Category Archives: Economics

New Old Saudi Vision of Total Conformism: from Riyadh to Pyongyang………

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“The Council of Ministers endorsed during its session on Monday under the chairmanship of Custodian of the Two Holy Mosques King Salman Saudi Arabia’s Vision 2030. The Cabinet session was devoted to discuss the vision, which was drafted by the Council of Economic and Development Affairs upon instructions of Custodian of the Two Holy Mosques. Following is the text of Saudi Arabia’s vision 2030……..”

The new phrase Saudi Vision 2030 has been covered extensively in Saudi, Gulf, and some Arab media. There has been some good coverage in international media as well, until a heavy dose of realistic skepticism set in. I am in no position to openly express my own judgment yet, but I will soon. There is certainly a need to look beyond the years of oil boom, a need for some new (and serious) vision.

Yet I don’t like the quick and intimidating cheering in the Gulf GCC region, the exclusion and rejection of any doubt or questioning.  No debate of  such a vital issue. The distinctly Saudi conformism that is spreading to all GCC states.

As expected, Saudi and Gulf GCC media are not critical: not one iota of criticism or healthy (or unhealthy) doubt has been expressed. A lot of enthusiasm has been expressed, in blissful ignorance. Suddenly everybody on the Arab shores of the Gulf is as conformist as any good Saudi citizen in Riyadh or Qassim, anyone who is not in the safety of foreign exile or in a local prison. It is like the old days when Saddam was issuing his Baathist drivel across the Persian Gulf media and nobody was allowed to criticize him.

No doubt there are many ‘secret’ doubters, especially in the other Gulf GCC states if not in heavily brain-washed Saudi Arabia, but they dare not express their doubt. It is almost like having Kim Jong Un of North Korea (the Cute Leader) publish an economic “vision” for his country! Nobody would even think of criticize him in old Pyongyang.

Similarly, some Persian Gulf states are moving rapidly toward a new common repressive model. Even in places where the press “used to be” relatively free. Criticism of the plan by Prince Mohammed, the the favorite son and possible successor of King Salman, would be considered “insulting a sisterly or brotherly” state. That is a new category of crime that could land you in prison anywhere in the GCC (as in Pyongyang).

If the open doubter is a true Wahhabi terrorist-supporter he could go to prison and maybe get rehabilitated from his doubts. If he is a Shi’a agitator or doubter, he will likely be charged with “terrorism” and lose his head to a sword.

But is this emperor, in this case Prince Mohammed Bin Salman and his vision, also naked (as in the famous parable or fable)? I am not certain yet. That will be covered in a new post coming soon to a theater right here. I have not read the detailed outlines of this economic vision in detail, yet. Who knows, I might become an enthusiastic supporter as well.
But the devil is in the details.

Cheers
Mohammed Haider Ghuloum

New Global Financial Phenomenon: from Poor Candidates to Rich Leaders…….

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All the recent talk of the Panama Papers and hidden wealth. It is, as I once observed, the tip of a huge global iceberg.

In the old days, three or four or five decades ago, when an Arab or Muslim leader (not a monarch) died or left power, he left behind only his personal belongings and (maybe) his pension. That was the case with Gamal Abdel Nasser in Egypt, Qassim of Iraq, Ben Bella of Algeria, and various other leaders. The same was true of American leaders: Truman and Eisenhower did not leave office as very wealthy men. In fact nor did Nixon. But that was then. Things are different now, especially in the past two decades.

Now there is one thing that most Middle Eastern leaders, especially Arab leaders, have in common with modern era American presidents  and with many European leaders of the past two decades. They all have the same thing in common with other Muslim leaders and with African leaders and with Latin American leaders and Chinese and Russian leaders.
Know what it is? They all leave office as very rich people, much richer than before they took office.

Americans call it “looking for number one“, and they don’t mean “the people“.  That is one risk they take when they seek office. It is a by-product of the globalization of many things, especially greed and corruption.
Cheers
Mohammed Haider Ghuloum

Is It Brotherly Blackmail? Lebanon in Arab Financial Crosshairs………

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The Saudi move to cancel the $4 billion promised aid to Lebanon (and indirectly to France) is apparently a ‘first step‘ in something bigger.  At least that is what Saudi proxies and allies in Beirut are gleefully threatening.

The Saudis are frustrated with their failure to weaken Hezbollah and pull Lebanon out of what they claim is an Iranian orbit. It is hard for them to believe that all the inducements they have offered Lebanon could fail, that their top proxies in Beirut, occasional billionaire Saad Hariri and his sidekick Fouad Saniora, could not bring the small country along. One Lebanese minister, a Mr. Mashnuq (the Hanged Man) who is part of the Saudi-financed March 14 (Hariri) camp has warned of more pain to come. Clearly a not subtle Saudi threat-by-proxy.
The threat of “more pain to come” could include a renewal and expansion of previous expulsion measures against the expatriate Lebanese citizens in some GCC states of the Persian Gulf.  The UAE has recently been reported to have resumed its old policy of summarily expelling Lebanese expats who are Shi’as. The secretary general of the GCC, a Bahraini close to the ruling autocrats, has ominously warned Lebanon for going against what he called erroneously “Arab consensus on Iran“. The GCC secretary was of course lying, to put it politely: in fact there is no Arab consensus on Iran or on anything else whatsoever.
An expulsion of the Lebanese expats would not be in the interest of the Gulf states. They are not normally involved in politics. Many businesses and institutions benefit from the Lebanese experience and skills in various economic sectors. It would effectively lower the efficiency of business and the quality of life in the host countries.

Some Arab media speculate that the Saudis are canceling the promised aid partly because of their own dire financial situation. A situation largely created by their own short-sighted oil policies of recent years.

Another possible factor that Saudi and Gulf media ignore is that the Lebanese authorities are holding a high-ranking young Saudi prince who had tried to smuggle large quantities of illegal drugs on his private jet through Beirut airport.

Will all this economic pressure against Lebanon work? Will the small country where pro-Wahhabi sentiment is restricted to a small fraction of the population yield to Saudi pressure?  It looks highly unlikely now, given the political realities and the demographics of Lebanon.

The Israelis are watching this game next door with great interest.
Cheers
Mohammed Haider Ghuloum

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Rouhani in Europe: Economic Irony, Mullahs as Princes………..

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As I read (and watch) the news, I notice that Iran’s Hassan Rouhani is signing tens of billions of dollars worth of contracts in Europe. It is as if he is some Saudi or Qatari or UAE prince or potentate. I realize that there is an irony here, somewhere (if I can explain it).

The Gulf GCC states are allegedly reportedly presumably perhaps maybe cutting back their purchases in Europe. Mainly non-military and non-security purchases. A result of lower revenues. The Iranians are busy signing new trade deals and purchasing tens of billions of new goods (and services). A result of increased revenues.

Oil revenues of most oil producers, including Gulf GCC, have gone down significantly. Iranian oil revenues are increasing sharply now, because of the lifting of sanctions. So will other non-oil revenues increase now given that their economy is diverse. It is too soon and too absurd to say that the mullahs are the “new” oil princes. Of course t is only like a windfall being used, but is it?
Who would have thunk it only months ago. How long would this trend last? How long could it last? Ich weiss nicht………..

Cheers
Mohammed Haider Ghuloum
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Comparing Cool Apple and a Genocidal Petroleum Oligarchy………

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Reports say that Apple Corporation (AAPL) has about $207 billions in cash (that was before the latest good results came out on Tuesday). All these beautiful useful gadgets, some necessary and some not so necessary, and some American technical ingenuity/creativity have made a lot of money for Apple during the past decade. They may use it to buy back shares, pay more dividends, expand into new products, or acquire subsidiaries.

Reports also claim that Saudi Arabia used to have over $700 billion in foreign exchange (Forex) reserves (its Sovereign Fund managed by its monetary agency SAMA).  All of it from oil revenues. These have probably been depleted by somewhere over $100 billion over the past two years, since the new regime of His Majesty King Salman Bin Abdulaziz and His Royal Highness the Crown Prince to the Crown Prince (and Minister of Defense) Mohammed Bin Salman came to power. The latter is the putative conqueror of Yemen: he has been pouring Saudi money and American (and British) bombs (cluster bombs and otherwise) all over the poor country of Yemen for seven months. With the goal of establishing a government to his liking in Sana’a.

Too much power and money can make even the most impotent of potentates blind to past history. All it takes is a tablespoon of foolish vanity, and the rich young Arab princes have plenty of that. Hence this new quagmire in Yemen, which promises to go on long after former president Hadi (Bin Zombie) evacuates his Riyadh hotel suite for wherever the hell he’ll end up. Long after Al Qaeda (the Saudi-led AQAP) expand their newly acquired territory in the South beyond Al Mukalla. Long after the Caliphate of ISIS expand their current use of the porous border to attack civilian Ismailite (quasi-Shi’a) inhabitants of Najran and Jazan.

Hence the new barely-veiled threats by Saudi officials of sending newly hired Arab and African (and Western?) mercenaries into Syria.

The IMF has noted that Saudi reserves could vanish within five years. That is possible if the funds are used at current rates and crude oil prices remain near current low levels. Especially if the need arises to buy public approval with new royal handouts. Especially if the princes continue their costly genocidal war on Yemen and expand their intrusion in Syria into an official military confrontation with their Iranian and Lebanese rivals, even if the “boots on the ground” are rented foreign mercenaries.

Hopefully their reckless policies do not doom the economies of the other Gulf states.

Cheers
Mohammed Haider Ghuloum

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Sad Economic Dances: From Tango Argentino to Saudi Arabian Ardha………

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“من حفر حفرة لأخيه وقع فيها :Whoever digs a hole for his brother, he himself shall fall into itAn Arabic saying against treachery, based on a Hadith quote from the Prophet.

” Saudi Arabia, the world’s largest oil producer, needs to sell oil at around $106 to balance its budget, according to IMF estimates. The kingdom barely has enough fiscal buffers to survive five years of $50 oil, the IMF said. That’s why Saudi Arabia is moving fast to preserve cash. The kingdom not only raised $4 billion by selling bonds earlier this year, but its central bank has yanked up to $70 billion from asset management firms like BlackRock (BLK) over the past six months. After years of huge surpluses, Saudi Arabia’s current account deficit is projected to soar to 20% of gross domestic product this year, Capital Economics estimates. Saudi Arabia’s war chest of cash is still humungous at nearly $700 billion, but it’s shrinking fast…………”

Argentina evokes images of tango, soccer, gauchos…and an awful economy — one of the world’s worst. Its economy is projected to show little or negative growth this year. Argentina is still indebted to American hedge funds, affectionately known as “vultures” in the country. And it remains the poster child of nations that default on their loans. But there’s new optimism in Argentina, mainly driven by presidential elections coming later this year…………….”

In Argentina, the ruling party could win another term in run-off elections. But the Tango Argentino goes on.

Now to Saudi Arabia, where the princes like to force their Western visitors to mimic the native all-male Ardha dance for the cameras. From George W Bush to Prince Chuck of England they have all pretended t enjoy this dance. Only the Frenchmen, Sarkozy and Hollande, could not bring themselves to pretend that they want anything to do with it.

There is a great Arabic saying from the Hadith that ” من حفر حفرة لأخيه وقع فيها   whoever digs a hole for his brother, he himself shall fall into it“.

As I have opined recently, the Saudi princes had bought the fantasy that they can “control” crude oil markets. They thought they could engineer limited lower prices for political strategic goals. To punish the mullahs in Iran, Putin in Russia, and the North American shale industry. It worked well beyond their expectations, to the extent that Saudi Arabia faces economic disaster in a few years.  They probably never dreamed that prices will collapse to less than $50 (apparently the Saudis need oil prices to hover around $100/barrel).  Other Gulf GCC states can live with much lower oil prices than $100, but not the Saudis.

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If you look at the IMF chart, you’ll notice that the most corrupt most repressive of the Persian Gulf states require a higher price for crude oil to break even. These are the two countries to the right. Of course that could be just a coincidence, some may say “there is no correlation”.

However, the princes are fine. They take their cut first, from oil production and from huge military and civilian contracts. They keep on sucking the resources of the country and its people. Whatever reduction in their loot results from reduced oil prices they make up with commissions and kickbacks on even larger weapons contracts with the West.

Hopefully their reckless policies do not doom the economies of the other Gulf states.
Cheers
Mohammed Haider Ghuloum

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Crude Oil Prices and Legitimacy in a Tribal Oligarchy………

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Several years ago, after one of Iraq’s convoluted elections, more foreign Arab Jihadis were flowing into that country, killing and maiming civilians, especially those of the Shi’a denomination. So did Wahhabi and Salafi money and weapons flow into Iraq, which was seen by the Wahhabis and their royal tribal potentates to have been “usurped” by the wrong people.

Some Saudi spokesmen, one of them worked at the time for the ambassador/prince/kleptocrat in Washington (he later moved on to Harvard), issued dire warnings, nay threats, via the Washington Post. They warned that they can roll back the growing Iranian influence in Iraq by destroying the Iranian (and presumably the Iraqi) economy. The method suggested was by flooding the world market with crude oil. At that time oil prices were high and Persian Gulf producers’ treasuries were flush with surplus cash. I wrote at the time on this site pointing out that the Saudi economy could not afford a sustained increase in crude production and lower prices.

They did not listen to me. In the past couple of years the princes took up the wrong advice: they started a deliberate policy of lowering crude oil prices, aimed at crushing the besieged Iranian economy and weakening the Russian economy (both allies of the Syrian regime, both supporters of Iraq). Like everybody else, they used oil as a political weapon. They probably also had the additional aim of weakening the shale industry in North America. Saudi production of crude oil increased and prices plummeted to much lower levels than they had expected (much lower than most observers expected).

They all waited with baited breath for the low price and the long Western economic blockade to bring the Iranian economy to its knees, for the Iranian Ayatollah to call the Saudi king and cry “uncle”. For Brig. Qassem Suleimani to be sent packing home and maybe for Iraq to be handed back to the former Baathists. Neither happened, but there is now an economic backlash, and possibly a political backlash brewing in the kingdom of no legal breweries.
The Saudi foreign exchange reserves are being depleted and they have now been forced to cut domestic spending (the princes still keep their cut of the oil revenues). Most Saudi citizens work for the state, in effect they are employed by the princes. There are no elections that would legitimize anyone in Saudi Arabia: so, money and patronage are the price of continued absolute one-family tribal rule. With revenues plummeting and foreign reserves being depleted, the main tool of legitimizing the avaricious ruling family has weakened for the second time since the 1990s.
Of course the security services are as strong as ever, in fact they are stronger than ever. That is how the princes have stimulated the economy: by hiring  tens of thousands of tribal members for the security services. The tame Wahhabi clerical establishment also toes the line and tries to do its part.

Now the Saudis face their second inevitable defeat in their adventure in Yemen (sooner or later). As the new quagmire in Yemen continues, with Saudi warplanes daily bombing civilian and other targets, the Western powers turn a blind eye to human rights violations as they compete to sell more weapons. The cost of the war also goes up: using and servicing and replacing state-of-the-art Western weapons is very costly. But it is one way of recycling the dwindling oil revenues and jiggling the balance of trade with the large industrial countries.

Tightening the belt may be wise economic policy, but it reduces the “legitimacy” of the ruling princes in the eyes of the tribes and many other citizens.

Expect more domestic trouble in the Arabian landmass that stretches north of Yemen and extends to humorless Jordan and western Iraq.

Cheers
Mohammed Haider Ghuloum                          Follow ArabiaDeserta on Twitter

Jizya: ISIS Tax Plan, Republican Tax Plan, Royal Tax Plan………

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A new twist on the current, and perennial, political (not economic) tax debate in the USA:
Reports tell us that the Wahhabi Islamic States (ISIS or DAESH)  has demanded the United States, as the leading Western power, should be ready to pay a special Jizya tax to their Caliph Abu Bakr Al Baghdadi. This Caliph was born  Ibrahim Al Samarrai, so I assume Al Baghdadi is his married name, as they do in the West.

So he wants Mr. Obama to pay the old Islamic Jizya tax that used to be imposed on non-Muslim subjects partly in order to exempt them from military service. That tax used to have some logic to it: you can’t expect a Christian citizen, for example, to join an army that fought to convert other Christians to Islam. So maybe the U.S. Congress, under a new old leadership, will take up this new ISIS tax plan. Nothing like the promised miraculous “tax cuts and a strong defense and protecting social security and reduced deficit” plan they have been pushing. Should be fun watching C-Span. Should also be fun watching the Republican (and maybe the Democrat) presidential candidates take up the issue in their endless sound-bite “debates”.

The Saudi princes and other regional potentates, unlike ISIS, do not directly tax their people and businesses. They apply what I would call a princely (royal) tax on the whole country. The numerous Saudi royal princes get first cut of the oil revenues, for just being who they are, for the accident of birth. They also get to expropriate public land at will. In recent years they have been destroying ancient Islamic monuments and converting them into parking lots, half-empty shopping malls, and luxury hotels and apartments for local potentates and others from neighboring oligarchies.
Not a bad racket……….

Cheers
Mohammed Haider Ghuloum Follow ArabiaDeserta on Twitter

Greek Drama: Beware Europeans Bearing Poisonous Gifts……..

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Several years of disastrous economic policies imposed by the IMF and the European Union and its bureaucrats have brought Greece to its knees.
Now that Greece is in a deep recession, with low income and terrible high unemployment, the same European bureaucrats are set to impose deeper tightening economic policies on Greece. What can result from deeper tightening in an economy that is in deep recession with little to export? Why, the next step is logically a depression.
What seems to matter most to European bureaucrats is that European governments and banks do not reduce Greek debt. Unlike decades ago in the 1950s when the United States and others canceled about 50% for German foreign debt and extended reduced payments over several decades. But that was when the West was facing the Soviet challenge and needed to showcase the Western part of Germany. There is no Communist challenge, so the West can afford to tighten the screws on Greece, so the Greek people will suffer for many decades, years after they leave Europe. Unless the Europeans come to their senses.
Cheers
Mohammed Haider Ghuloum                          Follow ArabiaDeserta on Twitter
m.h.ghuloum@gmail.com

All the New King’s Men: Betting the Farm on Military and Economic Adventures……..

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“But Saudi Arabia and the other Sunni Arab states should not be so singularly obsessed with the danger posed by Shi’ite-led Iran. These states have other internal problems and economic worries to deal with, especially bulging youth populations and the lack of avenues for political expression. The House of Saud is facing a challenge from the militant group Islamic State, which carried out a suicide bombing last week that killed at least 21 worshippers at a Shi’ite mosque in the kingdom’s Eastern Province. The Saudi regime must also cope with the long-term consequences of declining revenue due to lower oil prices………….”

Saudi Arabia has taken a couple of big gambles in recent months. The ruling family has taken some questionable advice on how to slam its regional opponents and rivals, mainly Iran and Iraq, and tighten its alliance on the Arab side of the Persian Gulf. Both are extremely risky:

  • The Saudis have uncharacteristically allowed oil prices to plunge, thus aiming new economic blows at an Iranian regime that is already enduring a tough Western economic blockade. Along the way they also aimed a few left hooks to Mr. Putin’s Russia, a major supporter of Syria and Iran. (Unlike the Western powers, Mr. Putin has not yet threatened to put ‘boots on the ground’ in Syria or to keep a military option on the legendary table).
    The Saudis also struck at the very-cost-sensitive American and Canadian shale oil industry, now a major rival in the market.
  • In addition to “lowering” oil revenues, the kingdom has also started to bet high in a regional poker game. It started an expensive bombing war against the poorest Arab country, Yemen (now mostly controlled by Houthis and the Army). A costly and intensive bombing war that has shown no results in more than two months except destruction of Yemen’s fragile infrastructure. And plant cluster bombs across that country.
  • In addition to the high cost of bribing the rulers of Sudan and Jordan and Morocco and Senegal to join their Yemen military adventure.
  • The new King also immediately raised salaries of all military and security employees and granted every public servant (most working Saudis) and student a two-month extra salary bonus.
  • The total cost of all that is almost certain to exceed one hundred billion dollars: by how much depends on the duration and intensity of their new war. And how much the newly promoted princes (MBN, MBS, XYZ…..) skim off the military expenditures and other major contracts. Meanwhile oil revenues are down, creating a risky imbalance and a drainage on foreign reserves.
  • Contrary to what the Saudis expected, the Houthis and their army allies have expanded their territory since the air campaign in Yemen started. They have now started to attack inside the Saudi home territory, with a surprising degree of ease and impunity. Which is leading to more Saudi casualties, probably an unexpected consequence.

What makes all this riskier is that the new King Salman, in an un-Solomonic move, has started immediately to turn his country’s budget, which is essentially the ruling family budget, into a large deficit. In the process he is depleting his country’s foreign reserves.

The cash bonuses paid out are already eaten up by the inevitable higher prices. So far the war on Yemen looks set to drag on unsuccessfully, all the munitions and cluster bombs need to be replaced. The newly-promoted young princes try to get even richer while they can. Then they will all be back to the starting point……….

Their foreign reserves are still high. Maybe they can withstand it for a sustained period, maybe, but for how long and at what rate of depletion……..


Cheers
Mohammed Haider Ghuloum                          Follow ArabiaDeserta on Twitter
m.h.ghuloum@gmail.com