The Course of Empire by Thomas Cole
Saudi Arabia is engaging in, in the words of the Guardian, a privatization so comprehensive it dwarfs Thatcher or even the great post-Communist Russian fire sale.
That’s…large.
It is also a consequence of the price of oil. Saudi Arabia isn’t making enough money from oil to support its government expenses.
They could directly tax or charge their population for the difference, of course, but privatization allows them to sluff off the blame. Sell assets that can charge more and cost more than they make right now, let private actors do the charging.
This kicks the problem down the line a bit, and distances the Saudi Royal family from some of the blame, but it doesn’t make much difference in the long run.
Saudi Arabia needs much more from the outside world than Saudi Arabia now produces. That’s what has to be changed, and the situation is only going to get worse. (When electric cars become the norm, Saudi is cooked, as I have noted before).
The assets the Saudis are selling are also that which make them legitimate to their population. The House of Saud bought a lot of peace from their subjects by spending a lot of money on their subjects.
When they aren’t able to do any more, their legitimacy will take a huge hit. If they aren’t doing anything for people, why keep them around?
I stand by my prediction of revolution in Saudi Arabia. Timing is always hard to predict, but 10 to 20 years seems likely.
This is exacerbated by incompetence at the top. The war in Yemen was supposed to be over in months, and isn’t; it’s a fiasco. The blockade of Qatar was supposed to bring them to heel, and hasn’t, but has pushed them into the orbit of Iran and Turkey.
The current generation of Saudi rulers are spectacularly incompetent. This isn’t surprising, it happens to all wealthy or powerful families in time when their scions are protected from the real world, which the Sauds always have been.
Buying Saudia assets located in Saudi Arabia may work out very well for some people. But it will be a political and possibly military game as much as a financial game. As such, it is only for sharks. A lot of people got hurt trying to make money after the USSR fell, and while some won big, they were a minority.
The prelude to the Age of War and Revolution chugs on.
The results of the work I do, like this article, are free, but food isn’t, so if you value my work, please DONATE or SUBSCRIBE.
Stirling Newberry
“So how much for the black rock?”
Anonymous
This is a superb post—thanks.
Dan
I laughed when I saw how much they spent on that Vision 2030 trash. For a paltry $1,000,000, I could’ve churned out the same 90’s neoliberal garbage for them, lol.
But yes, I agree with you, this won’t end well. Mohammed bin Salman will be fortunate if just ends up rotting away in exile somewhere while a Saudi-less Arabia has some sort of internal revolution.
What sort of revolution do you think it’ll be? A more secular government or a full-on Islamist neo-caliphate?
My own intuition is some even more abominable radical Islamist regime than the current ruling alliance of Saud monarchs and Wahhabist clerics. We’ve spent the last 70 years driving the Muslim world insane via our foreign policy of undermining any secular government in the Mid-East (for fear of them allying with the Soviets) and Saudi’s own religious propaganda outlets spreading Wahhabism far and wide. Until now, the Saudis could always just export their own malcontents to go die in Afghanistan, Iraq, Syria, or elsewhere instead of agitating for theocracy at home. The long-predicted “blowback” hasn’t happened to SA yet…but that doesn’t mean it’s *never* going to.
jonst
Sterling, a LOT for the “black rock”, but you have to take the crowds that will follow with them. And put them all up for a week. Every year.
Dan Lynch
Yes, instability is in the air.
.
In the meantime, I would not be surprised if the Sauds cut a deal with Russia and China to dump the petrodollar. That would not be the end of the world for the U.S..
.
The end of the petrodollar might usher in some inflation, but that would inflate away the wealth of the rich and inflate away the debt of the working class, so it might actually be a good thing. A devalued dollar would help American manufacturing. Imports would cost more, but the things we import are mostly things we can live without — cars, oil, and electronics.
.
We live in interesting times.
Notorious P.A.T.
I’d be surprised if electric cars was a disaster for the oil-producing countries. Petroleum is one of the most fantastically useful resources in the world. That we burn it for fuel speaks to our shortsightedness, not its limitations.
Ten Bears
Indeed Notorious, gasoline is the toxic waste of all else we can’t live without, from asphalt to zirconium, that we happily pay the oil oligarchy to dispose of… on their behalves.
Jeff V
God help us when that powder keg goes off. It’ll be like a metastasizing tumor of jihadis that bursts.
catsick
The collapse of SA is already in progress, they are 10 years behind Venezuala, they have sqaundered the entire legacy on war and US protection and have built up an infrastructure that will be unsustainable without massive free cashflow from Aramco. Just look at the hundreds of thousands of cows in air conditioned sheds in the dessert using huge volumes of precious vanishing water supply and eating alfalfa imported from Argentina to produce the most illogical milk supply in the world at massive cost.
Tom W Harris
Man, it sucks to be alive. But the alternative is worse – for now.
Hugh
Saudi Arabia has always been an “impossible” state. In the past, it has gotten by on huge amounts of money, hypocrisy, oppression, and sleazy, cynical deals. But it lost control of oil markets a long time ago. Its relationship with the US, its prime protector, was damaged by 9/11, Khobar Towers, its sponsoring of jihadism abroad, and its state sponsored xenophobia at home. It is a heavily overpopulated desert but still needs large numbers of foreign workers to make the place run because it doesn’t use the female half of its population barely at all and underutilizes most of its male population due to a cultural stigma attached to physical labor. Now we are seeing this generational change in the monarchy and it is demonstrating that the younger generation of Saudi leaders are even nuttier than their fathers and grandfathers. And most importantly, they no longer understand the web of deals, treachery, and payoffs that has kept the monarchy going this long. This can most readily be seen in their manic obsession with Shia Islam which has led them into backing an unpopular Sunni regime in Bahrain, counterproductive bullying in Qatar, and, of course, their costly, pointless foreign adventure in Yemen. Consider too that if this animosity is how they view their coreligionists, how they must view the rest of us.
Privatization seems another instance of the new penchant for rushing into something without even cursory consideration of the consequences. Privatizing Aramco caused a big stir a year or so ago but most of the luster quickly wore off when financial markets realized that this privatization didn’t actually include the oil. That is it was a scam: Pay an outsized premium to bear the costs of keeping up the oil infrastructure in a highly unstable country. This would be a hard sell even to the rubes. Privatizing other parts of the Saudi economy are equally problematic since they would likely increase costs and corruption, and decrease quality, likely resulting in the population becoming more not less restive.
In any case, up until the present king, the Saudis were able to kick the can of their contradictions down the road. The difference now is that they seem to be running out of road and blowing up with little they have left. Something has changed.
brian
Anne McCaffrey DragonRiders of Pern?
When the rain fell, they went north – to the bedrock of the north.
Still sticks with me.
brian
* oops..
Peter
Saudiphobia produces some strange fantasies about a collapsing desert kingdom. Some people believed that the KSA was so bad off they were going to sell their oil in bulk not by the barrel. The IPO they have planned will partly fund the largest sovereign wealth fund in the world and the other 95% if Aramco stock remaining will be added to that fund. This is not much of a fire or collapse sale but it is the largest IPO in history.
The Chinese are interested in this opportunity and may have the only SWF capable of a making this large a deal. I doubt the Chinese would be interested in trying to collect dividends from a collapsing economy run by incompetents.
The rest of their many plans will diversify their economy so their large population of young educated citizens have opportunities besides government jobs. This will help reduce overdependence on oil revenues something that todays low prices and the coming Peak Oil Demand make more urgent
different clue
One hopes the KSA can become less rich and less important without collapsing. If it collapses and the Saudi family loses authority, power and control; a nasty hyper-jihadi emirate will emerge in its place. Perhaps hordes of ISIS survivors will flood in and find supportive locals to work with in declaring an outright Caliphate of Arabia.
Vicarious revolutionaries should know by now that when any Arab Monarchy or Strongman Regime is overthrown, the replacement is always worse. It always has been up to now, and it always will be in the future. ( With the exception of Tunisia, which is worth studying for that reason).
Let us hope that every single jihadi currently within the borders of Syria can be killed within the borders of Syria. Let us hope that not one single such jihadi survives to infest Arabia if Saudi control starts to decay.
Tom W Harris
Saudiphobia, eh? Well, I guess it’s all about gettin’ paid.
different clue
@Tom W Harris
Ooooh! Ooooh! Does somebody pay for that?
Who pays for Saudiphobia, and how much do they pay?
Who pays for Saudiphilia, and how much do they pay?
Which side pays better?
Tom W Harris
I wish I knew. I could use a few extra bucks.
different clue
@Tom W Harris,
Well, if you think there is money to be made arguing either position, then you could make a few extra bucks even from the side with less money . . . if you can find out where to apply.
For myself, I live on the money I make from bi-weekly wage work. I don’t have the energy to find out who might be paying for Saudiphobia. So I just offer my Saudiscepticism for free.
Peter
@DC
Sorry to hear you are an underemployed wage slave, that’s not a great place to be today or anytime. I’m surprised so many people here think I should be paid for my comments but the checks never arrive.
I doubt the Saudis are interested in what anyone says about them on some blog site but I thought it important to show they aren’t going to fold up and blow away any time soon. That’s just the reality the reporters I read shows not the fantasies of the Saudiphobe.
Tom W Harris
Well, I ain’t interested in what they say either, since it’s bound to be just a buncha shit. SA is a parasite that would shrink to near invisibility if the world went wind/solar, which it could easily do if not for the reigning corrupt petropolitics.
Peter
@Tom
I didn’t realize how quickly SP could eat your brain and leave you spouting nonsense.
Solar panels don’t produce gasoline or any other product we get from oil and oil isn’t used to produce electricity except in rare instances.
The US tight oil bonanza has reduced our imports of Saudi oil and that trend will continue. If you want to see the Saudis suffer you need to learn to love fracking and the gifts of the Permian sea.
When the solar/wind welfare programs end next year it will be difficult to sell this expensive intermittent green energy and Tesla sales dropped to zero in Hong Kong when they pulled their subsidies.
Tom W Harris
Kill that thread, Petey, kill that thread.
Congrats!
realitychecker
Maybe the thread died a natural death.
Science!