Middle East

After Khashoggi, likely limited diplomatic impact for Saudi Arabia

While the “Davos of the desert” is receiving many cancellations at this very hour, Saudi Arabia is at the center of international controversy following the alleged assassination of Saudi journalist and US resident Jamal Khashoggi in the office of the Saudi consul in Istanbul, Turkey.

The rise in power of Crown Prince Mohammed Ben Salman (MBS) has revived the hope of social modernization and economic transformation of the Saudi Kingdom but this episode may have spoiled it, at least for a while.

Indeed, and considering the diplomatic and financial importance of Saudi Arabia in the foreign and trade policies of its Western counterparts, primarily the United States, one can assess that the international impact of the Khashoggi case will probably be limited in the long run and will have effects inside the country instead.

For two reasons, first of all, the support openly expressed by US President Donald Trump to the Saudi government since the beginning of the crisis, then the message probably received “loud and clear” by Saudi expatriate citizens who might have been tempted to express some disagreement with the new political order in Riyadh.

Finally, given the strategic importance given to Iran’s isolation in US foreign policy, it is unlikely that Washington will profoundly alter its relations with Riyadh regardless of the outcome of the mid-term elections.

Saudi Aramco, the largest IPO in history reportedly cancelled

According to sources from inside Saudi Arabia and others quoted by Reuters news agency, Saudi Aramco, the world’s biggest oil company and the kingdom’s largest company, has cancelled its very awaited IPO.

The Saudi authority suddenly halted the listing plan and disbanded advisors, said various sources and one stressed an economist named Barjas al-Barjas, a former adviser, has been arrested in the meantime. “Investors were always skeptical of Saudi Aramco’s USD 2 trillion price tag,” wrote Bloomberg which was still talking quite positively just a few days ago about the planned listing, like its main competitor CNBC.

However, in July 2018, Bloomberg reporters Javier Blas and Will Kennedy did point out that “likely investors doubt the value of the proposed public offering” and asked “how will Saudi Crown Prince Mohammed bin Salman (MBS) save face?” While many analysts emphasized the potential economic reasons behind this cancellation, Cyceon thinks political reasons shouldn’t be ruled out as well.

Indeed, Saudi Arabia is undergoing significant changes mostly decided by MBS and which seem to fuel some frictions inside the Saudi power circles. Although it’s too early for these reasons to be clearly identified and assessed, the sudden move after so much publicity may prove a negative development for Saudi Arabia’s Vision 2030 and standing across the financial world.

French group Total left Iran to the likely profit of Chinese partner CNPC

As early as July 2017, the French energy group Total announced within the framework of the South Pars 11 project (SP11) led in association with the Chinese group PetroChina (CNPC) that it took all possible precautions to restrain the field of influence of the the Iranian Revolutionary Guards Corps (IRGC).

Following the decision of President Donald Trump to withdraw the United States from the Iranian nuclear deal (JCPOA) signed in July 2015, Total said it would discontinue its participation in SP11 if it did not obtain a specific project waiver by the US authorities with the support of the French and European authorities before November 4, 2018.

Since then, the Trump administration has reinstated the sanctions against Iran and the Congress could toughen them a little more before the mid-term elections in November.

In the absence of a US guarantee and considering the significant fines paid by European companies to the benefit of the US government in recent years, the Total group has announced its definitive withdrawal from the SP11 project despite related expenditure valued at around 40 million euros, confirming a decision known for two months according to Tehran and especially the extraterritoriality of US legislation in Europe.

“Total had little choice for two reasons. The first is caution because even with the support of the French government, there was no guarantee that the US government would be comfortable with it. The second and most important is of course the possibility at any time for the US government to paralyze the financial activities of Total knowing that US banks are present in 90% of the group’s financing operations,” said an observer.

The decision of Total is also a disavowal for the European Union (EU) which Commission has yet adopted on July 16, 2018 a legal instrument – the Blocking Statute – with a view to protecting European companies in Iran against US sanctions. Finally, in accordance with the contract signed on July 3, 2017, PetroChina is expected to acquire Total’s shares and to chair the SP11 consortium.