The Winds of Change

Since the death of King Abdullah last January, and the ascension of King Salman, Saudi Arabia has repositioned itself in a strategic sense, both economically and politically.

King Salman has shuffled his cabinet twice and has named his son as second-in-line to the throne — an ambitious agenda indeed — considering the nine short months that have passed.

But more interesting things have transpired.

Both Russia and Saudi Arabia have long exported oil to China, but last May, the Russian supply surpassed that of the Saudis.  That event, along with China’s devaluation, inspired the Saudis to reassess their priorities.  Having received competitive pressure from the U.S., Russia, Iran and Nigeria (just to name a few), the decision was made to squeeze the market in the hope of knocking out its competitors.  Saudi Arabia adopted what is known as the “pump-and-dump” strategy by refusing to cut oil production, thus driving the cost down from $100 per barrel then — to where it stands today — $47.00 per barrel.  That’s a big hit when you consider 80% of their government’s economy is generated from their oil industry.

In addition to that, their military budget has increased 17% from last year, clearly a reflection of its involvement in Yemen and recent airstrikes against ISIS in Syria.

In fact, Saudi Arabia has burned through US $68 billion (or 9%) of its war chest in the last six months  — interestingly beginning three months after the death of King Abdullah.  Fund managers, too, have been asked to unload $70 billion in assets by the Saudi government while new infrastructure projects are being curtailed.   It is obvious that it’s a country tightening its belt while it waits out its pump-and-dump strategy.  But it isn’t standing still.

It recently reached out to Poland with deeply discounted oil prices, beating out Russia who had been Poland’s long-time supplier.  This has not gone unnoticed by Vladimir Putin.

His Middle Eastern strategy is that Russia’s alliance with Syria will produce a more profitable partnership between the countries — perhaps with pipelines running through Syria. It is important to Putin that the Saudis do not gain export routes in the region and that Russian strategy prevails (Bloomberg.com).

At the same time, King Salman is lending support to its allies in order to keep a strong foothold in an area whose future is seeing threats from many directions, while tightening its belt and slowing gaining market share around the world.

Last week, I asked the question of what was in it for Russia as it pertains to Syria.  It would appear that it is more important than ever for Putin to resolve the Syrian conflict on his terms, given what is at stake.

Perhaps this is a deeper and more introspective answer to that question.

 

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Laura Brooks

Published author of four books. See more about me on Amazon's Author Central.

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