Civil war in Saudi Arabia is an outlier risk that could send oil prices skyrocketing

Saudi Arabia’s Crown Prince, the 32-year-old Mohammed bin Salman, is navigating the nation – and its vast oil reserves – through perilous times

PUBLISHED : Wednesday, 29 November, 2017, 12:12pm
UPDATED : Wednesday, 29 November, 2017, 10:34pm

I had a young friend at business school that came from a storied family who had owned and run a significant business for 147 years. I won’t name him but let’s call him Sean.

Sean’s family’s business was a senior listed company in a developed market and was run by an older family member. Armed with a fine business school education, Sean, 26, launched a bid to take the company private. He succeeded, against all odds, but only by loading the company with huge debt just before the stock market crashed in 1987. The company folded two years later – that ended a century and a half of family leadership and a merry-go-round of temporary owners and asset sales.

Youth succeeded through dedication, boldness, and perseverance – only to fail through a lack of years, perspective, wisdom and experience. It would probably have worked under most circumstances, especially if it had been delayed, but it was not to be, and the company’s independence sank with barely a bubble.

The world has watched breathlessly as 32-year-old Crown Prince Mohammed bin Salman (or MBS to his observers) and son of King Salman of Saudi Arabia launched a takeover bid for the country that is the swing pumper in the world’s oil supply.

The thought of civil war in Saudi is so worrying that few observers dare mention it by name

His rise has been meteoric, from minister of defence and crown prince in 2015 to earlier this year being made heir to the throne. During his promotions, Saudi Arabia has been seen to be uncharacteristically proactive in local politics, picking fights with extremist groups in Yemen, with the state of Qatar, and especially with Iran; a natural adversary who follows a different brand of Islam. MBS has also been seen as a liberal influence, behind the relaxation on the ban on women driving in the kingdom although dissidents still serve long prison terms and face execution.

In November, this privileged son of the family like Sean, launched an audacious bid for real power over of the kingdom, by incarcerating other powerful royals in the prison slum of the -Carlton hotel in Riyadh in a night of the long knives. To take on powerful family figures such as the high profile, 45th richest man in the world, Prince Alwaleed, owner of chunks of Citi, Twenty-First Century Fox, and Twitter, freezing their assets, in the name of an attack against corruption and profligacy is ballsy.

There is no doubt that 80 odd years of oil pumping has created a very mixed society in Saudi Arabia with indescribable wealth balanced against a struggling Saudi underclass. The young people are revolting – as everywhere, and want part of the action. The state has been increasingly paying out vast amounts to keep Saudis in the lifestyle to which they have become accustomed. The oil price collapse has driven home the fact that no country, not even Saudi, can afford to just pay its people to do nothing.

It remains to be seen whether MBS has Machiavelli as his spin-doctor, for he would demand that the next step is that the princes pay homage to him alone, or retribution will be terrible. The result could be a victory for MBS, or one or other of the princes, or (unspeakably) one of the Muslim fundamentalist groups that Saudi has spawned in recent years.

The thought of civil war in Saudi is so worrying that few observers dare mention it by name. Any option but for the first two would lead to a dramatic rise in the oil price, fatal conflict, and the likely catalyst for the next economic collapse. Saudi is a big deal in global geopolitics and any missteps will change the current world order.

So whether we agree with MBS; like him, or dislike him; it is difficult not to wish him well. We hope that he will turn out to become a responsible democratic monarch, perhaps like Bhutan, with a stable country dedicated to a greater sharing of the country’s wealth with its people and the peoples’ of the world. It is not wrong for a powerful and successful young man to have ambition – but not only will he have to know what he is doing but he (and we) will need a lot of luck for events to go the right way.

Richard Harris is a veteran investment manager, banker, writer and broadcaster – and financial expert witness