Continuity a Top Priority as Political Transition Stirs Anxiety The political uncertainty created by the death of King Abdullah on January 23 will reinforce the already heightened...To find out how to receive all of our flash forecasts on a regular basis contact us - https://www.prsgroup.com/contact-us

1. Political Risk Services
23-Jan-2015
Saudi Arabia: Flash Forecast
FORECASTS OF RISK TO INTERNATIONAL BUSINESS
Turmoil
Financial
Transfer
Direct
Investment
Export
Market
18-Month: High A B A-
Five-Year: Moderate A- B A-
KEY ECONOMIC FORECASTS
Years
Real GDP
Growth % Inflation %
Current
Account ($bn)
2010-2014(AVG) 6.0 3.6 124.18
2015(F) 3.0 2.9 22.50
2016-2020(F) 3.6 3.7 31.10
Continuity a Top Priority as Political Transition Stirs Anxiety
The political uncertainty created by the death of King Abdullah on January 23 will reinforce the already
heightened overall risk in Saudi Arabia resulting from a combination of plummeting global oil prices and the
security threat posed by Islamic militants and an Iran-supported Shia insurgency in neighboring Yemen.
The new monarch, King Salman, has acted quickly to provide assurances of a smooth transition, formally
naming his younger half-brother, Muqrin, as crown prince, and appointing his nephew, Mohamed bin
Nayef, to the post of deputy crown prince, a position created only last year with the aim of bringing greater
clarity to long-term succession plans.
A more immediate source of concern for investors is whether the change of leaders will affect the kingdom’s
oil policy. Riyadh has turned a deaf ear to calls from some of its OPEC partners to bolster prices by cutting
production, opting instead to preserve the kingdom’s market share. Global oil prices jumped upon the news
of Abdullah’s passing, amid speculation that the new ruler might seek to push up prices in order to ensure
adequate revenues for the generous government spending that has helped to dampen domestic discontent
amid the significant regional tumult of the past few years.
The markets will be watching for signals of personnel changes at the Ministry of Oil. The current head of the
ministry, Ali al-Naimi, has held the post for 20 years, and his departure could be seen as a signal of a shift in
policy. In that regard, it is worth noting that al-Naimi is believed to have delayed his retirement at the
urging of King Abdullah, meaning that a reshuffle would not necessarily herald a change in strategy. PRS
does not foresee a deviation from the current policy, and Salman is expected to announce that al-Naimi will
remain in the post, even if only long enough to assure the markets of the new regime’s commitment to the
policy continuity. The formal appointment of Salman’s son Mohammad as minister of defense, a role he
previously filled on an unofficial basis on behalf of his father, points to continuity on that front, as well.
Salman is 79 years old and has a history of health problems. He is rumored to be suffering from dementia,
although in recent diplomatic meetings he was reported to be fully engaged and carrying out his
responsibilities. However, given the fact that two of Salman’s eldest sons have died as a result of heart-
related problems, there is a distinct possibility that Muqrin could ascend the throne sooner rather than later.
At that point, the risk of a succession crisis will grow markedly, as the deepening of the generational transfer
initiated by the promotion of Mohammad bin Nayef triggers a potentially intense power struggle among the
dozens of younger princes who believe that they have the strongest claim to one day wear the crown. Both
Salman and the new deputy crown prince belong to the powerful Sudairi line of the Al Saud. In contrast,
Muqrin has no full-siblings, a fact that could leave him vulnerable to a palace coup.