saudi authorities threw him and other activists in jail for "foreign meddling." Al-Nimr's execution on Jan. 2 was a calculated risk by the Saudi leadership to demonstrate the heavy hand Riyadh is willing to use in silencing dissent and denying Iran the chance to use the Saudi Shiite population to destabilize the kingdom.
Stress Testing the Coalition

Countering Iran on a regional level is not a mission for the Saudis alone. The kingdom's leaders understand that they are operating in an old and uncomfortable relationship in which Riyadh's interests and Washington's interests might not align neatly. What Saudi Arabia needs is a coalition that it can rely on to defend its interests and compensate for its own weaknesses. Even a cold war with Iran fought across the region requires ample resources. And with Saudi foreign policy getting more expensive amid low oil prices and more competition with Iran, Riyadh will be looking to share this burden. Saudi Arabia has been very active under King Salman in courting countries like Egypt and Pakistan for manpower in Yemen and Syria. Saudi Arabia also has been willing to work closely with the other big Sunni heavyweight in the region, Turkey, in trying to tilt the regional balance back toward Sunni interests. Saudi Arabia's financial largesse has been used to purchase alliances among smaller exploitable players such as Sudan and Eritrea. The more allies Saudi Arabia can claim, the more it can preserve its own resources and the more attention it will demand from Washington.

In the wake of the al-Nimr execution and the storming of the Saudi Embassy in Iran, Saudi Arabia was able to see who among its allies would cut or limit diplomatic ties with Iran in solidarity with Riyadh. The United Arab Emirates, Bahrain, Kuwait, Qatar and Sudan passed that test, while others mustered diplomatic condemnations. Yet Saudi Arabia will need more than diplomatic backup to prove that its coalition has substance. Proxy battles fought across the region, from Yemen to the Levant, will require countries to sacrifice blood and treasure in these battlefields - a hard sell for many who would prefer to maintain more plausible deniability and can afford more balance in their foreign relationships.

There is also an ideological obstacle in Saudi Arabia's coalition-building efforts. Working with a country as vital as Turkey, led by the Islamist-rooted Justice and Development Party - or a maverick Gulf sheikhdom like Qatar, which (like Turkey) promotes a number of Islamist groups in the region - or luring a militant group like Hamas away from Iran requires a certain tolerance for democratic Islamist movements. This is a bitter pill to swallow for the Saudi royals, who largely have seen Muslim Brotherhood-type movements as an existential threat to the state.

The kingdom has fostered deep religiosity through a Wahhabist doctrine that pervades everyday life, but the al Saud family also drew a clear line between the religious establishment and the political establishment to prevent challenges from religious leaders. The Muslim Brotherhood's approach of blending Western-style democracy with Islamic governance simply does not comport with the model designed by the House of Saud. At the same time, the Saudi leadership, particularly under King Salman, has realized the limits of a zero-tolerance policy toward Muslim Brotherhood factions. In fact, King Salman's Saudi Arabia has engaged openly with Muslim Brotherhood affiliates, including the al-Islah party in Yemen, Hamas and the Ennahda party in Tunisia.

Saudi Arabia's willingness to deal with such groups has helped heal some of the wounds in its coalition while aggravating others. On the one hand, Saudi Arabia can work more effectively with Turkey and Qatar in crucial battle zones like Syria. On the other hand, Saudi Arabia runs the risk of sowing more distrust with the current Egyptian government and the United Arab Emirates, both of which believe the Muslim Brotherhood is best dealt with through force alone. For Saudi Arabia to build a viable coalition for operations in Syria, it will need Turkey and Egypt to get along. This is why, with Turkey's urging, Saudi officials have been quietly leaning on the Egyptian government to soften its stance on the Muslim Brotherhood and mend ties with Ankara. Egypt will do just enough to secure Saudi financial assistance and could re-engage with Turkey, but resetting Cairo's virulent disposition toward the Brotherhood will take a lot more than Saudi money.
Revising the Social Contract?

The more interesting question may be whether Saudi Arabia's willingness to work with Muslim Brotherhood affiliates abroad will translate to any political opening at home. The Saudi leaders can see that the Saudi social contract - bartering material comfort from oil wealth for unquestioned support to an absolute monarchy - has its limits. This is particularly true when the price of oil is in danger of sinking to the $20s and structural weaknesses in the global economy indicate that prices will stay low for an extended period of time. Saudi Arabia has room to cut production and shave off excess supply in the oil markets, but any space it cedes would be filled by Iran, which is eager to sell its oil after years of sanctions, and by agile U.S. shale producers seeking a more viable price environment.

Rather than try to control the market, Saudi Arabia is preparing to endure a long period of painfully low oil prices, taking on more debt, reducing subsidies, drawing down reserves, selectively introducing taxes and loosening the reins on the economy to allow more private investment. As Mohammed bin Salman claimed in his interview - and as Saudi Aramco confirmed in a subsequent statement - the state-owned oil giant is considering selling shares to raise money. Although this is a radical shift for Saudi Arabia, it probably will occur in small steps. The potential for foreign participation likely will be limited to the downstream sector, such as petrochemicals and refining. Still, Aramco is the crown jewel of the House of Saud, and the change in overall policy direction will undoubtedly be a controversial one for the kingdom. Bin Salman's talk of liberalizing the economy is reminiscent of Gamal Mubarak, the son of former Egyptian President Hosni Mubarak, before the military moved against him, and of a freshly inaugurated Syrian President Bashar al Assad before the old guard pushed back against his neo-liberal policies. Saudi Arabia has pragmatic reasons for restructuring its economy in such depressed conditions - especially as the state must find some way to employ its burgeoning youth population - but vested interests and royal competition could stymie some of these efforts.

Reducing subsidies and trying to introduce taxes in a depressed job climate without substantially revising the social contract poses an obvious dilemma for Saudi leaders. The kingdom is already close to completing a transition from the second generation of leaders dominated by the "Sudeiri Seven" (the seven sons of Ibn Saud's favorite wife, Hass bint Ahmad al-Sudeiri) to the much larger, more diffuse and more competitive third generation. Introducing changes to the system to allow some degree of political representation outside the family probably will become more difficult the further Saudi Arabia goes down the succession line.

At the same time, young leaders like bin Salman potentially have many decades ahead of them to steer the Saudi state. A leader who comes into power at an early age has the advantage of a longer planning horizon. Bin Salman must be contemplating a future in which declining production and technology breakthroughs could mean that the Saudi state eventually will not be able to rely on oil to underpin the state. Notably, King Salman appears in tune enough with his son's ideas right now to give him considerable room in defense as well as economic policy. In early 2015, bin Salman's lengthy list of appointments included chair of a 10-member Supreme Council for Saudi Aramco and chair of the government Council for Economic and Development. Breaking a tradition of limiting Saudi royal reach into the state oil company, Saudi Aramco was split off from the Ministry of Petroleum and bin Salman was given direct oversight of the company. Next in line for the throne is Crown Prince and Minister of Interior Mohammed bin Nayef, the nephew of King Salman and cousin of Mohammed bin Salman. The 56-year-old crown prince has no heirs, leaving the succession path clear for bin Salman as long as he stays on good terms with his cousin.

Although there is plenty of reason to be more concerned about Saudi Arabia these days, there is little reason to be alarmist about Saudi Arabia's future. The kingdom has some $627 billion in foreign reserves to fund a growing deficit, and the state still has considerable room to raise its debt. As expenses rise along with security challenges from jihadists and Shiite activists, Saudi Arabia will prioritize its internal security and defense budget to safeguard critical oil infrastructure. A Saudi-Iranian covert proxy war will escalate, but Riyadh has been quite effective so far in constricting Iranian supply lines on the Arabian Peninsula. Saudi Arabia also will be more compromising when it comes to ideology and forging strategic relationships abroad in order to manage an increasingly volatile neighborhood. This will include working with Muslim Brotherhood affiliates and working multiple, contradictory sides of the fractured Yemeni state.

Political and economic flexibility at home is still a matter of an intense behind-the-scenes royal debate. As we try to decipher that debate from outside the palace walls, there will be a natural tendency to link Saudi actions to the proclivities of a political personality like bin Salman, who appears to be the emblem of change in the kingdom. However, the forces underlying Saudi Arabia's changing behavior have been developing for some time, and a prince's policy preferences can shake the very foundation of the state they are intended to protect.

"Saudi Arabia: Palace Intrigue at a Time of Transition" is republished with permission of Stratfor.