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Thursday, July 30, 2015

AMarriage on the Rocks? Saudis Look Beyond U.S. After Iran Deal (JMD quoted on Bloomberg)

July 30, 2015 — 7:01 AM SGT

Former Saudi Foreign Minister Prince Saud al-Faisal once compared the bond with the U.S. to a “Muslim marriage,” or one that wasn’t necessarily monogamous.

The kingdom’s recent overtures to other partners suggest the relationship is going through another reappraisal because of the landmark accord with regional rival Iran. After visiting Russia and France last month, Deputy Crown Prince Mohammed bin Salman returned home with $23 billion of aircraft and energy contracts.

“Trust between Saudi Arabia and the U.S. has been damaged by the Iran nuclear deal,” said Paul Sullivan, a Middle East specialist at Georgetown University in Washington. “Many in Saudi Arabia feel abandoned by the U.S.”

The U.S., the world’s largest arms supplier, and China each accounted for about 13 percent of Saudi trade last year

They have hit the rocks before, most notably in the wake of the Sept. 11, 2001, terrorist attacks mainly by Saudi citizens. Yet the U.S.-led rapprochement with Iran raises the prospect of a tectonic shift in the Middle East that the Saudis haven’t had to contend with since the 1979 Islamic Revolution in Tehran.

For the Saudis, business with Russia can dilute dependence on the U.S., while for the more isolated Russians it’s all about winning friends and getting investment.

“Historically, the relationship between Russia and Saudi Arabia is one of mistrust,” said Hani Sabra, head analyst for the Middle East at Eurasia Group. “However, as a result of changing regional and global geopolitics, the opportunity for both sides to consider closer ties in the future is ripe.”

More Assertive

Changes made to the Saudi royal court by King Salman marked a shift toward a younger generation and underscored its more assertive role as the Middle East endures one of its most violent periods. Mohammed bin Salman, 29, was elevated to deputy crown prince after taking the post of defense minister in January and leading the campaign against Houthi rebels in Yemen.

In Riyadh, Saudi officials tell diplomats that they worry Iran will use the nuclear agreement to deepen its involvement in Arab affairs as sanctions are lifted and its economy and revenue expand. Former Saudi ambassador to the U.S., Bandar bin Sultan, wrote this month in a newspaper editorial that the Iran deal would “wreak havoc” on the Middle East.

“Considering the unprecedented turmoil in the region, the Saudis are trying to keep all their options open,” said Fahad Nazer, a political analyst at consulting company JTG Inc. in Virginia who has worked for the Saudi embassy in Washington.

Like Iran, Russian President Vladimir Putin is an ally of Syrian President Bashar al-Assad, whose opponents in a four-year civil war are backed by the Saudis. Putin’s support, though, is seen in Riyadh as wavering, said Nazer.
New Direction?

During the deputy crown prince’s visit to St. Petersburg in June, the Public Investment Fund agreed to jointly spend $10 billion with Russia on projects involving infrastructure, agriculture, medicine and logistics. In previous years, the Saudi fund wasn’t openly pursuing foreign investment.

After meeting with Putin, he flew to Paris, where 12 billion euros ($13.3 billion) in contracts were signed. They included a 3 billion-euro export finance accord between credit insurer Coface SA and the Public Investment Fund. The two countries also agreed to feasibility studies for two nuclear reactors, and Saudi Arabia agreed to buy 30 Airbus A320s and 20 Airbus A330s for 8 billion euros.

“There is a more strategic direction to investing abroad now that follows wider foreign policy interests,” said John Sfakianakis, the Riyadh-based director of the Middle East at investment company Ashmore Group.

‘Dollar Diplomacy’

Saudi Arabia has looked elsewhere before to demonstrate it’s not dependent on the U.S. After the collapse of trust following the terror attacks in which 15 of the 19 perpetrators were Saudi citizens, trade with China duly increased.

The U.S., the world’s largest arms supplier, and China each accounted for about 13 percent of Saudi trade last year. In 2001, U.S. imports and exports made up 19 percent of Saudi trade versus 4 percent for China. Russia, the second-largest seller of military hardware, barely registered either year.

“Financial muscle gets you only so far,” said James Dorsey, a senior fellow in international studies at Nanyang Technological University in Singapore. “I doubt it will fundamentally sway Washington. Saudi leadership realizes that irrespective of its views of U.S. reliability and policies, there is no country that can substitute it.”

U.S. Defense Secretary Ashton Carter met with King Salman and Prince Mohammed on July 22 in the Red Sea city of Jeddah, where he tried to reassure them that the U.S. wasn’t wavering in its security commitment.

Saudi Arabia had the biggest percentage increase among the top 15 spenders on defense worldwide last year, according to the Stockholm International Peace Research Institute. Outlays rose 17 percent to $80.8 billion. That’s as the halving of oil prices from 12 months ago reduces government revenue.

“For now, that will not stop it from engaging in dollar diplomacy,” said Dorsey. “It’s one of its foremost assets.”

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