Saudi Succession Assists Reform, Adds Foreign Policy Risk

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Friday, June 23, 2017 11:15 AM /Fitch Ratings

Saudi King Salman's decision to name his son Mohammed bin Salman as crown prince has reduced uncertainty about the royal succession and reduces the risk of slippage in the country's "Vision 2030" reform programme, Fitch Ratings says. However, the new crown prince has already made Saudi foreign policy less predictable and, in Fitch's view, his promotion could raise tensions with Iran further.

Given Mohammed bin Salman's rise, it had long been uncertain whether previous crown prince Mohammed bin Nayef would stay in the role. The decision to replace Mohammed bin Nayef has clarified the succession process, as there are now no obvious challengers.

Tensions within the royal family could still possibly lead to changes in the succession process, but the probability is relatively low. At 31, the new crown prince is also much younger than previous holders of the title. Therefore, his eventual succession may lead to a very long period in power, breaking the pattern of relatively short reigns by elderly leaders.

Mohammed bin Salman was instrumental in setting up the Vision 2030 reform agenda and its implementation plans, including the National Transformation Programme 2020, the Fiscal Balance Programme and the plan to partly privatize Saudi Aramco.

Together, these reforms intend to reduce oil dependence and ensure the long-term viability of public finances. Under his leadership of the Council for Economic and Development Affairs, Saudi economic policy has surprised most observers by its boldness, including early cuts in subsidies, which has helped to build confidence in the government's ability to rein in large fiscal deficits.

His promotion will entrench the reform agenda and makes it more likely that the main elements of Vision 2030, including the Saudi Aramco IPO, will go ahead.

The new crown prince has been the key driving force behind the Saudi-led war against the Houthis in Yemen and the boycott of Qatar. The war in Yemen remains unresolved despite the superior fighting power of the Saudis and their allies.

The boycott on Qatar could also still backfire by driving Qatar closer to Iran or simply by showing the limits of Saudi power if Qatar still refuses to submit to demands. Mohammed bin Salman has also used confrontational rhetoric over Iran.

While Fitch still sees the risk of direct outright Saudi-Iran confrontation as low, his rise, as well as the ambiguous statements from the US administration, mean that further escalation cannot be excluded.

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