The arrests came at an awkward time for the kingdom.
Prince Mohammed recently invited more than 3,500 investors, corporate chief executives, and leaders of nongovernmental organizations to Riyadh for a three-day conference intended to promote future business opportunities. Officials promised that the public offering of the state oil company, Saudi Aramco, would go forward and that the sovereign wealth fund would soon rank among the richest in the world with more than $400 billion in assets by 2020. They pledged to build a utopian megacity on a stretch of deserted land that would attract capital and talent from all over the world.
The conference attracted a slew of senior executives and officials, including Tony Blair, the former prime minister of Britain; Christine Lagarde, managing director of the International Monetary Fund; Masayoshi Son, the chief executive of the Japanese technology company SoftBank; and Blackstone’s chief executive, Stephen Schwarzman. Some of the attendees spoke highly of Crown Prince Mohammed’s economic ambitions. The planned initial public offering of Aramco, they noted, could free government capital to spend on urban investment and job development. Cultural changes like granting women the right to drive could encourage Western companies to invest in or start operations in Saudi Arabia.
Despite the goodwill, few had backed the effort with time and money. And the weekend’s arrests could add to that reluctance. But they could also change some perceptions, if the crown prince can eventually show a broader commitment to shaking up an entrenched royal bureaucracy.
“I think this is going to slow things down, but if the gambit is successful it will help,” said Charif Souki, chairman of Tellurian, a liquefied natural gas company now attempting to make energy deals with Saudi Arabia. Speaking of Crown Crown Prince Mohammed, he said, “Once he has consolidated power, he will do what he wants to do, which is to modernize the country and modernize Islam, which are all good things. But it might be very dangerous and it might not work.”
Even before the arrests, investors didn’t quite know what to make of the kingdom.
Saudi Arabia has unveiled a sweeping economic reconstruction called Vision 2030, intended to diversify the country’s employment beyond oil. The cornerstone of the economic effort is the proposed initial public offering of Saudi Aramco, which exchanges around the world have been vying to secure. In a tweet just hours before the arrests, President Trump said he would appreciate it if the Saudi Aramco public offering took place on the New York Stock Exchange.
The crown prince and his father, King Salman, have also won praise from local and international business leaders for their promises to return the kingdom to the kind of religious moderation that was more prevalent before a period of religious and sectarian unrest in 1979, when the royal family began to rely on conservative Islamic clerics to guarantee stability. They have had the temerity to take on the religious police and begin rolling back some social policies.
But Saudi Arabia has also faced unusual turbulence, complete with the sacking of two crown princes, a costly war in Yemen and a confrontation with Qatar. The weak price of oil has amplified the financial stress in the kingdom. The government has been forced to cut benefits for highly paid civil servants.
There remains a great deal of skepticism that the economic re-engineering can be pulled off, in part because much of the royal family and old guard have been made rich from payments by Saudi Aramco, whose books are essentially closed to the public. That is one reason there is growing talk that the Saudis will eventually turn to China, rather than the London or New York stock exchanges, to get around Western regulators and raise capital for Saudi Aramco.
“I don’t see them get investor interest unless they can produce a set of financial books that have been audited to Western accounting standards,” said Nancy T. Schmitt, president of Taum Sauk Investments, a firm based in New York that specializes in energy. “If this is a step to getting to that, then this is a good thing. But I don’t know that because I can’t read the palace intrigue.”
The arrests just make it harder to sort through the business climate.
Some interpreted the arrests as being disturbingly arbitrary. One of the officials arrested was the former Finance Minister Ibrahim al-Assaf, a Saudi Aramco board member. Another was Adel Fakieh, an early drafter of the crown prince’s reforms, who was ousted from his post of economy minister earlier Saturday.
“I don’t think it sends a particularly good signal to investors,” said Rachel Ziemba, managing director for emerging markets at Roubini Global Economics, a research firm in New York.
There is another school of thought among business leaders and analysts that the arrests were part of an effort to make the Saudi Aramco offering and other reforms unstoppable. In that way, it would be the sort of proof that the crown prince has the power to get his agenda done.
“This is just the kind of determination and commitment that is called for,” said Sadad al-Husseini, former executive vice president of Saudi Aramco.
Helima Croft, global head of commodity strategy at RBC Capital Markets, who attended the Riyadh conference, was somewhat more circumspect. “Does this scare off a pension fund or can this be sold as creating the necessary conditions of success?” she asked. “It’s a high-stakes game.”