DUBAI, United Arab Emirates – The world was shocked when the young crown prince of Saudi Arabia moved to arrest ex-ministers, nearly a dozen princes and the country’s most powerful billionaires. The official Saudi narrative was that it is fighting against corruption. Others suggested it is a power struggle.
Whatever the reasoning behind the massive purge in Saudi Arabia could be, it jolted markets and created uncertainty over the business environment in the kingdom long known for its political stability.
Saudi Arabian authorities also froze bank accounts in what they call an expanding anti-corruption crackdown on the kingdom’s political and business elite. Last week, the central bank ordered financial institutions in the kingdom to freeze the accounts of dozens of individuals who aren’t under arrest, including the former Crown Prince Mohammad Bin Nayef.
Mr. Bin Nayef, who was ousted in June in a palace shakeup that brought his younger cousin, the 32-year-old Prince Mohammad Bin Salman closer to the throne, has now also been removed from his post as interior minister.
The anti-corruption committee, chaired by the crown prince, known as MBS amongst journalists and diplomats, has the right to investigate, arrest, ban from travel, freeze accounts and portfolios, track funds, and assets of individuals involved in corruption practices.
The Saudi crown prince’s sweeping crackdown on alleged corruption received a blessing from the kingdom’s biggest ally in the West. President Donald J. Trump tweeted that he had “great confidence in King Salman and the Crown Prince of Saudi Arabia,” saying some of those arrested have been “milking” Saudi Arabia for years.
The U.S. State Department, however, has urged Saudi Arabia to carry out any prosecution of officials detained in a “fair and transparent” manner.
The purge coincides with the kingdom ramping up its rhetoric and action abroad.
Saudi Arabia closed its borders to Yemen after a missile – believed to have been fired by Houthi rebels that are supported by longtime foe Iran – was intercepted on its way to Riyadh.
Relations between the states had already worsened last week with the shocking resignation of Lebanese Prime Minister Saad Hariri, who stepped down during a visit to Saudi Arabia.
Secretary of State Rex Tillerson warned on Friday that Lebanon is at risk of becoming a new focus of violence as tensions rise between Saudi Arabia and Iran.
“The United States cautions against any party, within or outside Lebanon, using Lebanon as a venue for proxy conflicts or in any manner contributing to instability in that country,” Mr. Tillerson said in a statement.
A decrease in investor confidence coincided with these sharply heightened strains between Riyadh and Tehran, reflected in a fresh denunciation by the kingdom over Iran’s role in Yemen and by the ongoing squabble over political drama in Lebanon, another battleground of Iranian-Saudi rivalry.
Following the announcement of the initial arrests, the Saudi stock market dropped sharply initially but then rebounded into positive territory the same day.
The market sank 0.7 percent in heavy trade, led by shares in companies linked to people detained in the investigation, including Prince Al Waleed bin Talal, one of the world’s richest men and a shareholder in such global companies as Citigroup Inc. and Apple Inc.
The fall has wiped about $2 billion off his fortune, previously estimated by Forbes magazine at $17 billion. Analysts say the goal of the purge goes beyond corruption and aims to remove any potential opposition.
The arrests have consolidated the crown prince’s control of security institutions, which had previously been headed by separate branches of the ruling family.
On the other hand, some investors think that removing opposition to MBS, who is heavily projected as a liberal social and economic reformer, and help him accelerate privatization and big development projects.
“The amount of corruption that has affected Saudi for the last few decades is massive — you could probably build a Neom just from money that disappeared due to corruption,” Omar Mohamed, a GCC security analyst, told The Globe Post.
Neom is expected to be a $500 billion “futuristic free-zone city” along the Saudi Arabia’s Red Sea coastline, spanning 26,500 sq km and valued in the trillions. The crown prince announced his vision last month.
“What better way to show how serious you [MBS] are about moving forward than targeting those many thought untouchable?” Mr. Mohamed asked. In general, the crown prince seems to have the support of the younger population in the Kingdom.
“His style of leadership is based on a very harsh and repressive treatment of critical figures which is traditionally unusual for Saudi Arabia,” Sebastian Son, Ph.D. candidate and associate fellow of the Near East and North Africa Program at the German Council on Foreign Relations, told The Globe Post.
“Instead, he looks for the support of the youth that is in favor of his fight against the corrupt establishment and his economic reform agenda,” he added.
Much of the economic perspectives have decreased due to the falling oil prices where one-third of the young population is unemployed. Mr. Son noted that the crown prince wants to present himself as a strong force to fight corruption which has been a widespread part of the Saudi political system in recent decades.
Sources state that as much as $33 billion in personal wealth belonging to the richest detainees has been put at risk.
By marginalizing influential figures of the business community, MBS may also put his economic reform goals in danger because foreign companies would avoid investing in a country in which the personal security of businessmen is not safe anymore, Mr. Son argued.
The youth, however, seem to have high expectations that he is willing to abolish the system of corruption in order to create better chances for them.
Mr. Son said the crown prince is seen as the opposition to the establishment and even to members of his own family.
“Furthermore, he wants to get rid of possible critical voices in order to pace the way for his leadership as king,” he added.
Either way, the traditional elites are uncertain what will happen next – it is obvious that the traditional agreement between the ruling family and its clients seems to be over. However, it remains to be seen what this anti-establishment policy does in the long run.