Saudi Crown Prince Mohammed bin Salman’s dramatic one-two punch against perceived rivals at home and abroad is sending shock waves through the royal family, fueling turmoil in global markets and underscoring the de-facto ruler’s own concerns about his grip on the oil-rich kingdom.
On Friday, Saudi authorities rounded up the brother and a nephew of Prince Mohammed’s father, King Salman bin Abdulaziz, on the grounds they were plotting a coup, according to a person familiar with the matter. The next day, the world’s largest oil exporter slashed prices for its crude by the most in more than 30 years, triggering a price war with Russia that threatens to roil a world economy already grappling with the coronavirus outbreak.
The prince has big plans to transform his country into a modern powerhouse, but he faces a rocky path as the outbreak pummels global oil demand and weighs on Saudi Arabia’s economy. The arrests on treason allegations that could carry the death penalty — unprecedented against such senior relatives — suggest he’s not going to let anything get in his way, especially not his own family.
“So much of what happens under MBS’s leadership is based on the element of surprise, of shifting balance, and claiming control,” said Karen Young, a resident scholar at the conservative American Enterprise Institute in Washington. “But the biggest threat to Saudi right now is the possibility of very low oil prices, back to 2015 or lower levels. This the crown prince will find harder to control.”
New information on Sunday from the New York Times on a connected arrest indicates that the scope of the roundup isn’t known. The Wall Street Journal reported that dozens of Interior Ministry officials, senior army officers and others suspected of supporting a coup attempt were also detained. Authorities later began releasing some of those questioned in the clampdown, the Journal reported separately on Sunday.
The arrests highlight a lingering climate of fear that has made foreign and local investors skittish, Young said. But it was already going to be a bad year in terms of economic outlook because of the global slowdown from the impact of the coronavirus and the effects on energy demand.
Brent crude tumbled by almost a third to $31 a barrel on Monday morning as traders reacted to the Saudi price cuts. That followed the oil market’s biggest drop in a decade on Friday after Russia snubbed Riyadh’s call to slash production. The collapse in OPEC+ talks drove shares in state oil giant Saudi Aramco (SE:2222) below its recent initial public offering price on Sunday. The IPO is a crown jewel of Prince Mohammed’s sweeping plans to showcase the kingdom.
Saudi authorities have yet to comment on the reported arrests. The government communications office didn’t immediately respond to a request for comment on Sunday.
The prince’s efforts to cast himself as a reformer and trustworthy ally of the West have run against the less-flattering reality of his ruthless consolidation of power and foreign policy adventures such as the war in Yemen and boycott of Qatar.
Three years ago he had hundreds of royals and senior businessmen rounded up on corruption allegations, locking them in the Ritz-Carlton hotel as part of wider purge against perceived critics. A year later, Saudi agents killed and dismembered a prominent critic, Jamal Khashoggi, inside the Saudi consulate in Istanbul. Both shook confidence in the kingdom’s wide-ranging reform plans and effort to attract outside investment to lesson the economy’s reliance on oil.
More recently Amazon.com (NASDAQ:AMZN) boss Jeff Bezos alleged that Prince Mohammed personally hacked his phone — a claim vehemently denied by Saudi officials.
King Salman’s support for his son appears to have not wavered even though ties with the West are under severe strain. U.S. President Donald Trump has also continued to back the crown prince even though Congress was outraged by Khashoggi’s murder.
Yet while many in the royal family, which numbers in the thousands, pledge loyalty to Prince Mohammed, his consolidation of power has marginalized or alienated other relatives.
“If your position is good, you’re having concerts, there’s no pressure from your society, then your only opposition is from the highest level of your family,” said Kamran Bokhari, director of analytical development at the Center for Global Policy in Washington.
The arrests underline Prince Mohammed’s tactic of unbalancing domestic rivals ahead of his expected ascension to the throne. They come at a critical time as he tries to ease the fallout from his penchant for making enemies at home and abroad, and prepare for a year in the international spotlight under the Group of 20 chairmanship.
The move against people at the apex of the country’s security signals that Prince Mohammed feels his position is very vulnerable, Bokhari said.
He’s again put aside concerns about Saudi Arabia’s image, figuring that if he “did not act now, then they would’ve acted,” Bokhari said. “What image should I worry about if I’m not king of Saudi Arabia?”
One of the detainees, Prince Mohammed bin Nayef, had especially strong ties to the U.S. security establishment, and was sidelined as heir to the throne with Mohammed bin Salman’s ascension. His brother was also detained in a raid on their desert camp, a person familiar with the matter said.
The detention of Prince Ahmed bin Abdulaziz Al Saud, who’s in his 70s, is more striking: He’s a full brother of King Salman and one of the only surviving sons of Saudi Arabia’s first king. He’s a senior member of the allegiance council, a group of royals that votes on matters of succession. The New York Times reported Prince Ahmed’s son was also arrested.
“I see this as anticipatory move by MBS, an elimination of theoretical alternatives,” said Kristin Diwan, a senior resident scholar at the Arab Gulf States Institute in Washington. “I don’t think they posed a real threat to his power. But they continue to hold social status based on norms that still persist in the minds of many Saudi royals and Saudi subjects.”
The charge of treason is an “extreme move,” Diwan added.
“If it becomes a public accusation – and one the crown prince acts on – it would be historic, an act more akin to strongmen in Arab republics than a Gulf monarchy,” she said.
The dollar edged higher in early European trade Wednesday, with the safe haven currency in demand as a resurgence of the coronavirus in the United States cast doubt over the strength of the economic rebound.
At 3:050 AM ET (0705 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was up 0.1% at 96.873.
There are almost 11.8 million COVID-19 cases globally as of July 8, according to Johns Hopkins University data, of which the U.S. has the highest known numbers of cases and deaths in the world.
A number of Federal Reserve officials expressed concern Tuesday that the surge in infections could adversely impact the economy just as some stimulus programmes are set to expire.
Atlanta Federal Reserve Bank President Raphael Bostic warned that the spike in the number of cases has made business owners “nervous again” and that ‘there is a real sense this might go on longer than we have planned for.”
Still, the rise in cases is not simply a matter for America. The AUD/USD pair lost 0.2% to 0.6935, with the Australian dollar weakening after the country’s second-largest city Melbourne re-imposed lockdown measures to curb the outbreak.
Elsewhere, GBP/USD gained 0.2% to 1.2559 after Prime Minister Boris Johnson said that the U.K. remains committed to working hard to find an agreement over trade with the EU. Chancellor of the Exchequer Rishi Sunak is due to announce details of the country’s latest fiscal stimulus package later Wednesday.
Sterling has gained around 0.6% this week against the dollar and 0.4% against the euro, but still remains one of the weakest G7 currencies as doubts still remain as to whether a trade deal will be signed by the end of the year.
Additionally, skepticism exists that a proposal by some of Donald Trump’s advisers to undermine Hong Kong’s currency peg would come to fruition, as such a move would be difficult to implement and risk hurting U.S. interests as much as it would punish China.
Oil retreats slightly on risk aversion
With one eye on the equity markets overnight, oil markets mirrored the response of currency markets, giving up some of their recent gains and slipping into range trading mode. Brent crude fell slightly by 0.70% to 42.90 a barrel. WTI eased by 0.70% to USD 40.50 a barrel.
Both contracts are unchanged this morning in Asia, with critical resistance on Brent crude at USD 44.00 a barrel, and on WTI at USD 42.00 a barrel. Only a fall below USD 40.00 a barrel for Brent crude, or USD 37.00 a barrel for WTI, would suggest that the rally in oil prices has run its course.
Oil prices continue to remain balanced between Covid-19 induced growth concerns, and recovery expectations in Asia and Europe. Oil’s downside is likely to be limited unless the US situation deteriorates dramatically. OPEC+ discipline is high, and the grouping will no doubt find the willingness to extend the headline cuts if the situation calls for it.
Excitement builds for gold longs as USD 1800.00 approaches
Anticipation is building in the gold fraternity, with Covid-19 concerns giving a haven boost to prices overnight. Gold rose 0.60% to USD 1795.00 an ounce, having tested USD 1797.00 an ounce earlier in the session. Gold’s grind higher is remorseless and pleasingly, appears to have detached itself from negative equity price action for now.
The USD 1800.00 an ounce region will be a tough nut to crack though. It capped gold’s advance multiple times from 2011 to 2012. I do not doubt that there will be substantial option related offers ahead of it to defend USD 1800.00 strikes. Nevertheless, gold is girding itself for the long-awaited assault on this critical resistance level. Gold had support at USD 1775.00 an ounce. Only a daily close below here would delay proceedings. Should USD 1800.00 an ounce give way, gold is likely to move quickly to the USD 1820-1830 zone, driven by stop loss and algorithmic buying.
Gold is unchanged in Asia today in yet another moribund session. It will probably be left to the New York market to get the job done.
Oil prices fell on Tuesday, erasing earlier gains, on concerns that the surge in coronavirus cases in the United States, the world’s biggest oil user, will limit a recovery in fuel demand.
U.S. West Texas Intermediate (WTI) crude (CLc1) futures fell 17 cents, or 0.4%, to $40.46 a barrel at 0340 GMT, after earlier rising to as high as $40.79.
Brent crude (LCOc1) futures declined by 19 cents, or 0.4%, to $42.91, after hitting an intraday high of $43.19.
With 16 U.S. states reporting record increases in new COVID-19 case in the first five days of July, according to a Reuters tally, there is mounting concern that public health measures to limit the virus spread will curb fuel demand.
Florida is re-introducing some limits on economic reopenings to grapple with rising cases. California and Texas, two of the most populous and economically crucial U.S. states, are also reporting high infection rates as a percentage of diagnostic tests conducted over the past week.
«The potential for demand destruction as lockdown re-instatement looks more likely are combining with concerns about OPEC+ discipline to weigh on oil prices,» said CMC Markets’s Chief Market Strategist Michael McCarthy in Sydney in an email.
The Organization of the Petroleum Exporting Countries (OPEC) and other producers including Russia, collectively known as OPEC+, are lowering output by 9.7 million barrels per day (bpd) for a third month in July.
However, those cuts are set to taper to 7.7 million bpd starting next month, adding supply at the same time U.S. fuel demand, especially for gasoline, remains impacted by the COVID-19 outbreak.
«Summer driving demand in the U.S. is low, keeping gasoline demand subdued, and a reintroduction of lockdowns is a major headwind,» ANZ said in a note.
Data from the American Petroleum Institute industry group later on Tuesday and the U.S. Energy Information Administration on Wednesday are expected to show a 100,000 barrel rise in gasoline stockpiles, six analysts polled by Reuters estimated.
The U.S. crude market faces some uncertainties from a court decision on Monday ordering the shutdown of the Dakota Access pipeline, the biggest artery transporting crude oil from North Dakota’s Bakken shale basin to Midwest and Gulf Coast regions, over environmental concerns.
Market sources in the Bakken said the closure of the 570,000-bpd pipeline, while a thorough environmental impact statement is completed, will likely divert some oil flows to transportation by rail.