ARABIAN MIGHT

Saudi Arabia 2017 | DIPLOMACY | REVIEW

Saudi Arabia's actions in the Arabian Peninsula reflect its desire to maintain political control over the region at any cost, but its new international relationships are mapping a new path toward a diversified economy.

Saudi Arabia has made its presence known in the Middle East in recent years. The region's richest state has played a significant role in international affairs; dealing with political instability in Yemen and Syria, forming new trade and investment agreements with a host of countries, and hosting the new US president on his first foreign trip are just a few of the moments where the Kingdom has been on the international stage. Throughout it all, a few overarching principles are present in the Kingdom's international dealings: controlled growth in the petroleum marketplace, regional stability, and the establishment of new partnerships to help build skills and ensure a stable future for the domestic economy. The execution of this new strategy hasn't been without its bumps, as tensions have increased with some Gulf neighbors, but the appointment of Mohammed bin Salman as the Kingdom's new crown prince demonstrates that Saudi Arabia is committed to its a long-term vision.

OPEC

The Organization of the Petroleum Exporting Countries (OPEC) is one of Saudi Arabia's oldest and most important international commitments. The Kingdom was one of the five founding members in 1960 and ever since has played a major role in OPEC's stated mission of coordinating petroleum policies in order to ensure a stable global supply and a fair market for producers and consumers. Throughout the years, OPEC's primary modus operandi has been setting oil production targets to deal with supply disruptions or rising prices. This has been extremely successful throughout the years, but recent events have brought newfound stress to the organization. After years of rising oil prices, a rise in US shale oil production and decreased demand from China and Europe sent prices plummeting in 2014. The fall had dramatic effects on the revenues of OPEC's smaller countries, which sought to collectively limit supply, but Saudi Arabia, which had the wealth and production capacity to increase output and wait out the spell in prices, rejected such a proposal. After additional decreases in the price of oil, however, Saudi Arabia led the proposal of a 1.8 million bpd cut in November 2016, the first since 2008.

Early 2017 saw the Kingdom produce below even these agreed-upon levels as the price of oil continued to stagnate. In May 2017, OPEC and a group of non-members that included Russia announced the extension of these preexisting 1.8 million bpd production cuts in a sign that the country understands the importance of long-term cuts. This was a major step forward, but OPEC and the larger petroleum industry are still facing long-term challenges. Shale oil production isn't going anywhere; the US oil industry has grown significantly over the last few years thanks to advances in technology that have increased the stock of available reserves. The growth in production from this side has counteracted the drop in Saudi and OPEC production; the US government has forecasted that production will increase by 1 million barrels YoY by December 2017. Such a rise would dramatically alter the effectiveness of OPEC's oil cut. Saudi Arabia also faces continued tensions within the organization; the Kingdom's initial decision to raise production in the face of falling prices in 2014 allowed it to maintain revenues but damaged its relationships with OPEC's smaller members. By blocking an agreement and continuing to raise production, Saudi Arabia flexed its financial muscle but deeply harmed other members; fiscal and political issues in Venezuela and Nigeria are attributable in no small part to the fall in oil prices over the past three years. Recognizing the nature of the shifting geopolitical situation, Saudi Arabia has recently begun a forming a new oil relationship with Russia, the world's second-largest oil exporter. The leaders of the two country's oil firms met for the first time in May 2017, marking a sea change from the rivalry and lack of communication that characterized their previous relationship over the last several years. The new lines of dialog opened up between the two countries reflects shared understanding that collaboration is necessary to succeed in the new global oil environment.

REGIONAL POWER

Saudi Arabia, long a key participant in the Middle East's various diplomatic processes, has taken an even more active role in the region over the past year. The Kingdom's status as one of the central players in the region can be seen in its designation as the site of the first foreign visit of the new US administration. In his visit, President Trump affirmed Saudi Arabia's role as the United States' main ally in the region and indicated that the US would continue to provide political and economic support to the Kingdom. President Trump also announced the finalization of a USD110 billion arms deal that is part of a larger commitment by the Saudis to purchase USD350 billion of US arms over a period of 10 years. The package is the largest military deal yet between the two countries and represents a significant step forward in Saudi Arabia's military capabilities. Government officials also signed investment agreements with private US firms worth more than USD200 billion during the deal. These private deals included partnerships on healthcare, energy, finance, and defense, and were portrayed as a key part of the Kingdom's Saudi Vision 2030 plan by government officials. The goal, Saudi officials said, was to strengthen and diversify the Kingdom's domestic economy, creating a stable infrastructure that provides labor and sources of domestic revenue. An estimated 10,000 jobs are expected to be created by the energy investments alone, and the looming growth of the Saudi private sector is expected to create new opportunities for the international financial industry.

YEMEN CONFLICT

The landmark weapons deal comes at a particularly eventful moment, as the Kingdom is currently leading a military intervention in Yemen. In early 2015, Houthi rebels overthrew President Abdrabbuh Mansur Hadi, taking control of capital city Sana'a and surrounding regions. Saudi Arabia, seeking to restore Hadi's government, led a international military offensive that has brought together forces from Egypt, Jordan, and the UAE, among others, in seeking to defeat the Houthi rebels and return Hadi to power. The Kingdom has also been a leader in the implementation of a naval and air blockade. Despite the military might of the Saudi-led coalition, the conflict has dragged on, illustrating the complexities of the region. From a larger geopolitical standpoint, the conflict has been described by many as a proxy war; Saudi Arabia claims Iran is supporting the Houthi rebels, and its desire to maintain political influence over the Arabian Peninsula is doubtless one of the Kingdom's primary motivators for the conflict.

QATAR

Yemen is hardly the only place where tensions exist on the Peninsula. In early June 2017, the Saudi government surprised the international community by cutting diplomatic relations with Qatar, claiming it was destabilizing the region by lending support to militants. The move, coordinated with Egypt, the UAE, and Bahrain, led to the immediate expulsion of Qatari citizens and diplomats, the suspension of all exports, and the closing of airspace, land, and sea borders between the two countries. While the move's stated purpose reflects Saudi Arabia's commitment to ending terrorism in the region, as with Yemen, there are broader forces at work. It is widely believed that the Qatari government's growing diplomatic ties with Iran and Iranian-backed groups were a motivating factor for the decision. If so, this is yet another example of Saudi Arabia moving to reduce Iranian political and economic influence on the peninsula—a somewhat understandable goal.

NEW LEADERSHIP, NEW CONNECTIONS

In naming Mohammed bin Salman the new crown prince in late June 2017, King Salman made a clear statement about the new tack the Kingdom will be taking with regard to diplomatic issues. Just 31 years old, Mohammed bin Salman has played a significant part in the Kingdom's dealings with Qatar and Yemen in his role as defense minister, as well as leading economic reform efforts as the head of the council of economic and developmental affairs. It's a daunting portfolio, but the Crown Prince has proved able to balance both domestic and international concerns. There has been debate within the Kingdom about the best path forward, but Mohammed bin Salman's ever more visible role as a leading government representative in meetings with foreign industry and foreign leaders demonstrated his growing influence in the Saudi government. Because of this, the royal decree announcing bin Salman's ascendance to crown prince was unexpected but in keeping with Saudi Arabia's new direction over the last few years move.

With this long-term vision in mind, the Kingdom is continuing to form new international relationships and strengthen preexisting ones. Under bin Salman's leadership as defense minster, the Saudi government has begun to work more closely with Israel in accomplishing their shared goal of fighting Islamic extremism. During his Middle East tour, President Trump made the first-ever flight from Riyadh to Tel Aviv, a telling symbolic gesture that reflects the burgeoning relationship between the two countries. The Saudi government has been aggressive in forming new bilateral ties to boost investment and create new avenues for R&D. Indonesia, India, Japan, and the Philippines are just a few of the countries that Saudi leaders have visited in 2017, signing agreements that range from labor cooperation policies with the Philippine Department of Labor and Employment to petrochemical investment agreements with the Japanese government. The Crown Prince has also taken a public role in forming international partnerships, meeting with world and industry leaders in places ranging from Silicon Valley to Moscow. The overarching theme of all these agreements is a commitment to diversifying the economy and creating new networks for trade with the aim of developing a stronger Saudi Arabia.