One year ago, Saudi Arabia did something rare since its founding in 1932: it opened its tent wide to the world. Crown Prince Mohammed bin Salman, the then-32-year-old heir to the throne, invited thousands of financiers, executives, journalists and television cameras to the Future Investment Initiative, a three-day conference in which he presented a new, market-friendly and more socially liberal Saudi Arabia.

Less than two weeks later MbS, as he is known, jailed hundreds of fellow royals, government officials and others over corruption charges with no attempt at due process or transparency. The Ritz-Carlton roundup, named for the venue in which he held the conference and then incarcerated his opponents, was the first of a series of actions that took the shine off the crown prince’s promises. They culminated in the murder of dissident journalist Jamal Khashoggi at the Saudi consulate in Istanbul – an act alleged to be state-sponsored.

Breakingviews has been on top of this story, writing columns from the 2017 gathering, covering the kingdom’s struggle to get the stock offering of Saudi Aramco off the ground and analysing the government’s attempts to raise capital and put it to work as part of MbS’s Vision 2030 economic reforms. As news of the brutal killing of Khashoggi emerged, Breakingviews was quick to highlight the reputational and other risks for American and European companies in associating with Riyadh.

While this story continues to unfold, we have compiled some of the top views published on the matter since last year’s investment summit. It makes for sobering reading, both because of Khashoggi’s death and the possible derailment of Saudi’s development, economically and socially. We will continue to update this page as we publish new insights.


Rob Cox

Global Editor


Cox: Aramco clouds Saudi’s coming-out party

Kool-Aid on tap in Saudi Arabian desert

Saudi utopia plan is so bonkers it just might work

Cox: Saudi crown prince revealed his magic number

Ritz roundup is dark side of grand Saudi ambition

MbS gains either way from Saudi anti-graft endgame

Saudi risks squandering looming oil boon

Saudi’s Aramco plan B is too clever by half

Saudi’s fund manager-in-chief veers off-piste

Tesla is risky vehicle for Saudi reform drive

Saudi’s investment fund: the view from 2023

“Davos in the Desert 2” faces a sophomore slump

Saudi adviser panel may unwind faster than Trump’s

Cox: Global finance has a Saudi Arabia problem

Wall Street shows Trump the way on Saudi Arabia

Riyadh is clouding Masayoshi Son’s $100 bln vision

Saudi fail is fresh win for U.S. banks over Europe

Oil makes Saudi Arabia slippery sanctions target

Saudi turmoil is new twist on old C-suite dilemma

One alternative to tainted Saudi cash: Qatar



It’s a big week for Saudi Arabia’s Crown Prince Mohammed bin Salman. For the first time since his elevation as heir to the kingdom, he will play host to a Davos-like gathering of the global investing elite. Heavyweights from SoftBank’s Masayoshi Son to U.S. Treasury Secretary Steven Mnuchin are rolling into Riyadh to see at first hand his plans to make the city a regional financial powerhouse. Hanging over the affairs will be the up-in-the-air status of the biggest deal in capital-markets history.

Since the so-called Future Investment Initiative came together a few months ago under the auspices of Saudi’s massive Public Investment Fund, questions about the viability of a planned $100 billion initial public offering of stock in Saudi Aramco, the national oil company, have intensified. Chief among them is the difficulty of reaching the $2 trillion valuation for the group that the ruling family wants, according to news stories. Last week Reuters reported that China offered to buy 5 percent of Aramco in a deal that could circumvent an IPO.

The snag with the Chinese option is that Saudi Arabia has other objectives beyond raising cash to fatten the kingdom’s finances and fund social welfare. The Aramco offering is a key step towards making Riyadh a regional, if not international, capital for capital. It is part of the crown prince’s blueprint for reducing Saudi Arabia’s reliance on oil – a feat never fully achieved by a major resource economy in the modern era.

As noted in a report by State Street Global Advisors on the eve of the FII confab, which kicks off on Tuesday, “the Saudi Aramco transaction should be leveraged in a much more significant way to change the relationship between the Saudi kingdom, the stewards of the economy, its citizens and the international investment community.”

The crown prince is banking on Riyadh’s appeal as a financial hub to meet the extraordinary ambitions of his Vision 2030 plan to move away from hydrocarbons – wise given the accelerating adoption of electric vehicles – towards other industries, including financial services. Transforming the $700 billion economy and better sharing the wealth with 33 million subjects, two-thirds of whom are under the age of 30, is of existential importance for the Saudi monarchy.

Market authorities have taken strides to make the Tadawul, the Saudi bourse, an easier place for foreigners to buy shares and even short them. As a result, Saudi stocks are being considered for inclusion in indexes widely followed by investment professionals. The FTSE Russell is mulling whether to upgrade Saudi Arabia to emerging-market status. So is MSCI, which will decide by next June whether to include Saudi shares in its MSCI Emerging Markets Index. If it does, the country’s weighting, at around 2.4 percent according to State Street, could lead to inflows of around $38 billion.

But the big numbers are those associated with privatizations, with Aramco top of the list. Speaking to Reuters, Vice Minister for Economy and Planning Mohammed al-Tuwaijri estimated there could be $200 billion forthcoming from the sale of various assets ranging from housing and water to telecommunications and even religious-tourism services.

Beyond bringing in foreign direct investment, selling shares to the Saudi public could tighten the monarchy’s grip on the hearts, minds and wallets of its people. As State Street observes in its paper, such deals could involve a “National Privatization Fund”, which like a mutual fund could be offered to citizens at a discount, minimizing “public controversies over the sale of public assets”. In effect it might foster a sense of inclusive capitalism, neutralizing criticism of the royal family’s excesses, like the $500 million Italian yacht the crown prince acquired, according to news reports.

Other innovations could include increased transparency about the ownership of assets that are, effectively, the state’s patrimony. If Aramco incorporates good governance into its bylaws that, too, could help nurture an ownership culture among Saudis and reduce any mistrust of the ruling family. From this could follow other benefits, like the creation of a fixed-income market, albeit one compliant with sharia standards on lending and usury. That in turn would let banks off the hook for much of the risk while channeling capital to small and medium-sized enterprises, and away from state juggernauts.

The FII kicks off with a welcome from the crown prince followed by a panel that includes Aramco Chief Executive Amir Nasser. They need to sound convincing that the IPO of the biggest company ever to go public is on track. If the sale of the oil group is delayed or diverted, it would make the rest of Saudi’s Vision 2030 looks increasingly cloudy, too.

First published Oct. 24, 2017

(Image: REUTERS/Faisal Al Nasser)



Saudi Arabia was offering drafts of Kool-Aid in the desert this week. The vision of the crown prince, Mohammed bin Salman, for a $500 billion mega-city may have generated even more buzz than the mooted IPO of oil behemoth Aramco, bullishly pegged to be worth $2 trillion. But any kind of success depends on people wanting to do business and live there.

Unveiled before an audience of international bigwigs attending the Future Investment Initiative, the ambitious project, dubbed NEOM, involves forward-looking ideas like building a bridge linking Asia with Africa, funding biotech research, using renewable energy and deploying cutting-edge technology like sea-water farming. The SoftBank Vision Fund, backed by Masayoshi Son’s Japanese company and Saudi money, is supporting the plan. The Russian Direct Investment Fund is also interested, according to news reports on Thursday.

The vibe from the Ritz-Carlton in Riyadh is that the kingdom could be at a turning point. Yet seen from 8,000 miles away, that seems far too optimistic. The young crown prince talks frankly about reforms he wants and needs to enact – at least within NEOM’s boundaries. But he’s pushing against the fabric of a conservative absolute monarchy, of which he is also part. King Salman only just decreed that women should be allowed to drive cars, and they remain restricted in many other ways. The government doesn’t allow the practice of religions other than Islam, according to the U.S. State Department. Last year a journalist was jailed for tweets he sent. And so it goes on.

The Vision 2030 economic plan set out last year by MbS, as the crown prince is known, is evidence of the effort to make Saudi more welcoming for commerce, but there’s a way to go here, too. The country ranks 94th out of 190 in the World Bank’s ease of doing business rankings. It does better on the World Economic Forum’s competitiveness list, at 30th out of 137, but at 64th of 180 on the Heritage Foundation’s economic freedom list, it’s below the United Arab Emirates and Qatar, for example.

There’s even a historical cautionary tale. It’s King Abdullah Economic City, a flagship project launched in 2005 and named after the then sovereign. The plans included 2 million people with a big port, rail and roadways, industrial parks, and modern housing. Twelve years on, the city’s population has reached a mere 7,000, according to a Reuters report. NEOM is supposed to be different – the entrepreneurs involved will make the rules. That sounds a bit like democracy – part of the uphill road on competitiveness and freedom Saudi faces.

First published Oct. 26, 2017

(Image: REUTERS/Faisal Al Nasser)



Mohammed bin Salman, Saudi Arabia’s crown prince, wants to build utopia from scratch. This week he unveiled his vision for NEOM, a shining city on the Red Sea where entrepreneurs will draft the rules and robots outnumber people. One day, the imagined metropolis may even become a publicly traded company.

While the likes of Dubai, Shanghai and Abu Dhabi have successfully gone some of the way, oil-rich Saudi has limited itself to industrial zones and financial centers – until NEOM. The megalopolis will encompass 26,500 square km, including 468 km of beachfront. It will border Jordan, link across the Red Sea to Egypt, and cost $500 billion to build.

The idea is almost bonkers, but that’s also its beauty. “The project will be the land of the future, where great minds and talents can create ground-breaking ideas and think outside the box, in a real world inspired by imagination,” according to Saudi’s Public Investment Fund, which will oversee the kingdom’s investment in NEOM.

If that’s not ambitious enough, NEOM will “without a doubt” go public, the crown prince told Reuters Breakingviews on Wednesday at the Future Investment Initiative in Riyadh. “It’s as if you float the city of New York,” he said.

Of course New York already exists. And for global investors, the crown prince’s plan requires a healthy suspension of disbelief. But in the context of Saudi Arabia’s hopes to wean its economy off hydrocarbons, nothing can be off limits. Shifting from an era in which oil riches blessed its 33 million people, nearly 60 percent of whom are under 35, to a new model requires extraordinary creativity.

Yet to succeed, Saudi will need doers at least as much as dreamers: architects, engineers and construction workers. That makes the selection of Klaus Kleinfeld as chief executive of NEOM puzzling. In April, he lost the top job at Arconic, the specialty parts maker that split from Alcoa, after inappropriate contact with an activist investor. Before moving to Alcoa in 2007, he resigned as CEO of Siemens after losing the confidence of the industrial conglomerate’s board.

That said, Kleinfeld is a consummate networker. And the crown prince will need every kind of help he can get. The choice does, however, underline the huge challenge. Defining the dream, finding the money and making it happen add up to a task far beyond any one CEO.

First published Oct. 26, 2017

(Image: REUTERS/Faisal Al Nasser)



The key number to emerge from Saudi Arabia’s big financial confab last week wasn’t a sum of money, or an economic target, but a year – 1979. To thousands of foreign dignitaries, journalists and his own subjects, Crown Prince Mohammed bin Salman vowed to return the kingdom his family has ruled since 1932 to the more moderate society that prevailed before the siege of the Grand Mosque 38 years ago. He may need the global financial community’s help to make it happen.

Saudi has doled out money to global institutions for decades, hoping to generate income for its monarchy. Now the crown prince is turning the tables. At the Future Investment Initiative conference in Riyadh, the heir to the throne exhorted global entrepreneurs, business leaders and money managers to put some of their treasure to work in the kingdom. A precondition for that should be that Saudi modernizes, improving the role of women and establishing a more just criminal justice system.

The pitch is sinking in. “The opening up of Saudi Arabia – to try to take things back to before 1979 – is brave, it’s bold,” Richard Branson said at the so-called “Davos in the desert” hosted by the country’s Public Investment Fund last week. The Virgin Group founder is considering backing tourism enterprises along Saudi Arabia’s unspoiled coastline on the Red Sea. “Young people want it, the women want it and I think most sensible men want it too.”

Nobody seems to want it more than the crown prince, who at 32 is closer in age to more of his subjects than his father, King Salman bin Abdulaziz. Reforming the economy is existential for the House of Saud. If the country cannot provide a hopeful vision for the 33 million people – just under two-thirds of whom are under the age of 30 – the current king could very well be the last. Balancing Islamic traditions and foreign innovations and money – without a bloody revolution – is a demanding transfiguration.

This is why the crown prince’s reference to 1979 was huge – not just because it came during a panel led by a female American journalist. “We will not spend 30 years of our lives dealing with extremist ideologies. We will destroy them today and immediately,” he said to thunderous applause. “Saudi was not like this before 1979. Saudi Arabia and the entire region went through a revival after 1979. All we are doing is going back to what we were: a moderate Islam that is open to all religions and to the world.”

Some history helps to understand the importance of that statement. Just a few weeks short of 38 years ago, armed religious militants stormed and occupied the Grand Mosque of Mecca – the holiest place in the Muslim world – and demanded the overthrow of the royal family. The siege lasted for two weeks and was resolved with the assistance of French commandos who converted to Islam so they could enter the mosque, according to Lawrence Wright’s account in the “The Looming Tower: Al Qaeda and the Road to 9/11.”

Following the siege, and public beheadings of 63 rebels, King Khalid bin Abdulaziz doubled down on religion. He expanded the role of conservative religious clerics in Saudi life and allowed Wahhabi leaders to impose sweeping restrictions on cinemas, musical performances and the mingling of genders, among other things. Last week, the crown prince effectively called the last 38 years lost.

The prince must move cautiously enough to accommodate hard-liners, but fast enough to keep his youthful people from rebelling against Saudi’s income inequality. Already the country’s religious police have seen their powers curtailed, and in September the government said it would relax the prohibition on women driving. Though attendees of the conference, arriving in chauffeur-driven Mercedes, applauded talk about making Saudi moderate again it’s not evident they reflect the will of the masses.

That explains NEOM – the city on the Red Sea that the crown prince promised to build from scratch with $500 billion of oil booty. NEOM’s laws and rules will be different from Saudi Arabia’s and determined by the entrepreneurs who populate it, the crown prince says. Though that may not include lifting the prohibition on alcohol, or removing the death penalty for cases of homosexuality or blasphemy, it appears to be a way for him to offer an alternative to the more conservative lifestyle that has governed Saudi since 1979.

NEOM will need global validation – and money. The Vision Fund, in which the kingdom has said it would invest $45 billion alongside SoftBank and others, has already stepped up, pledging to take a stake in the Saudi Electric Co, a utility that will help power NEOM. Though it’s an odd way to channel some of the state’s own money back into the country, bringing along foreign investors could be seen as a validation of the kingdom’s plan.

The crown prince, in an interview, denied that there is any quid pro quo for global investors, like SoftBank, to reinvest funds into Saudi Arabia. “We don’t want to squeeze investors. If we cannot offer good opportunities in Saudi that means no one would come,” he said. “We think we really have great opportunities in Saudi Arabia. We want to shape it and to invest in it ourselves and also to allow people all over the world to invest in it.”

His charms are having an effect. BlackRock and Blackstone Group, with whom the kingdom has invested $20 billion in a fund dedicated to infrastructure, are opening offices in Riyadh, the crown prince told Breakingviews. That should be a sign that their leaders, Larry Fink and Steve Schwarzman, respectively, believe in the crown prince. But there is a flip side to this.

Should the crown prince fail to dismantle the gender apartheid of his predecessors the money managers – and indeed other investors like SoftBank or Branson’s Virgin – could find themselves needing to explain to their own shareholders and customers why they are invested in the kingdom. With the two Wall Street firms alone commanding $6 trillion of assets, that’s a pretty strong incentive for them to help keep the crown prince to his word.

First published Nov. 2, 2017

(Image: Yuri Kadobnov/Pool via REUTERS)



Not two weeks ago, Saudi Arabia’s crown prince declared before thousands of his subjects and invited guests that his country needed to move to a more just, open and moderate Islamic society. On Sunday, Mohammed bin Salman turned the same venue – the Ritz-Carlton in Riyadh – into a posh detention center for princes, ministers and other elites rounded up in a sudden anti-corruption drive. It could do the likely next Saudi king’s ambitious economic and social reforms more harm than good.

Among those detained was Prince Alwaleed bin Talal, whose investments in Citigroup, Twitter and other firms make him the most recognizable Saudi on Wall Street, along with another 10 princes. Four ministers were also held, Reuters reported, as was former Finance Minister Ibrahim al-Assaf, a Saudi Aramco director who rubbed elbows at the recent Future Investment Initiative shindig at the Ritz-Carlton with the likes of BlackRock’s Larry Fink and Blackstone’s Steve Schwarzman.

Corruption may be a problem, but the weekend move also looks like a strike against potential opposition. The crown prince has vowed to take Saudi mores back to a time before 1979, when the seizure of the Grand Mosque by armed militants brought religious conservatives into control. Having charmed financiers at the event dubbed Davos in the desert with his vision for a $500 billion global city he calls NEOM, among other things, the crown prince may have felt emboldened to move rapidly.

The clampdown on perceived members of the old guard, many blessed with extraordinary birthright wealth, was seen favorably by many Saudis, according to Reuters. Though the domestic stock market initially sank 2.2 percent, it closed higher.

Yet Sunday’s purge raises more questions than it answers. Among them: What is the nature of the charges, and the evidence for them? Did a public spat with Donald Trump play a role in Prince Alwaleed’s arrest? Was the monarchy threatened with a coup, or was it a pre-emptive initiative?

More lastingly, the weekend’s events underline that Saudi is an absolute monarchy. That can mean whims, plots and retribution matter more than transparency and a predictable rule of law. The latter two are prerequisites for many global investors, like the ones in attendance at the Ritz-Carlton just days ago. The purge may clear the way for reform – but make it less credible.

First published Nov. 5, 2017

(Image: REUTERS/Faisal Al Nasser)



Mohammed bin Salman secured a handsome return on his anti-corruption drive. The crown prince and heir to the Saudi Arabian throne over the weekend released billionaire Prince Alwaleed bin Talal after more than two months in Riyadh’s Ritz-Carlton. While details of any financial settlement are yet to emerge, the circumstances of his release make the actual amount slightly beside the point.

Alwaleed and hundreds of other Saudi figures were rounded up in November on allegations of corruption. Shortly thereafter, media reports suggested the government was hoping to raise some $100 billion from the ill-gotten gains of those held in the posh hotel, which weeks earlier hosted a global investment conference for the Kingdom’s sovereign wealth fund.

A shakedown of private riches appeared plausible given the country’s finances. Saudi Arabia’s fiscal deficit for 2017 was 8.9 percent. But an interview given by Alwaleed to Reuters shortly before his release cast doubt on the financial motives of the purge. The prince downplayed his incarceration as “a misunderstanding” and predicted that not only would he retain control of his Kingdom Holding investment vehicle but that there would be no charges.

Letting Alwaleed, a big shareholder of Citigroup and Twitter, check out without a hefty bill would still make sense. Peremptorily imprisoning prominent subjects probably sits uneasily with one of MbS’s other key objectives. He needs to drum up sufficient trust in state oil group Saudi Aramco to enable a sale of 5 percent of its shares to global investors at a $2 trillion valuation. Unless accompanied by clear evidence of wrongdoing, confiscating private wealth is a bad sign for prospective owners.

More significant is the fact that the 32-year-old future monarch will be the first on the Saudi throne to represent the third generation descending from Saudi Arabia’s founder. Given his accompanying need to diversify the domestic economy and modernize society, the worth of signalling his personal power to a young populace and a conservative establishment cannot be overstated.

There can be few more effective ways of doing this than having one of the Kingdom’s best-known businessman dismiss over two months of effective imprisonment as just one of those things. While Alwaleed called claims he’d been tortured “a bunch of lies”, he looked noticeably thinner. The power of that image alone is arguably more valuable than any financial payment.

First published Jan. 29, 2018

(Image: REUTERS/Katie Paul)



Hang out in Saudi Arabia long enough and you may encounter sidewall skiing. This pursuit, a big hit among the kingdom’s underemployed youth, involves changing the tyre of a speeding car that is being driven on only two wheels. Crown Prince Mohammed bin Salman is performing a similarly precarious balancing act with his Vision 2030 reforms. His best chance of maintaining equilibrium is to wisely use a windfall that Saudi could receive by plugging gaps left by sanctioned Iranian oil.

Vision 2030 aims to turn a closed, religiously conservative rentier state that has often seen oil receipts account for 90 percent of its revenue into a modern, more liberal haven of capitalist enterprise – in just over a decade. Attention has understandably focused on eye-catching social reforms, such as allowing women to drive. But that was a comparatively easy win for the crown prince, whose name is often contracted to MbS. Following the detention of Saudi businessmen and officials last November, he is all-powerful. The more difficult challenge is to reform an economy that contracted in 2017 while preserving political stability.

The crown prince’s 2030 plan has a blizzard of targets that cover everything from cutting Saudi unemployment from nearly 12 percent to 7 percent of the labour force, to boosting the proportion of people who exercise at least once a week from 13 percent of the population to 40 percent. The toughest goal may be to grow the private sector so that it accounts for 65 percent of GDP, compared with its current 40 percent.

The simplest way to do this would be to remove barriers that encourage Saudis to remain either in generously paid public sector jobs, or unemployed. Change has begun. A new bankruptcy law incentivises private enterprise, by giving would-be investors Chapter 11-style protection if a company faces temporary difficulties, and a legal process should the enterprise fail. Foreigners are now allowed to own up to 49 percent of a domestically listed group compared with an effective bar on such holdings before 2015. And governance has improved enough for Saudi Arabia to have climbed from 63rd in the World Bank’s rankings for the protection of minority investors to the top 10. Entering the FTSE Russell emerging markets indices and a likely inclusion in the larger MSCI equivalent could see over $40 billion of foreign active and passive funds flow into the $500 billion Tadawul stock market, according to asset manager NCB Capital.

But fixing the labour market will be complex in a country where lower-paid foreign workers make up more than half of the workforce. Instead of making it easier for businesses to hire and fire, the government is penalising them for employing cheap foreigners. Meanwhile, borrowing costs are rising because of the policy of pegging the Saudi riyal to the U.S. dollar, which has been appreciating. The upshot is that small and medium-sized businesses face a hit, and demand may be dampened by higher interest rates. Bank lending to the private sector has shrunk every month for more than a year and manufacturing is growing at its slowest pace for nearly a decade.

If the crown prince grabs a bigger share of the oil market when crude is trading at nearly $80 a barrel, the good news is he can more easily balance the budget without jeopardising social stability. Saudi slashed spending and increased energy utility costs in 2016, but since the end of 2017 Riyadh has doled out more in subsidies to help Saudis deal with the reforms. That’s unsurprising in a state that has long bankrolled fuel and electricity costs, but it shows that even a regime as powerful as the House of Saud has to keep its population on side.

That imperative makes it hard for Saudi to wean itself off oil. In theory the crown prince could spend any surplus on wage subsidies to private companies so that they can hire Saudis, who demand higher pay than migrant workers. A healthier private sector would result in more tax revenue and higher foreign investment, helping Vision 2030’s social and economic objectives. More money and attention could also usefully be spent on education to improve the employment prospects of the workforce, by improving teacher quality and increasing the focus on science and maths.

The danger, however, is that the crown prince spends the extra oil wealth on grandiose projects like NEOM, the Red Sea complex that may turn out to be another King Abdullah Economic City, which was supposed to have 2 million residents but currently has only 5000. That would help the small number of non-oil groups that have strong ties with the government, but leave the wider private sector unreformed. That’s risky, given that by 2030 Saudi could have 5 million new workers and global oil demand could have peaked. Like an overambitious sidewall skier, the crown prince’s grand reforms might then career off the road.

First published May 14, 2018

(Image: REUTERS/Mohamed Al Hwaity)



Mohammed bin Salman’s financial engineers are earning their fees. Plans for the Saudi crown prince to spearhead a triumphant listing of domestic oil titan Aramco are on ice, but his advisers have a workaround – Aramco may now create the cash itself by borrowing money and buying a stake in chemicals group SABIC. It’s a clever idea, but no substitute for plan A.

Looked at as a piece of corporate strategy, splicing together Aramco’s huge oil reserves with SABIC doesn’t automatically create much value. It makes more sense to see the leveraged acquisition as a way to replace the $100 billion that won’t materialize if Riyadh fails to list Aramco. If the similarly state-owned Aramco buys the stake then the Public Investment Fund, earmarked as the engine for the crown prince’s Vision 2030 drive to diversify away from oil, would still have a chunk of cash for pursuits such as investing with Masayoshi Son’s Vision Fund.

Aramco can probably afford the move. It has minimal debt, Bloomberg reported on April 13, and made over $34 billion of net income in the first half of 2017. With a probable value exceeding $1 trillion, bond markets and banks would be happy to provide it with the roughly $70 billion it would need to buy the 70 percent stake in SABIC. And gearing up Aramco avoids many of the pitfalls of a listing: the state would not need to keep investors sweet with high dividends, and the crown prince can avoid the embarrassment of an IPO failing to reach the $2 trillion value he sought.

That’s all very well. But neither Aramco nor SABIC are as keen on the deal as the prince’s advisers, the Wall Street Journal reported on July 26. If Riyadh were not wrestling with a large budget deficit, it’s hard to imagine it would be using its crown-jewel oil company to raise cash. Even if the financial risks are low, the plan falls short of the ambition of the original Vision 2030 strategy. The Aramco listing promised to diversify the state’s risk from petrodollars, while opening up Saudi equity capital markets. This is a funny way to do so.

First published July 27, 2018

(Image: REUTERS/Faisal Al Nasser)



Mohammed bin Salman is Saudi Arabia’s fund manager-in-chief. The 32-year-old crown prince has direct control of the $250 billion Public Investment Fund, making him central to the deployment of the desert kingdom’s capital. Right now he is straying from his mandate.

On the face of it, a newly disclosed $2 billion investment in Tesla fits with the PIF’s diversification drive. By 2020, the fund wants to deploy a quarter of what it hopes will be $400 billion of assets outside Saudi Arabia. This should include strategic forays into the industries of the future. The PIF has also flagged its intention to top up its firepower with bank loans.

Using borrowed money to buy shares in Elon Musk’s carmaker at a multiple of 40 times forecast earnings for 2020 carries risks, but the royal known as “MbS” can argue it’s not a case of style drift.

Using financial holdings to punish Canada is harder to explain. The Saudi central bank and state pension funds this week instructed asset managers to dump Canadian stocks, bonds and cash, the Financial Times reported, after Ottawa criticised Riyadh’s human rights record. The move risks undermining Saudi’s ability to attract foreign capital at a time when international investors are already hanging back.

In 2016 and 2017, $8.9 billion of foreign direct investment flowed into Saudi, while $14.6 billion went the other way, according to Saudi Arabian Monetary Authority data. The picture looks a bit better when it comes to foreign purchases of equity and debt: combined net inflows were $22 billion in 2016 and 2017. However, that’s largely because Saudi borrowed to finance its deficit. Overall inflows remain small.

MbS may feel he doesn’t have to worry as much about attracting capital. Saudi’s budget deficit shrank in the second quarter, helped by an 82 percent year-on-year jump in oil revenue. Meanwhile, adding Saudi stocks to global indices compiled by the likes of MSCI should attract over $60 billion of inflows from foreign funds.

But if the PIF is going to diversify away from Saudi Arabia, it simultaneously needs to do more to entice investment from overseas. The Canadian quarrel suggests MbS’s asset management skills are veering off-piste.

First published Aug. 10, 2018

(Image: Bandar Algaloud/Courtesy of Saudi Royal Court/Handout via REUTERS)



Saudi Arabia’s Crown Prince Mohammed bin Salman risks picking the wrong driver. The kingdom’s sovereign wealth fund already holds nearly 5 percent of Tesla and expressed interest in taking the electric-vehicle innovator private, according to boss Elon Musk. That’d be a dicey way to diversify away from oil.

At first glance, $60 billion Tesla fits the crown prince’s mandate to reduce reliance on fossil fuels. The company’s Model S was the most popular all-electric car in North America and Europe by sales last year, according to Citi. Musk has also poured money into battery-storage technology. That makes Tesla a natural hedge as and when demand falls for the Gulf state’s traditional cash cow, oil.

Musk reckons about two-thirds of investors would still want to hold shares in a private Tesla. Saudi’s sovereign wealth fund, the likely investment vehicle according to a Monday blog post by Musk, could therefore buy the rest for about $24 billion at the mooted $420 per share price.

The desert kingdom is hardly cash-strapped, but that’s 10 percent of the Public Investment Fund’s assets, according to Sovereign Wealth Fund Institute data. Few portfolio managers would fancy such concentration. The bulk of the fund’s $250 billion of resources is tied up in Saudi companies, and $65 billion is earmarked for a Blackstone infrastructure venture fund and SoftBank’s mammoth tech fund.

Either way, Tesla might not be the wisest way to bet on electric cars. BMW, General Motors and Volkswagen are investing heavily and have enviable production scale and know-how. Tesla’s sales have dipped as much as 30 percent in European countries since rival models launched, Bloomberg reported, citing IHS and government data which Tesla disputes.

Crucially, the buyout price means the crown prince risks paying away much of his potential upside. At $420 per share, loss-making Tesla’s enterprise value of $81 billion including debt is four times 2018 revenue, using Thomson Reuters I/B/E/S. Slower-growing but profitable carmakers are generally valued at around one times revenue. Battery specialist BYD and renewable-energy groups Siemens Gamesa and Vestas Wind are valued at roughly the same level, according to Eikon.

While a shiny new Tesla is cooler than a row of turbines, the crown prince has cheaper ways to play the energy transition.

First published Aug. 14, 2018

(Image: REUTERS/Noah Berger)



Saudi Arabia wants to expand the assets in its Public Investment Fund by 60 percent by 2020 as it diversifies away from oil. Breakingviews imagines the letter its chief executive will write five years hence.


Aug.20, 2023

Riyadh, Kingdom of Saudi Arabia

Yasir Al Rumayyan, Chief Executive Officer, Public Investment Fund

Dear colleagues,

Firstly, please accept my gratitude for agreeing to a departure from the usual practice of holding our annual general meeting at the Al Faisaliah Hotel in the centre of Riyadh. As you know, my senior management team has spent the past few months as guests of the government at the Ritz-Carlton. Staging this year’s event here will, I hope, allow you all to enjoy the hotel’s exquisite grounds, as well as making it possible for us to attend.

It is seven years since the inception of the Vision 2030 plan to transform our kingdom. With seven years to go, now is the time to take stock of the progress we have made, and what remains to be accomplished.

Our original objectives for the PIF were clear: to grow our assetsfrom $250 billion to $400 billion by 2020, with international assets accounting for 25 percent of the total. We aimed to generate long-term returns of between 6.5 percent and 9 percent a year from six investment pools.

The overall goal was to diversify the economy by increasingnon-oil manufacturing exports from 16 percent to 50 percent of GDP. Finally, we aimed to generate an average annual shareholder return of 4 percent to 5 percent by 2020.

Benchmarked against these objectives we have had some successes. However, the fund’s performance of minus 90 percent has clearly been disappointing. There are five key lessons we can learn.

Reducing concentration risk

A core part of our strategy in 2018 was to support the visionaryElon Musk in taking his electric vehicle firm Tesla private. Our powerfulconviction in owning what we saw as the clear industry leader was such that we supplied $25 billion of the financing for the $72 billion deal. We were right about electric vehicles, where volume growth has surpassed all expectations. Unfortunately, much of the upside has gone to established manufacturers like BMW and Volkswagen. Musk’s habit of revealing game-changing product innovations on Twitter before discussing them with the board has not helped. Tesla’s valuation is now far below the 50 times 2020 earnings at which we bought, forcing us to write down our investment.

Clarity over the nature of our investments

Our decision to entrust $45 billion of our capital to SoftBank’s Vision Fund after a 45-minute meeting with Masayoshi Son in 2017 was a good example of our nimble investment strategy. Who could have predicted that the fund’s management team, led by former Deutsche Bank traders, might preside over value-destructive investments in opaque financial products? We also mistakenly assumed that Son would be reluctant to risk a repeat of 2000, when SoftBank shares fell over 90 percent after the dotcom bubble popped. We have opted not to participate in Vision Fund II, despite Son’s entreaties to “feel the force”.

A sensible use of leverage

There was nothing wrong with borrowing an initial $6 billion to $8billion from western banks eager to generate actual fees from their extensive operations in the kingdom. Adding debt was also a way to boost returns and get us closer to our fund target of $400 billion. However, we have learned the hard way that when investment values fall, leverage drags down returns even further.

Separation of political and investment objectives

Our drive to diversify away from oil has been endorsed by thedouble quick adoption of electric vehicles. The global recommitment to Paris climate change targets – following five consecutive sweltering summers – has also led to a repricing of fossil fuels as investors anticipated the end of the internal combustion engine by 2030. As oil prices remain well below the level that Saudi Arabia requires to break even on its budget, the domestic deficit has soared to 15 percent of GDP. The PIF accelerated its assistance to the Saudi state with a $50 billion contribution, a move that necessitated the unfortunate liquidation of some investments. I can assure you that this is a one-off that will not be repeated – as long as the oil price recovers.

Realistic investing for the good of society

Vision 2030 remains committed to improving the life experiences ofall Saudi nationals by broadening their potential entertainment. In hindsight, however, bankrolling thrice-weekly versions of World WrestlingEntertainment’s Greatest Royal Rumble in each of the kingdom’s majorcities represented a poor allocation of resources. Construction of palaces in the new city of Neom, while spectacular, has also been disappointingly over budget.

I would like to highlight some bright points. Against the backdropof a difficult trading environment for emerging markets-focused debt, the fund still outperformed rival benchmarks including Turkish Special Situations, leveraged exchange-traded funds tracking Iranian commodities, and the Zimbabwe smart beta fund.

We are standing by our original investment and performance targets in our new Vision 2050 plan. However, in the next seven years we are amending our original objective. Our goal now is to achieve a return OF capitalof 4 percent to 5 percent, not a return ON capital of the same amount.

Thank you for your continued support.

Yasir Al Rumayyan

First published Aug. 20, 2018

(Image: REUTERS/Faisal Al Nasser)



If Saudi Arabia’s Future Investment Initiative was 2017’s must-attend conference, its sequel looks anything but. Trekking to Riyadh for the so-called “Davos in the Desert”, to be held in two weeks, was already a tricky call given various human-rights abuses in the kingdom in past year. Now Turkish officials have told Reuters they think Jamal Khashoggi, a prominent Saudi journalist, was killed in the country’s Istanbul consulate. Though Riyadh’s story is different, Khashoggi’s disappearance takes those concerns up a notch. Morality aside, the economics of going mostly appeal to bankers – and then just barely.

Mohammed bin Salman, the Saudi crown prince known as MbS, was recovering some of the initiative lost by the stalled initial public offering of the kingdom’s Aramco oil behemoth. He told Bloomberg last week the listing would still happen by 2021, and that he’d repeat the $45 billion due to be invested in the SoftBank Vision Fund in the second installment of Masayoshi Son’s tech investment bonanza. High oil prices mean Saudi’s economy is in good shape, MbS has the friendship of President Donald Trump, and the $100 billion hole left in the Public Investment Fund by Aramco’s delayed IPO will be filled by leveraging the oil company to buy chemicals group Sabic.

Even so, the detaining of hundreds of fellow royals and businessmen in the same Ritz-Carlton hotel that had just hosted last year’s FII had already taken some of the fizz out of the first event. The kingdom may have allowed women to drive more recently, but it has also prosecuted diplomatic spats with Qatar and, more bizarrely, Canada. If Saudi has been involved in the murder of a prominent critic in another country, then questions about MbS’s commitment to any kind of opening up will grow.

Last year, the list of speakers at the FII neared 200. Even if this year can muster something similar, its backbone could well be representatives of the biggest American banks. They argue privately they have to be there, given their participation in Aramco’s debt financing as they hang around for an eventual IPO. If the Saudi brand becomes toxic, more conference attendees and the recipients of Saudi money may decide that it is to be kept at a distance rather than embraced.

First published Oct. 8, 2018

(Image: Bandar Algaloud/Courtesy of Saudi Royal Court/Handout via REUTERS)



Saudi Arabia’s new advisory council could unravel quicker than Donald Trump’s. The U.S. president’s strategic and manufacturing panels, stocked with chief executives from companies like Blackstone, 3M, General Electric and Merck, lasted six months before being wound up in August 2017. Saudi Crown PrinceMohammed bin Salman’s 18-member group of foreign experts, brought in to advise on new super-city NEOM, may have an even shorter shelf life.

Advising presidents and princes – or both in the case of ex-Uber boss Travis Kalanick – has two benefits. It flatters the ego of the bigwig who’s asked by serving as a kind of celebrity endorsement. But it also has a veneer of altruism. Business leaders can argue they are influencing White House policy, or the modernisation and democratisation of Saudi society. If the 26,500 square-km, renewable-energy and tech-tastic NEOM project really happens, it would be a symbol of how far the kingdom has come.

One utterance or action, though, can send everything rapidly the other way. In Trump’s case, the turning point was a poor response to racial violence in Charlottesville, Virginia, in which the president suggested both sides were to blame. Merck CEO Kenneth Frazier and Intel boss Brian Krzanich resigned from the manufacturing council, and Trump eventually shuttered it himself.

Saudi is a less clear situation. Riyadh has been asked by U.S. and European governments to investigate the disappearance of journalist Jamal Khashoggi, who Turkey says was killed inside the Saudi consulate in Istanbul. Former U.S. Energy Secretary Ernest Moniz has suspended his role on the advisory panel until more is known about Khashoggi’s fate. Alphabet’s Dan Doctoroff, chief of the tech giant’s urban-planning division, is not a member, the Financial Times reported, despite being named as one by the Saudi government.

That still leaves 16 other luminaries, including Kalanick, architect Norman Foster and Rob Speyer of real-estate group Tishman Speyer. If it looks like their presence won’t have much chance to encourage meaningful change, they stand to accrue little more than reputational risk. Bin Salman’s commitment to transparency was already uncertain, after he detained hundreds of fellow royals and businessmen in the Ritz-Carlton hotel last year. If even patriotism couldn’t keep Trump’s band of CEOs together, a seat at Saudi’s table ought to be even easier to put aside.

First published Oct. 11, 2018

(Image: REUTERS/Leah Millis)



Is global finance complicit with Saudi Arabian tyranny? Following the alleged assassination of a journalist critical of the kingdom, that’s the question leaders of the world’s biggest banks and investment firms must ask themselves before they fuel up their jets and head to Crown Prince Mohammed bin Salman’s “Davos in the Desert” in just over a week. From a strictly moral perspective, if they believe a scintilla of what has been put forward by Turkish authorities, they should bow out as JPMorgan’s Jamie Dimon did Sunday night.

The top American, European and Japanese banks and investment firms do business with many governments and regimes their executives can’t be particularly proud of at dinner time with the family. They rationalize the work by saying if they don’t do it, someone else will; and, anyway, they’re in no position to judge the political systems of other nations. These are potentially defensible arguments that can be applied to many clients associated with China, Russia and other countries accused of human-rights abuses.

The Saudi case adds a complicated wrinkle to this calculus. First, the Saudis deny involvement in the disappearance of Jamal Khashoggi, who entered the kingdom’s consulate in Istanbul and didn’t come out, Reuters reported. Second, there is little guidance from above on how to proceed. President Donald Trump has expressed dismay over the alleged killing by Saudi agents. But Trump, who has branded the U.S. press as “enemies of the people,” also said he didn’t want the matter to affect a $110 billion sale of arms to Saudi.

The imposition of sanctions, like those applied by the United States and European Union to Russia after the annexation of Crimea, would make it an easier decision for executives like BlackRock’s Larry Fink, or the bosses of France’s two largest banks to skirt the second installment of the Future Investment Initiative next week in Riyadh. Though banks may still act for some Russian companies, their executives now mostly skip public events like the St. Petersburg International Economic Forum. They do not want to be accused of renting out the public reputation and dignity of the organizations they run to a regime that, in the Saudi case, allegedly sanctioned the high-profile murder of a subject. It has been over a week since Khashoggi’s appearance and the Saudis have failed to provide evidence to refute Turkish allegations he was captured, killed and dismembered.

Even before Khashoggi, there were reasons to consider passing on the crown prince’s sophomore showing, as my colleague George Hay argued last week. After wrapping up 2017’s event, the prince known by the initials MbS rounded up hundreds of subjects on corruption charges without due process in the same hotel where the conference took place. Saudi has also been engaged in foreign-policy actions that have stoked instability in the Middle East and beyond, like the blockade of Qatar. Arguably worst has been the ongoing prosecution of a proxy war in Yemen that has left three-quarters of Yemenis, or 22 million people, needing humanitarian assistance or protection, according to the United Nations.

Of course, accusations that China similarly commits human-rights violations hasn’t stopped banks from investing in the country. Last year’s death of a Nobel Peace Prize laureate in a hospital under heavy guard didn’t stop executives from Standard Chartered, Société Générale, Blackstone or Mizuho from attending the China Development Forum in March.

Then there’s the money. This year, Saudi Arabia generated $247 million in fees from selling securities, arranging loans and advising on deals, according to Refinitiv. And that’s without the mother of all deals taking place. The now-shelved stock offering of Saudi Aramco, the national oil company which MbS contends is worth $2 trillion, could produce $200 million alone.

The biggest recipients have been banks whose executives were scheduled to grace the stage at the crown prince’s fiesta. The agenda was scrubbed from its website last week. Dimon’s company leads the league tables, or the rankings Refinitiv compiles based on estimated fees, with $22 million this year and $81 million over the past six. Though HSBC trails JPMorgan in 2018, the London bank captained by John Flint has earned $110 million from the Saudis since 2013, more than its rivals.

Citigroup, Standard Chartered, Goldman Sachs, Mitsubishi UFJ, BNP  and Crédit Agricole fill out the peloton of top fee earners. Goldman executive Dina Powell was expected to show up. So were BNP Chairman Jean Lemierre and Frédéric Oudéa, chief executive of France’s second-largest bank, SocGen. StanChart boss Bill Winters was also expected in Riyadh.

There’s nothing wrong, in the legal sense, with any of the work these institutions have done for the Saudis. Until recently, it could have been argued there was nothing unseemly about it. At his debut last year, MbS presented a convincing image of a reformist from another generation willing to stand up to conservative clerics, let women drive and young people who make up two-thirds of the population go to movies and concerts.

While this hardly offset the beheadings in Deera Square and virtual absence of the rule of law, financiers, policymakers – even journalists like myself – saw hopeful signs of a more liberal and humanistic Saudi Arabia. The consensus was that while MbS has absolute powers, he understood the desire of his people for more freedom – and with clarity envisioned a future where the lifeblood of his nation’s economy, oil, would deplete.

If Khashoggi’s alleged killing was sanctioned by the Saudis, whether to clumsily silence a critic or brazenly transmit the crown prince’s resolve to erstwhile enemies, every bank that benefits from the rule of law at home should reconsider taking the stage next week. The presence of their senior executives may send a message that they – and their employees, directors and owners – endorse a regime potentially responsible for murdering a journalist.

Bankers may balk at sticking their necks above the parapet individually. But there’s a workaround. If all the banks and big investors due at this year’s event made a joint decision to withdraw, the scope for individual firms to be penalized by Riyadh in terms of future work would be limited. The heads of the relevant groups should be organizing some conference calls – and fast.

First published Oct. 14, 2018

(Image: Bandar Algaloud/Courtesy of Saudi Royal Court/Handout via REUTERS)



The Wall Street tail is wagging the Washington dog. In the past, Saudi Arabia’s alleged involvement in the disappearance of journalist Jamal Khashoggi would have met with robust condemnation from the United States government. American banks and companies would then reluctantly pass up the chance to compete for lucrative business. But in the last few days a stream of luminaries headed by JPMorgan CEO Jamie Dimon have turned that dynamic on its head.

The decision by BlackRock chief Larry Fink and his Blackstone counterpart Steve Schwarzman to join their peers in skipping next week’s “Davos in the Desert” will not have been taken lightly. Western financiers and business leaders have lauded Crown Prince Mohammed bin Salman‘s “Vision 2030” modernisation programme. JPMorgan has made $81 million in fees from Saudi Arabia over the last six years, Refinitiv data shows. Besides, the royal family has a long memory. Citi had to wait almost a decade after leaving the kingdom in 2004 to be granted a new banking licence.

Wall Street’s risk-reward judgment makes business as well as moral sense. Bankers are already cooling on a $50 billion to $70 billion international loan to finance Saudi Aramco’s acquisition of a stake in chemicals firm SABIC, IFR reported on Oct. 12. Much of the appeal of funding Aramco’s buyout of the Saudi Public Investment Fund’s stake hinges on the scope to earn lucrative fees when Aramco eventually launches an initial public offering. But the fallout from the Khashoggi affair throws all of this into question.

The U.S government is in a stickier situation. The kingdom is at the centre of President Donald Trump’s Middle East strategy of shackling its perpetual enemy Iran. It is also the only major power able to raise output to cool rising oil prices. If Saudi instead chooses to cut exports, it would be doing so in a market that is tight because of Trump’s sanctions. Riyadh’s relatively healthy economy also affords a buffer if it fancies a confrontation.

Wall Street’s collective action may have shown the U.S. government the way forward, but that doesn’t mean it will follow suit.

First published Oct. 15, 2018

(Image: REUTERS/Kevin Lamarque)



Riyadh’s problems are spilling over into tech. Fallout from the disappearance of prominent Saudi journalist Jamal Khashoggi has hit Japan’s SoftBank, whose $100 billion new economy war chest is backed by the Kingdom. Masayoshi Son’s investors are rattled. Certainly, entrepreneurs like Uber’s Dara Khosrowshahi will be wary of accepting fresh Vision Fund investments. New capital will be harder to come by too.

On Monday, investors erased nearly $8 billion in market value from Son’s Japanese conglomerate. Hours earlier, JPMorgan announced chief Jamie Dimon had bowed out of a high-profile Saudi investor conference to be held later this month. Dimon is the latest executive to scrap plans to attend “Davos in the Desert”, following the alleged assassination of the Washington Post columnist, who was critical of the regime. Saudi officials deny any wrongdoing.

Whatever happened, Son’s deep ties to Riyadh are a cause for concern. The Vision Fund has been touted as a vehicle to realise the Japanese maverick’s cutting-edge ambitions. But Crown Prince Mohammed bin Salman, known as MbS, looms just as large over the project. His Saudi Public Investment Fund (PIF) committed $45 billion in capital, making him the largest and most important backer. As he put it in an interview this month, “without the PIF, there will be no SoftBank Vision Fund”.

MbS was portrayed as a youthful champion of reform. That is now far less clear. Instead, an uncomfortable level of dependence will leave unicorns in Silicon Valley and beyond thinking twice. Just days ago, Richard Branson called off talks with PIF over a $1 billion investment into his Virgin space companies; the New York Times on Oct. 14 reported that U.S. entertainment holding company Endeavor was reassessing a separate $400 million injection. Office-sharing outfit WeWork’s Adam Neumann, whom the Wall Street Journal says is mulling a potential $20 billion infusion from the Vision Fund, could follow suit. SoftBank’s Saudi dream is unravelling.

First published Oct. 15, 2018

(Image: REUTERS/Issei Kato)



It’s not often one imagines Jamie Dimon with a halo over his coiffured head. But that, in effect, is what European banks have given the JPMorgan boss by dithering over whether to attend the Future Investment Initiative in Saudi Arabia next week. The accusation that Riyadh had engaged in state-sponsored murder left all attendees facing the awkward choice of whether to bail and potentially miss out on fat fees, or go and risk pariah status.

Having decided to pass, following the disappearance of Saudi journalist Jamal Khashoggi, Dimon occupies what passes for the moral high ground. European bank bosses have been left with an even worse choice – pull out because everyone else has, or risk looking even more morally dubious. HSBC CEO John Flint, Standard Chartered’s Bill Winters and Credit Suisse’s Tidjane Thiam have gone for the former: they said on Tuesday they would no longer attend.

The fact that French lenders Société Générale and BNP Paribas have remained conspicuously silent illustrates the moral and commercial quandary European lenders find themselves in. Having been bested in their own backyard by U.S. peers – bar Deutsche Bank, the top five biggest investment banks by revenue in Europe are all American, according to Coalition data – and shut out by U.S. sanctions of other markets like Iran, the conference organised by Crown Prince Mohammed bin Salman now offers a rare opportunity to steal a march on their transatlantic rivals.

HSBC, Standard Chartered, BNP Paribas, Credit Agricole and Société Générale are among the top 12 biggest investment banking earners in Saudi this year, according to Refinitiv data. True, the collective $79 million in year-to-date fees may be small beer compared to much bigger home markets. But the reform drive pledged by MbS, including the touted stock market listing of oil company Saudi Aramco, various privatisations and overseas acquisitions of the Saudi sovereign wealth fund, promised much fatter paydays for Europe’s assorted rainmakers.

Still, given JPMorgan has topped the Saudi investment banking fees table this year and last, Dimon has taken the principled response. Thiam, Blackstone chief Steve Schwarzman and others who remain on the FII advisory board occupy a middle ground. As for the French, they better make sure they get some lucre to offset the reputational hit.

First published Oct. 16, 2018

(Image: REUTERS/Brian Snyder)



Congress is walking a fine line with potential sanctions on Saudi Arabia. U.S. lawmakers are invoking a law used to impose Russian sanctions to demand answers about missing Saudi journalist Jamal Khashoggi. There’s momentum for a similar penalty for the kingdom. But retaliation from Saudi Arabia could send oil prices higher – which would fly in the face of U.S. President Donald Trump’s recent hectoring of oil-rich countries.

The audacity of the allegations in the Khashoggi case have united Republicans and Democrats in their condemnation. A bipartisan group of 22 senators sent a letter to Trump last week asking him to investigate Khashoggi’s disappearance. Under the so-called Global Magnitsky Act, Trump has 120 days to report to Congress the results of a probe and determine whether sanctions are warranted for foreign individuals. It implied that Mohammed bin Salman, the Saudi crown prince, could be included in the sanctions, subjecting him to frozen assets or being barred from entering the United States.

Although Trump has vowed punishment if the kingdom is responsible, he also said on Monday that “rogue killers” may be behind the disappearance. It’s doubtful that Trump would target MbS, a move that may be too ambitious for many in Congress as well. That said, Republican Senator Lindsey Graham, a close Trump ally, told Fox on Tuesday that he wants to “sanction the hell out of Saudi Arabia” and would not visit the kingdom until MbS is ousted.

But lawmakers could broaden the impact by following its Russian playbook and targeting Saudi businesses. While sanctioning state-owned oil company Saudi Aramco may not be realistic, lesser-known but still important firms like petrochemicals company SABIC or Saudi Arabian Airlines might be on the list. Three congressional aides told Breakingviews that all options are likely to be considered.

Congress could act on its own without Trump’s support. Lawmakers have a good chance of getting support from two-thirds of members in each chamber – enough to stave off a veto. Ire against Saudi Arabia has galvanized Congress in the past. Lawmakers in 2016 were turned off by the kingdom lobbying against a bill that would allow the families of victims in the 9/11 attack to sue the Saudi government over alleged support for the perpetrators of that event. Then, Congress overrode a veto by President Barack Obama, allowing the bill to succeed. This time on the Khashoggi case, Saudi lobbyists, a few of whom have abandoned their client, aren’t trying to sway Congress.

That leaves some unwanted consequences, though. Any U.S. sanctions could prompt Saudi to use oil as a weapon – a move similar to the one it infamously made 45 years ago against countries, including the United States, that provided military aid to Israel. Trump has been pressuring the country and other sovereign states in the Organization of the Petroleum Exporting Countries to increase their oil production, as a clampdown on pumping has sent prices for a barrel of Brent crude skyrocketing almost 40 percent in the past year.

But in retaliation for potential sanctions, Saudi could drain more black gold from the market. The country is responsible for producing 12 percent of the world’s crude oil and is the world’s largest exporter. If the kingdom were to cut oil production as much as it did in the 1970s, the price for a barrel of oil could hit $150, according to research firm Capital Economics.

Meanwhile the outlook for the U.S. market has changed, which limits the ability of Washington officials to use their own natural resources to fight back. Earlier this year Citigroup predicted the United States could become the world’s largest oil exporter as early as next year. Yet bottlenecks in the region, in part a result of steel tariffs that have cut into building the necessary infrastructure, have started to hit production. The U.S. Energy Information Administration recently lowered its U.S. production forecasts.

Some of the issues in the oil market should be fixed in the next 18 months or so. But in the meantime, congressional action is probably months away, giving Saudi more short-term power. Lawmakers are currently on a break and aren’t returning to Washington until about a week after U.S. sanctions on Iranian oil are slated to go into effect on Nov. 4. That has made the oil market even tighter. Trump has been counting on Saudi Arabia to offset the effects of Iranian sanctions.

Still, Riyadh would stand to lose more if it decided to properly butt heads and Trump looked elsewhere for Gulf partners. And Washington has other levers of pressure besides sanctions, such as halting billions of dollars in arms sales to the kingdom, which Trump opposes. In June, Democratic Senator Bob Menendez put a hold on a U.S. munitions purchase by Saudi Arabia and the United Arab Emirates for the war in Yemen. The Khashoggi case gives Congress another reason to pile on.

First published Oct. 16, 2018

(Image: REUTERS/Jonathan Ernst)



If Saudi Arabia was a corporation, its executive chairman would now consider replacing its chief executive, whose underlings have officially been accused of murdering an unarmed civilian in an overseas branch – the consulate in Istanbul. Saudi is not a company. It is an absolute monarchy, with a king and a crown prince rather than a chairman and CEO.

But the corporate analogy is apt. Saudi is a rich nation today that has embarked on an ambitious turnaround to confront a day when it can no longer rely on demand for oil to fund the welfare of its citizens, or the lavish lifestyles of its royals. The question before 82-year-old King Salman bin Abdulaziz is whether the architect of that existential strategy, his son Mohammed bin Salman, the 33-year-old crown prince, can still execute on his plan.

Critical to MbS’s Vision 2030 idea to transform Saudi Arabia’s economy is the need to attract foreign capital. The killing of journalist Jamal Khashoggi, which the kingdom on Saturday acknowledged with the arrest of 18 people and censure of two senior officials, has damaged his ability to meet that important objective.

That’s not to say American and European companies won’t continue to do business with the House of Saud, selling armaments, buying oil and the like. But investing in an enterprise whose leader is perceived to have been complicit in a high-profile murder is a taller order. Already, Saudi was struggling: annual foreign direct investment inflows of $1.4 billion in 2017 were the lowest in over a decade.

Absent this money and sustained high oil prices, Saudi will find it harder to diversify away from fossil fuels, cut unemployment and grow its private sector. The exciting potential of futuristic projects like the $500 billion Red Sea mega-city NEOM, powered by renewable energy and reinforced with global talent, may wither on the vine.

The prospect of Salman managing his CEO out remains remote, though. Partly that’s a reflection of the extent of MbS’s control and popularity among younger ordinary Saudis. A bigger issue is that MbS, despite his authoritarian streak, personifies a more outward-facing and forward-thinking kingdom. Without him, the vision bit of Vision 2030 would be clouded. But with him, the investment needed to make it happen may not materialise at all.

First published Oct. 20, 2018

(Image: REUTERS/Toru Hanai)



Epic natural-resource wealth, a ruling family becoming more progressive, and a pot of cash to invest in diversifying the economy. Until recently, asset managers looking for all that, plus Gulf exposure, would think first of Saudi Arabia. Ditto startups and governments attracted by the $45 billion pumped into SoftBank’s Vision Fund or $20 billion destined for a Blackstone infrastructure fund from the kingdom. With Riyadh’s reputation now crushed following the murder of journalist Jamal Khashoggi, Qatar may be their best alternative.

Pivoting to Doha is less weird than it sounds. True, in June 2017 the tiny desert peninsula was blockaded by Bahrain, Egypt, the United Arab Emirates and Saudi for a litany of alleged sins, precipitating a $30 billion non-resident funding exodus from its banking system. But Qatar switched trading partners and plonked $40 billion of reserves and overseas deposits from its central bank and $300 billion sovereign wealth fund into its lenders. Already $16 billion of that has been refinanced by Asian and European banks and investors, Fitch reckons.

Assuming Qatar can refinance the rest – which should be easier given a potential 4.7 percent budget surplus in 2018 over last year’s 2.9 percent deficit – it would have $40 billion of spare cash. If it was feeling racy, it could leverage that and turn it into a Vision Fund-scale investor. But it doesn’t matter that the Qatar Investment Authority tends to be rather more conservative. Doha’s hike of liquefied natural gas production from 77 million tonnes to 110 million tonnes by 2024 could create an extra $40 billion of revenue. With annual capital investment due to halve from around $27 billion as the 2022 soccer World Cup nears, the QIA could be packing serious firepower.

Rather than splash out on Saudi-style adventures like mega-city NEOM, Qatar could invest in steady infrastructure assets – around Africa, for example, maybe partnering with Chinese entities. Or it could look to turn itself into a hub for gas and energy technology. But a Vision Fund-style tech investor is at least feasible. And Qatar’s more enlightened social policies and approach to press freedoms might endear it to more discerning American and European startups or municipalities seeking capital. Maybe next year investors will head to Doha instead.

First published Oct. 23, 2018

(Image: REUTERS/Carlo Allegri)