I had a number of comments about Monday’s porridge on the significance of Qatar pulling out of Opec, and what next for Saudi. What is the relevance for markets they asked?
That’s interesting question. Donald Trump recently told us that his successful negotiations and personal relationship with Mohammed bin Salman attracted planned investment of $450 bln into the US, including $110 bln in defence orders, from Saudi Arabia. He warned all that could be undone if we don’t turn a blind eye to the Khashoggi murder.
Do these numbers stack up? Not remotely. The $110 bln Trump says will be spent with US defence contractors boils down to a mere $14.5 bln in actual signed defence deals. The $450 bln number is Fake News. There is also British Aerospace’s $12.5 bln deal to sell Saudi 48 Typhoon fighters. It’s not a deal either. It’s a statement of intent BAE has been trying to firm up for years. It could be renounced anytime especially if the Saudi’s decide the West is not deferential enough and continue their pivot to Russia to buy much cheaper (but pretty darn effective) MIGs!
It doesn’t really matter what the Saudis buy. They proved unprepared and less than competent in their war against Yemen’s Houthi insurgents. Cheap MIGs drop just as murderous bombs on civilians as expensive Typhoons.
Saudi is probably already spending more with the Russians – the UK’s Spectator magazine speculates they have struck a deal to buy Russia’s very effective S-400 anti-aircraft missiles. To defend themselves from what? Of course, we sell Saudi the most modern fighters because they need them to defend themselves against the Iranians. It should be noted, after years of sanctions, Iran flys F4 Phantoms built in the 1960s and some Russian Su-22s from the 1990s.
But shoring up Saudi is a direct way to combat the Iranians…
Why is that important? Oh yes, President Trump, and his son-in-law, don’t like Iran and have renounced all the agreements with them on the basis they are bad people. After all, the Iranians embarrassed America in 1979, hate the West and sponsor Shia terror? And Shia terror is much worse than Sunni Terror – apparently. Confused? The Shia’s are the ones behind Hezbollah and the Houthi’s – considered Iranian stooges. The Sunnis are the Wahabi maniacs who killed thousands in the Twin Towers atrocity, (the terrorists were largely Saudi citizens), and have spawned ISIS, Boko Haram etc. That the Saudi state is effectively and formally tied to Wahhabism to support the Royal Family isn’t apparently an issue for the West.
While no single US senator or congressman has ever been elected on the basis of their support for Saudi, the importance of the pro-Israel vote (which is anti-Iran) is quite properly important for many representatives. But, in recent months the scale of revulsion and questioning of supporting Saudi has reached a level where Trump looks like he’s increasingly standing alone in his support for MbS.
When I was younger, one of the most fascinating books I read was the Arab Conquests by General John “Pasha” Glubb, commander of the Elite Arab Legion. The success of a relatively small band of motivated desert nomads inspired by the vision of the Prophet is unparalleled. They created an unstoppable military paradigm shift, and the speed they overcame first the Persian empire, then everyone else from India to the Pyrenees was astonishing. Arab learning from the 7th Century onwards was phenomenal – they named and mapped the stars and measured the globe. I can’t help but admire them.
But it’s difficult to reconcile the Arab conquests’ and assimilation of cultures across the near east and Africa, the beauty of Islamic Art, and the palaces of El-Andalus with a Saudi ruling family that remains in the dark ages or a kleptocratic crown prince who’s read too much yet understands so little Machiavelli.
What is Saudi today? Home to 20mm young, bored and unemployed youths living in sink-estates on the edge of the big cities, targeted by the competing forces of Islamic radicalisation or Western Social Media? An education system that produces more Koranic scholars than engineers, medics and scientists? An economy hopelessly linked to oil, which the rest of the world decreasingly wants?
Are we backing the wrong rider in the Saud vs Iran steeplechase?
To be fair – my own experience meeting Iranians was they are charming but unabashedly on the make – every meeting started with requests for introductory “expenses” and “facilitation fees”. But give them credit for inventing chess.
To be blunt if you are investing in US and European defence companies on the basis they will make fortunes out of over-priced Saudi defence spending you are likely to lose. It’s unlikely MbS will be replaced in a coup – his control of the apparatus of state is as absolute as his rule. More likely is decreasing connectivity to the West, and a pivot to Russia. Ultimately, Saudi will lose if it can’t reinvent its economy away from oil, and without access to modernisation, western influence and technology, and education outside of narrow-minded madrassas. It shows little sign of happening. For the moment – Saudi is a massive short.