Washington’s Dangerous New Consensus on China
Don’t Start Another Cold War
For the Middle East’s oil exporters, COVID-19 has been a triple whammy. Fuel prices have cratered, compounding the agonies of a global shutdown and a deadly viral outbreak. According to the International Monetary Fund, the crisis is the worst the Middle East has faced in the modern era. But for Saudi Arabia’s 34-year-old crown prince and de facto ruler, Mohammed bin Salman—whose sensational ambition and ruthless methods have made him known to millions worldwide by his initials, MBS—the pandemic has been especially catastrophic.
In April 2016, MBS unveiled what he called “Vision 2030,” a strategy for diversifying the Saudi economy over the 14 years to follow. MBS declared that by 2020 the kingdom would be able to “live without oil.” The Saudi government laid out the plan in greater detail over the months that followed, marking 2020 as the year by which the kingdom would eliminate the budget deficit, raise non-oil revenues to $160 billion, and be prepared to host a combined 18.75 million Muslims for the hajj and umrah pilgrimages to Mecca.
The pandemic has upended those plans. New coronavirus infections in the kingdom have surged in recent weeks, and confirmed cases now exceed 280,000—more, by far, than have been recorded in any other Arab country. The hajj pilgrimage was drastically scaled back, limited to at most 1,000 Muslims already living in the kingdom. The kingdom’s budget deficit has spiked, and Saudi businesses have foundered. MBS’s father, King Salman, just left the hospital on July 30 after recovering from gallbladder surgery. The official transfer of power to MBS seems closer than ever, but morale in the kingdom is low.
An ambitious leader never lets a crisis go to waste, and MBS is nothing if not ambitious. During the early days of the pandemic, he increased the kingdom’s value-added tax from five percent to 15 percent, and the government earmarked $1 billion in stimulus payments to Saudi businesses struggling with the economic downturn. MBS directed his sovereign wealth fund to shop for bargains on global stock markets. He even went nose to nose with Russian President Vladimir Putin on oil prices: when Russia refused to respect production limits set in 2017, Saudi Arabia opened the spigot, driving the price of oil down, very briefly, into negative territory. Even with oil prices back around $40 per barrel, the Saudis are left with only half the revenue they need to balance the government’s books.
MBS can still pare down his budget, but doing so will mean abandoning, or vastly scaling down, two of his personal projects. When the Saudi military intervention in Yemen began in 2015, MBS, then (as now) defense minister, was the face of the operation. But it soon became clear that the fight in Yemen would last years, not months, and the crown prince let others take the public lead. Now the fighting continues, with no reasonable chance for the Saudis to defeat the Houthis, Iran’s allies who control the capital and most of the northern part of the country. The kingdom’s military spending, driven at least in part by the Yemen conflict, is among the highest in the world, per capita: the Stockholm International Peace Research Institute estimates that nine percent of Saudi GDP goes to the military.
An ambitious leader never lets a crisis go to waste, and MBS is nothing if not ambitious.
Cutting one’s losses is never easy, as U.S. experiences in Vietnam and Afghanistan have amply demonstrated. The Saudis have issued plenty of signals that they are willing to make a deal on Yemen, but those very signals tempt the Houthis and their Iranian patrons to see victory, or some semblance thereof, just on the horizon. A defeat in Yemen would be a bitter pill for MBS to swallow, but far less toxic in the longer term than the fiscal crisis he risks at home. In the end, the Houthis and Iran will find Yemen as difficult to manage as the Saudis have, and Riyadh will have the opportunity to restore some influence there.
Yemen is not the only pet project that MBS may be forced to forsake. As part of Vision 2030, he planned to build a futuristic, robotic city in the country’s sparsely populated northwest. He dubbed this envisioned metropolis Neom, a portmanteau of the prefix “neo-” with the Arabic word for future, mustaqbal. The “new future” of the country would be high-tech, not petrochemical. But the project is estimated to cost hundreds of billions, with little guarantee of return and with many of the jobs it creates going to robots rather than people. Saudi Arabia first experimented with building new industrial cities, based on petrochemicals, in the 1970s. This urban expansion was hugely successful. Subsequent attempts to duplicate that success have missed the mark, and Neom would be the riskiest effort of all. Pushing it off would save the kingdom enormous costs, even while signaling to Saudis that the crown prince is willing to tighten his own belt as he asks Saudis to tighten theirs.
The COVID-19 oil crash has set back Saudi Arabia’s Vision 2030 plans for economic transformation, but it has opened up an opportunity as well. More than one million foreign workers have left the country in recent years, with more expected to depart as a result of the current crisis. Some were unable to afford the higher taxes and fees that came with Vision 2030. Others had come to Saudi Arabia as drivers, work that dried up somewhat when MBS allowed Saudi women to drive. And still more workers left because of the economic downturn and health risks that have accompanied the pandemic. The loss of so many consumers and workers has contributed to Saudi economic stagnation in the short term. But the government could use their absence to increase job opportunities for Saudis in the longer term.
Cutting Saudi losses in Yemen and on big-ticket Vision 2030 projects such as Neom would have been easier under the old Saudi decision-making system. A committee of senior princes, who were the ultimate decision-makers in the decades before King Salman’s ascension to power in 2015, would be able to convince even a powerful prince to scale back his personal agenda. But with decision-making now in the hands of only two people, MBS and his father, the king, the previous restraints no longer operate. Restraint, and a willingness to reconsider policies in which he is emotionally invested, will have to come from the character of the crown prince himself. Given past evidence of his judgment, such as in the killing of the dissident journalist Jamal Khashoggi, he will have to dig deep to find that kind of virtue.
The COVID-19 oil crash has set back Saudi Arabia’s Vision 2030 plans, but it has opened up an opportunity as well.
The crown prince should consider one last, very personal sacrifice for his COVID-19 to-do list. Making it will confer no immediate economic benefit but may help him sustain his country’s most important strategic relationship—that with the United States.
MBS has cultivated personal ties with U.S. President Donald Trump and the president’s son-in-law, Jared Kushner. The closeness has paid off for the crown prince, as the Trump administration supported his maneuvering within the royal family to force out his predecessor, Prince Mohammed bin Nayef, who was a favorite of past U.S. administrations; and Trump later shielded MBS from consequences within the United States for the killing of Khashoggi. But the bond between the Trump family and the crown prince has brought the Saudi-U.S. relationship into the United States’ partisan political wars. Democrats, suspicious of Trump’s motives and remembering the hostility with which some Saudi leaders regarded President Barack Obama, have become extremely critical of the relationship. As a bloc, Democratic senators now oppose arms sales to Riyadh and criticize Saudi policy in Yemen.
Saudi Arabia has never been particularly popular with the American public, but both Democratic and Republican presidents have worked to sustain the relationship at the elite level. That bipartisan elite acceptance is now at risk. The Saudis need to signal, in an effective way, their distance from the Trump administration if they want to be able to build bridges to what might be a Democratic administration in 2021.