Monday, January 11, 2016

The Lion, the Cheetah and the Tiger

This isn't the title of a new Disney movie. Apparently many Arab leaders just like to name themselves after feline predators. For example, Assad is the Arabic word for lion, while Nimr, the Shiite cleric recently executed by the Saudis, means tiger in Arabic. Finally, the late Saudi king Fahd shares the same name in Arabic as the animal cheetah. This last name is of particular importance to Shia eschatology, because as one hadith goes, around the end times a king of the Arab peninsula, whose name means cheetah, will be succeeded by a king called Abdullah. When this Abdullah dies, chaos and civil war will erupt in the Arab peninsula. Many Shiites today interpret this hadith as proof that we are nearing the apocalypse and will soon witness the end of the Saudi monarchy, since the names of the previous two Saudi kings actually were Fahd and Abdullah. After Abdullah died in early 2015, Houthi rebels, who possibly felt more embolded by this Shia prophecy, embarked on an offensive to capture the southern parts of Yemen. However, the new Saudi king saw this as the last straw and quickly reacted by bombing the Houthis. Ever since, relations between Iran and Saudi Arabia have been getting worse, finally culminating in the execution of Nimr last month. The decision of Assad "the lion" to kill Zahran Alloush, the Syrian rebel leader closest to the Saudis, probably prompted the Saudis to execute Nimr "the tiger" a few days later. At the moment many Iranians still believe that the Saudi monarchy is finished or nearing its collapse and this view has even been echoed by some Western media outlets, as we can read in the Huffington Post:

"The Tiger is dead. Sheikh Nimr al-Nimr ("nimr" is Arabic for "tiger") was executed by the Saudi government for speaking out against absolute monarchy and pushing for people's participation in governing themselves. The mass executions of 47 people last week marked a turning point that will perhaps be a harbinger of what this year will look like for Saudi Arabia.

The timing of the executions was carefully chosen and was aimed at silencing domestic anger over economic decline and the failure of regional policies. The truth is that the Saudi government is on the ropes.

First, there is a Saudi-Yemen quagmire of a war, which has burnt billions of dollars and made the Saudi government look pretty weak and unable to defeat the army of the poorest Arab state -- even with a 10-country coalition and, indirectly via arms sales, American and British help.

Next, in Syria, the Saudis kicked and screamed to have the U.S. topple President Bashar Assad's regime on their behalf but U.S. President Barack Obama did not, even when his alleged red line of chemical weapons was crossed. Then came the Russian intervention that put an end to the Saudi project. That was symbolized by the Russian killing of the Saudi-backed leader of Jaish al-Islam on Dec. 25."

Moreover, Western analysts and journalists point out how the low oil price will soon prove to be untenable for the Saudis. Yet they fail to see how this view that the Saudi monarchy nears its end is not so much grounded in reality, but more a result of the belief in the Shia end times hadith mentioned earlier here.

As Iyad el-Baghdad explained in his article "The Next Front in the Saudi-Iran War" in Foreign Policy a few days ago, Iran is currently in a more precarious economic situation than Saudi Arabia. Additionally, Iran has also much more to lose from a low oil price:

"While the Saudi economy is more heavily reliant on oil than Iran’s, its foreign exchange reserves are far higher and its sovereign wealth fund owns far more assets. It also still has the untapped option of issuing bonds — it has the world’s lowest GDP-to-debt ratio (under 2 percent) and a high credit rating. Most importantly, Riyadh is already taking steps to inject more funds into government coffers: The development to watch out for is the planned economic reforms package, which would institute a value-added tax, cut subsidies, and privatize certain sectors. According to Saudi calculations, should this be successful, the country will see a balanced budget before 2020.

Iran, on the other hand, does not have as many options. It’s already in the midst of a subsidy reform plan and, unlike Saudi Arabia, already taxes its citizens. Raising taxes is difficult when inflation is high (16.2 percent) and unemployment is in the double digits (10.4 percent). The oil price necessary to balance Iran’s budget is much higher than the price needed to balance the Saudi budget; the Iranian oil sector is in need of development after more than a decade of sanctions.

In short, Iran can try to outgun Saudi Arabia, and its proxies can try to outnumber its allies on the various battlefields — but it cannot outspend Saudi Arabia and cannot outlast it in an environment where oil is cheap. Saudi Arabia doesn’t need to collapse Iran’s economy — it only needs to make the proxy war too expensive for it to maintain, prompting it to withdraw into its own borders, allowing a Saudi-friendly reconfiguration of the region.

Once things are lined up in the right direction, Saudi Arabia could quietly open the taps further and allow a couple more million barrels a day on the market, driving prices down even further. The longer it can hold the prices down, the more it will be compounding Iran and Russia’s economic pain."