For the big ambitions of Saudi Arabia’s young deputy crown prince, who is trying to steer the kingdom’s fortunes away from oil, U.S. President Donald Trump’s visit to Saudi Arabia could be a boost.
While affirming its decades long support as Saudi Arabia’s regional power struggle with Iran intensifies, the U.S. brings an arms deal worth $350 billion over a decade for Mohammed bin Salman. It is a show of Saudi support for the U.S. in the fight against ISIS and a reset of what was a less friendly U.S.-Saudi relationship under President Barack Obama, for Trump.
“I think Trump will relish spending time in a country that is absolutely thrilled with his election. MBS will be looking for assurances that we will work alongside the Kingdom in rolling back Iran’s regional ambitions,” said Helima Croft, head of global commodities strategy at RBC.
U.S. endorsement on his home turf would be got for Bin Salman’s Vision 2030. Behind the program aimed at transforming Saudi Arabia into a more diverse economy is the 31-year old son of King Salman, known as MBS.
Creating thousands of jobs in industries, such as tourism and technology is his longer term plan. And with the proceeds of the the IPO of state oil company Saudi Aramco, expected sometime next year, the program also includes the funding of a giant sovereign wealth fund.
“Vision 2030 is the signature initiative of MBS, but it is facing quiet opposition at home and disbelief in international financial circles. Trump’s support in the White House statement for it when MBS was in D.C. were helpful to MBS. He is likely to mention it again this time. Such support also helps MBS in his ambition to be the new face of Saudi Arabia. But succession politics in the royal family are complicated, so the U.S. needs to be cautious,” said Simon Henderson, Baker fellow at The Washington Institute and director of the Institute’s Gulf and Energy Policy Program.
The kingdom will lead the cartel in a decision on extending its production cuts at Thursday’s OPEC meeting and Trump visit to Saudi Arabia just precedes that meeting. Instead of six months as previously expected, Saudi Arabia has suggested production cuts lasting nine month.
“We’re talking about the biggest oil consumer and the biggest oil exporter in the world, so any kind of rhetoric or change in the relationship has an impact on the industry, not necessarily the price but the relationship,” said Michael Cohen, head of energy commodities research at Barclays.
Investments in the U.S. in energy and other industries is also being planned by Saudi Arabia.
“When he was in Washington, both sides made mention of Vision 2030 in their sort of comments on the meeting, and it seems as if the Saudis said to the Americans, ‘We will invest in the United States and create American jobs, and we would also like your support for helping us economically transform the country,’ so there is a mutual agreement to work together on this,” said Henderson. “The details of which we don’t know, but there’s also a basic logic for the Saudis to transform their economy. They need to invest a lot of money at home.”
Its relationship with the U.S. politically and militarily is sought to be improved by Saudi Arabia, Henderson said.
“If it requires them to make some investments to develop an economic component, then they’ll do that. It’s not necessarily a sensible use of their money, but rather a sort of lever to be able to engage with the U.S. government,” he said.
(Adapted from Bloomberg)