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The collapse of the Saudi system

13 May, 2020 · News> Asia> Saudi Arabia

Amidst the upsurge of extreme navel-gazing by the national media during the pandemic, the collapse of Saudi Arabia has gone virtually unnoticed by the international press. The impact, however, is enormous. In the Arab world, comparisons are rife with the collapse of Russia and its model of state capitalism in the early 1990s, with Prince Salman playing the role of an increasingly powerless Gorbachev, racking up imperialist defeats, economic disasters and internal enemies.

Saudi imperialist discipline and assertion

Prince Salman, then formally Minister of Defense, reviews the Saudi troops on his southern border

Looking back, the turning point in the collapse of the Saudi imperialist house of cards was the scandal surrounding the assassination of Jamal Khashoggi. At the time it was a hard political blow, but no one expected its echoes to merge into the accelerated collapse of the social and economic model built on oil exploitation and the alliance with the US by the house of Saud since the end of World War II.

Prince Salman’s rise to power at the hands of his father was no surprise. Both represented the centralizing and disciplining force of the state in the face of the centrifugal tendencies of the different groups within the gigantic royal family and its close associates – the state bourgeoisie in the Saudi version. Mohammed bin Salman (MbS) quickly consolidated his power by carrying out his purges on every faction dependent on Saudi money in the region from Jordan and Palestine to the president of Lebanon himself. He thus forced a clear geopolitical bloc against both Iran and Turkey, Qatar and its protégés, the Muslim Brotherhood.

Salman, the architect and instigator of the Yemeni war, represented and led the escalation of an imperialist offensive with a focus on Iran that was expressed in various ways and attempts to form a regional bloc. From the war in Libya to Burma to Ethiopia and Sudan, Saudi Arabia and its UAE allies increasingly asserted their imperialist interests. By the end of 2017, the rumor that MbS would immediately inherit the throne to conduct a war against Hezbollah, Iran’s main military stronghold outside its territory, was commonplace. The US was already lagging behind and still trying to portray MbS as the prince of modernizing reforms and the fight against corruption. Neither Britain nor the United States wanted any disagreement with the new leader when his main economic plan was to take Aramco, the national monopoly of fossil fuels and the world’s largest oil company, to the stock exchange. It was a big bait. A place of “assured” profitability for gigantic masses of capital, with possibilities of earning a return and a long future ahead.

The “Khashoggi affair” blew up Aramco’s entry into the stock market, ruining the terms and at the times planned by MbS. In the end, with a lot of effort, Aramco was partially floated on the Riyadh stock exchange, with the aim of following the process, but with much less attractive results than expected. The turbulence of the crisis and the increasingly chaotic global imperialist game did the rest.

Further reading

Oil, Russia and the fall in energy demand with the covid

Putin and Mohammed bin Salman meet in May 2017 in the Kremlin.

The importance of Aramco’s stock placement was such for Saudi imperialist strategy that from May 2017 to the end of 2019 the meetings with Putin and the emphasis on the convergence of interests were followed by successes and smiles. On the other hand, the Iranians were playing with the privatization calendar in their own way: in September a missile attack on Saudi refineries thwarted new speculative movements and as a result led to the gateway to a direct confrontation between the US and Iran. With its Aramco strategy Salman had offered too fragile and too obvious a flank to its enemies. Every bombing from Yemen, every mishap aired in the press, added sticks to his wheel.

And into that came the Covid. On February 27th, the pilgrimage to Mecca was cancelled. An economic blow and a reason for political radicalization, which Salman attempts to contain with a new purge of the royal family. They are no longer accused of economic crimes but of treason. The pressure is growing.

But the methods that work at home are no match for Russia. The agreement on oil prices is deadlocked and the Saudis start a price war. Moscow replies that it is balancing the state budget from $42 a barrel to $83 a barrel for the Saudis. Putin boasts that Russia can withstand an oil price war at $25-30 a barrel for ten years. Demand, meanwhile, is starting to fall and the barrel has a first drop to $34. Aramco sees its profits drop by more than 20%. Analysts are wondering whether OPEC can be definitively considered dead and rumors of a dethronement are becoming more and more insistent.

Neither Trump’s mediation nor the talks with Russia are of any use in the face of falling demand. The fossil fuel market is collapsing and the future of the sector points towards its accelerated global transformation.

Collapse

Riyadh in lockdown.

In the midst of the disaster, the pandemic is beginning to spread throughout the country. Almost two million of the more than 10 million migrant workers without rights left the country when they lost their jobs due to the slump in production. Confinement meant no more than hunger and jail for them, as local companies even kicked them out of the barracks where they were housed to avoid the tax on hiring foreign labor.

The Saudis, for the first time, are being perceived as being weak in relation to their neighbors. Turkey is the first to bite, blocking broadcasts and the Saudi and Emirati press on its territory and in its area of influence. The coalition that maintains the war in Yemen against all odds, crashes when the independence fighters in Aden, who had already made an attempt between January and August 2019, unilaterally declare “self-government”. Underneath, the tension with Salman’s most faithful ally: the United Arab Emirates.

But the worst was yet to come. The US, independently of Salman, announced that it was beginning to dismantle the Patriot missiles deployed after the bombing of the refineries from Iran. Iran immediately announced a prisoner exchange with the US without any preconditions. In case there was any doubt about the American attitude, the Secretary of Defense, Esper, began to talk openly about a withdrawal of US troops in Sinai.

Saudi Arabia is no longer “the ally we cannot fail”. Between January and April, the state has lost 22% of its revenue, Aramco has lost 25% of its profits, and Anglo-Saxon capitals are beginning to distill mistrust. They foresee internal disorder and above all a halt to the regime’s most ambitious investment projects. Saudi capital is being devalued at a fast pace with each day of confinement in the central countries. A recovery in oil prices in the coming months is unlikely. And the giant Saudi sovereign fund, with its holdings in companies around the world, is now full of great bargains to be bought off by foreign capitals- and some have done so, such as Repsol or Newcastle – but if it intends to sell… it will suffer the same accumulated losses that the stock market suffers in all the major capital destinations of the world.

And it is within this framework, with cities confined by force and repression on the rise, that the government announces the dismantling of the “Saudi system”. VAT is tripled and the “cost-of-living allowance”, which functions as a universal income and is received by all nationals, but not by foreign workers, who make up 56.6% of the workforce, is suspended. Doing so is a confession of collapse for the state. The justification of the oil state bourgeoisie centered around the royal family has been none other than to ensure the basic income of Saudi nationals – both Sunni and Shiite – by separating them from migrant workers. But even adding it all up, as drastic as the measures are for most workers, they have only covered the Central Bank’s losses for one month. These measures were not even enough to balance state budgets in the short term. In other words, the system will not be able to provide again the basic income that served to maintain the artificial division among workers and to appease the local petty bourgeoisie. The “Saudi system”, a model of the Arab oil states, won’t be coming back.