Yves here. This may seem a bit wide of our usual finance and economics beat, but the Middle East continues to be a potential flashpoint, as well as the most visible sphere of jockeying for geopolitical influence. It’s relevant for domestic policy, both in terms of our ongoing military commitments and their budgetary impact, as well as the fact that shale gas development does not reduce the need for oil for the overwhelming majority of vehicles in the US (ie, they would need to be converted to natural gas or replaced).
This piece caught my attention because it gives a plausible and in-depth assessment of Saudi policy in the Middle East, now that it is in the process of divorcing itself from the US. In particular, it also in passing addresses a question that flummoxed Moon of Alabama: why did the Saudis reject what would normally be a prized seat on the UN Security Council? If nothing else, it will hopefully stir reactions from informed members of the commentariat.
By Felix Imonti, an investor, retired business founder/operator, and author of Violent Justice and numeerous articles in the areas of international relations, international economics and history. Cross posted from OilPrice
General El-Sisi may have found the solution to Egypt’s economic woes. It is called war.
During the weeks up to the coup, General El-Sisi had much to consider. With his access to the presidential palace and the trust of the Muslim Brotherhood, the general would have known the well-kept secret that Egypt was facing in a few short months a currency collapse and a famine that would very likely throw the country into a bloody revolution that his soldiers would be forced to quell.
Throughout the growing crisis, the Brotherhood offered no solid plan to revive the economy. Sixty billion dollars had been sent offshore for safety and nothing being done would lure any of it back. Qatar, Libya, and Turkey had contributed twelve billion dollars, but Egypt would require a billion dollars per month to remain solvent and there was no sign that would be forthcoming.
Something had to be done quickly and whatever was to be done would require the agreement of General El-Sisi. He was the Minister of Defense and the commander of the half million strong Egyptian military. He was the most powerful man in Egypt.
Regardless, a coup would not solve the economic stresses. Egypt needed a benefactor with a full purse and a willingness to spend. Only one country fitted that picture, Saudi Arabia; and the king has reason to favor the Egyptian general.
King Abdullah of Saudi Arabia had watched Mubarak removed from office and replaced by Mohammed Morsi. He had seen the Muslim Brotherhood grow from a problem to a threat. The Brotherhood was not only active in Egypt. It was involved in Tunisia, competed with the forces supported by the Saudis in Syria, and had been seeking to overthrow the King of Jordan. The Saudi king had proposed that the Gulf Cooperation Council be expanded to include Jordan and Morocco in an alliance of the monarchies in an effort to blunt the spread of the Arab Spring and the Muslim Brotherhood.
One of General El-Sisi’s many admirers might go so far as to say that he had been chosen by a Divine Hand to save Egypt. The general had been based at the Egyptian Embassy in Saudi Arabia and knew many of the leaders of the Kingdom who could provide the desperately needed funds that would make a coup possible. On the other hand, the Saudis had found the one man who could break the Muslim Brotherhood after which they would be free to focus on the destruction of their other enemy, Iran and the Shia.
There is nothing new in the objective. It is the continuation of a war that the Saudis have been pursuing for four decades that dates back to the reign of the Shah. Saudi Arabia had manipulated the oil price on several occasions in order to inflict economic damage upon the Iranians.
Beyond the economic arena, they have battled each other through proxies in Lebanon, Yemen, Iraq, and currently in Syria. In spite of all of those efforts, the Saudis are still confronting their traditional foe and seeing Iran a more dangerous rival than ever before with the Shia control of Iraq and through the growth of the Iranian Revolutionary Guard’s asymmetric warfare skills, and penetration by Al-Qud of the Shia communities throughout the Middle East.
Seven hundred billion dollars in foreign reserves gives the impression of an economic powerhouse, but the Saudi future is dire. A twenty-five percent unemployment rate among the youth and little prospect for improvement present a potential source of social unrest. After depending upon the strength of the United States for seventy years, their American protector is no longer a reliable ally. Looming in the not too distant future, new technological improvements are increase quantities of recoverable oil that will force down world prices, unless Saudi Arabia can restrict Middle Eastern supplies to compensate for the increased worldwide production
King Abdullah called for the beheading of the Iranian snake in the midst of the Arab Spring and heightened conflict with Iran. He would have liked to have seen the U.S. accomplish it before Iran developed nuclear weapons, but it did not happened and appears that it never will happen. If the kingdom is going to become the dominant power in the region that will give it control over the flow and cost of oil, it must do so before Iran acquires nuclear weapons and before the American shield is withdrawn. The current willingness by the Iranians to negotiate a settlement over the nuclear program is treated in Riyadh as diplomatic theatrics intended to deceive an eagerly to be deceived United States.
The Saudi outburst at the United Nations when the Kingdom refused to take its Security Council seat that it had struggled to acquire was a tactic and not a tantrum. The Saudis were sending the message that the unsolved problems that have been long festering in the region would have to be resolved. If the others would not act, then Saudi Arabia would deal with the issues without the aid of the retreating United States or the impotent UN. What they were saying was that they are being forced to do whatever they are going to do; and their actions would come in many forms.
At the end of October, the newly formed Saudi supported Army of Justice, Jaish Al-Adl killed fourteen Iranian border guards in the Province of Baluchistan. The organization declared that the attack was retaliation for Iranian involvement in Syria.
Baluchistan was merely a pinprick compared to the confrontation at the beginning of August between President Vladimir Putin and Saudi intelligence chief and former ambassador to the United States, Bandar Bin Sultan. The Saudi prince came with carrots and sticks to have the Russians drop their support of Bashar Al-Assad. According to the leaked news report, Washington was in full agreement with the Saudi offer.
What the prince presented was an agreement for Russia and the Organization of Petroleum Exporting Countries to set production quotas and prices. Combined, they control forty-five percent of oil production.
The Saudis would not interfere with Russian gas sales to Europe and would guarantee Russia’s presence in the Port of Tardus in Syria. How the Saudis could keep their promises was a question that President Putin must have been asking and not liking the answer.
The stick in the prince’s bag was to unleash Chechen Terrorist that he claimed to control to disrupt the Winter Olympics in Sochi. The Saudis threatened to escalate the conflict to the point that it would be too costly at home for Russia to bear, but the Russians were already bearing it. The Shia-Sunni conflict in the form of bombings and assassinations has come to the Dagestan and Chechnya regions several years ago.
In spite of the likelihood of violence at the Olympics, Putin shows no inclination to appease Prince Bandar. Instead, suspected potential women bombers are having saliva samples taken in order to identify their body parts and security measures are being intensified as the Sochi Olympics to be held in February.
Border raids in Baluchistan or terrorist attacks in Dagestan to disrupt the Olympics will create anxiety in Iran and Russia, but the actions will not force either to alter the strategy in Syria. In order to accomplish that, Saudi Arabia must put into operation tactics that will overwhelm the opposition. The first sign to achieve that was a statement on August 8, 2013 by the chair of the National Syrian Coalition, Ahmad al-Jarba that Saudi Arabia was to form a national army outside of Syria.
All of this was announced more than two months before the United States agreed with Russia to a program of destroying Al-Assad’s chemical weapons and before Presidents Obama and Rouhani were chatting on the telephone. Deputy Defense Minister Prince Salman bin Sultan bin Abdulaziz was selected to organize the national army. His plan is to build a force of forty to fifty thousand troops and is prepared to spend several billion dollars on the project.
The ultimate goal is the organizing of the Army of Mohammed. It is to merge numerous smaller units into an army of two hundred and fifty thousand to be ready by March of 2016, but there are problems with the plan. The Pakistani military that has been training smaller size units on bases in Jordan cannot provide the instructors for a quarter million size force; and Jordan cannot accommodate that many troops.
If Al-Assad is the target of the Army of Mohammed, the Saudis are calculating that it will take two more years and an army double that of Syria’s to defeat the regime. If there is another enemy on the agenda, then we have to ask on which country are the bunker busting bombs that are included in a eleven billion dollar order placed recently with the United States to be dropped; and at what targets are the CCS-2 missiles with their nuclear warheads that the BBC says that Pakistan has supplied been aimed. Then, there are those quarter of a million troops in the Army of Muhammad to be send somewhere.
The Saudis have no doubt who their enemy is. A recent attack by tank supported Houthi troops against a Wahhabi madrassa in the Yemen town of Damaj near the Saudi Arabian border is a clear reminder. So is a bombing in the Shia majority Kingdom of Bahrain that is a near province of Saudi Arabia. Of course, the Saudis are certain that there is an Iranian hand stirring the pot of trouble.
The Saudi see the Houthis as a dangerous threat on the southern border that could give the Iranians through a proxy a direct route into the Saudi oil fields that are the sole source of the national wealth. It is a good reason for the Saudis to worry, especially because a large percentage of the workers in those oil fields are Shia.
In 2009, the Houthis crossed into Saudi Arabia. It was mainly with Pakistani forces that they were driven back. During the first Iraqi War, while Saudi and other armies were focused upon the Iraqi forces in Kuwait, Pakistani troops guarded the southern border and other troops have been held at ready in Pakistan to come to protect the vital oil fields and installations.
The Saudis have been supporting Pakistan with generous grants for decades. Now, Pakistan is facing an unusual convergence of problems that it making it impossible for the Pakistanis to provide their customary military support for the Saudis.
At the end of November, the chief of army staff General ashfaq Parvez Kayani will retire. His successor has not been named. Whoever he is, he will have to deal with the consequences of the withdrawal of U.S. and NATO forces from Afghanistan. Only the most optimistic are expecting the days to follow to be peaceful and that violence is likely to spill over the borders where it will be necessary for the army to be waiting to confront it.
Saudi Arabia will be vulnerable without Pakistani support. The skirmish in Damaj and the bombing in Bahrain have to be taken as a forerunner of what will be coming on a greater scale.
Saudi Arabia needs a replacement for the Pakistanis; and Egypt is the only choice. Large cash grants to Pakistan over many years have cemented those bonds of mutual dependents. Saudi Arabia has been generous as well with Egypt through the decades of Mubarak’s rule and with El-Sisi without receiving much in return. Now, both are in need and Egypt has debts to repay; and those debts are increasing by the billions.
Within a few days of the reduction of aid by the U.S. to Egypt, the Egyptians signed an agreement with Russia to purchase fifteen billion dollars in military equipment that includes MIG-29 fighters. By financing the purchases, the Saudis are demonstrating to the Egyptian how important they are in Saudi plans and are sending a message to Washington that the separation has begun.
The Egyptian Foreign Minister Nadil Fahmy said in an interview that Egyptian and Saudi Arabian security are bound together. “The Egyptian-Saudi relationship is one of identity. No matter how much we agree or disagree regarding part of this relationship, it’s a relationship of identity. But the Egyptian-US relationship is one of interests, regardless of our work it is not a relationship of identity. Egyptian national security is directly linked to Saudi national security, and vice versa. Whether we agree or disagree, national security in the two countries is linked.”
Saudi Arabia has risen to the forefront in Egypt’s dealings with other nations and recognition of their dependence upon Saudi largess was reflected by the interim president of Egypt, Adly Mansour making his first state visit to Saudi Arabia. King Abdullah made it clear where the kingdom stands if Egypt is threatened. “Standing against any attempts to touch Egypt’s internal affairs, particularly by the terrorists.” “Terrorist” is the term used to describe the Muslim Brotherhood.
While the Egyptians were celebrating the generosity of their benefactors, there was a not so subtle warning that a subsidized lunch is not a free lunch. On Oct. 27, Sheikh Mansour bin Zayed Al Nahyan, the deputy prime minister of the UAE and the minister of presidential affairs, said, “Arab support for Egypt will not last long, and Egypt must think about innovative, unconventional solutions.”
This warning came in the face of a ten percent inflation rate and a thirteen percent budget deficit. Heavy borrowing just to maintain spending without investing in the economy has pushed the national debt to eighty-nine percent of the GDP with an economic growth rate of a mere two percent. At least six percent is needed to absorb the increase in the labor force.
The violence and the political instability have blocked any investment in the economy. What Egypt requires is a powerful economic stimulus. The formation of the Army of Muhammad might be just what the economic doctor has ordered. Supplying, training, and commanding an army of a quarter of a million could see a vast infusion of capital into the Egyptian economy.
Saudi Arabia does not want two hundred and fifty thousand foreign mercenaries even if they are Moslem mercenaries inside of the Kingdom. The Saudis need to base them where there are facilities and control over them. The only place that fills the qualifications is Egypt; and what is a more “innovative, unconventional solutions” to Egypt’s economic strife?