Event

On 22 January King Abdullah bin Abd-al-Aziz of Saudi Arabia passed away at the age of 91. The same day, his 79-year-old half-brother Salman – who had been Crown Prince – acceded to the throne. Moving quickly, the new King appointed Muqrin – yet another half-brother – as the new Crown Prince (according to Abdullah’s wishes), and Mohamed bin Nayef – one of Salman’s nephews – as the new Deputy Crown Prince (read, the next next-in-line). On oil policy, King Salman assured that he would continue the Saudi strategy of keeping production levels high, thereby avoiding price hikes and maintaining pressure on higher cost producers.

Impact on country risk

In the short term, King Abdullah’s death is unlikely to have a significant impact on the country’s policy. First and foremost, King Salman is expected to focus on continuity and stability rather than to introduce political and social reforms. Indeed, a stable succession seems a key precondition to effectively deal with security threats such as domestic resurgent Islamist militancy and cross-border spillovers from conflicts in Yemen and Iraq. Besides, Salman may be inclined to leave over critical decisions on strategic challenges to his successors due to his high age and health problems. As such, even with low oil prices undermining public revenues, the Saudi government is not expected to significantly cut back on abundant social spending soon. The resulting deficit (projected by the IMF at 10.1% of 2015 GDP) can easily be financed by drawing on the huge buffers built up during the past years of high oil prices (Saudi Arabia has a solid net foreign asset position and international reserves cover some thirty months of goods and services imports, where the standard benchmark is three). As indicated by the unchanged production strategy, sudden modifications in current oil policies are unlikely as well, not least because decisions in this all-important field are typically taken by consensus rather than by individuals. Considering medium-term prospects, it should be noted that the swift appointment of Mohamed bin Nayef as Deputy Crown Prince makes him the first of the younger generation of princes to be designated as an heir to the throne. This clarification of the line of succession suggests that King Salman and the ruling family wanted to settle as quickly as possible any tensions among Saudi princes over the issue. Even if the influential sons of late King Abdullah may feel sidelined by the choice, they are unlikely to express their grievances publicly. Indeed, all factions in the succession struggle will want to ensure that they are seen as responsible rulers, capable of being partners with foreign powers on which Saudi Arabia is dependent for security.

Analyst: Sebastian Vanderlinden, s.vanderlinden@credendogroup.com