Saudi Arabia steps into the Davos limelight

The gloomy world elite strolling the Promenade in Davos this week might cheer themselves up by stopping off free of charge ice cream courtesy of Saudi Arabia’s Crown Prince Mohammed bin Salman.

Or they may drop into the Saudi café for espresso, pumpkin jereesh and a rose mamoul crumble. Then go to Prince Mohammed’s Misk Foundation “Youth majlis’‘ pavilion.

With Russian oligarchs banned, the Saudis stepped into the limelight.

Despite a dire human rights record, the Gulf country wants the world to focus on its economic story: the world’s top oil exporter is one of the few bright spots in an otherwise shaky global economy wracked by Russia’s invasion of Ukraine, and surging inflation.

Saudi Arabia was the focus of global condemnation after the 2018 brutal murder of journalist Jamal Khashoggi and was shunned by many western leaders. MBS, as the crown prince is known, was implicated in the killing, according to US intelligence agencies. He has denied his involvement.

But four years on, Saudi officials are displaying a new confidence. The kingdom and its fellow Gulf energy producers are reaping huge rewards from the turmoil sweeping energy markets, whetting the appetite of bankers and financiers eager to counteract a slowdown in US and European markets.

“This is the most buoyant market we have ever seen in the kingdom. Things were good before we even saw oil prices spike, now it’s just really on fire. And we think it will be for the next five or six years,” stated a Gulf-based govt at a multinational that operates within the nation.

Line chart of GDP growth (%, constant prices)  showing Saudi Arabia is set to grow at its fastest pace in a decade

Flush with money and emboldened, Saudis hope the vitality disaster will change the western marketing campaign in opposition to investments in fossil fuels and bolster the dominion’s standing on the earth.

French president Emmanuel Macron visited the dominion in December and UK prime minister Boris Johnson this 12 months. President Joe Biden stays reluctant to observe swimsuit, however US officers acknowledge a realistic want to have interaction with Riyadh on a variety of points.

Boris Johnson is welcomed by Mohammed bin Salman, crown prince of Saudi Arabia, as he arrives for a meeting at the Royal Court in Riyadh
UK prime minister Boris Johnson is amongst western leaders to have visited the dominion this 12 months © PA

While the US and its allies have urged Saudi Arabia to pump extra oil to assist alleviate market pressures, the dominion’s management argues that the west’s overzealous embrace of inexperienced transition had led to years of under-investment and excessive oil costs.

“[The world is] not taking seriously the issue of energy security, affordability and availability,” Amin Nasser, the chief govt of Saudi Aramco, advised the FT on the sidelines of the World Economic Forum. The state vitality big lately overtook Apple to grow to be the world’s most respected firm.

Line chart of Share price (Riyal) showing In bearish markets, Aramco's share price has surged this year

Behind the scenes at Davos, delegates from cash-strapped governments around the globe had been additionally vying for a slice of sovereign wealth fund funding as petrodollars stream into the Gulf states’ coffers.

Saudi Arabia is already having fun with a windfall from surging vitality costs. Its oil income within the first quarter was $49bn, up 58 per cent on the identical interval in 2021. Jadwa Investment, a Riyadh-based financial institution, forecasts that the dominion is on track to reap about $250bn in oil revenues this 12 months.

Line chart of Brent crude ($ per barrel) showing The rise in energy costs has benefited the Gulf's oil producers

In the United Arab Emirates, guests have flocked again to Dubai after the coronavirus pandemic. Abu Dhabi, the rich capital and the UAE’s fundamental oil producer, is having fun with the rewards of excessive crude costs too.

“The swing dollar is now in the Gulf. Funds from traditional real estate to technology are now coming to the only place in the world with extra dollars,” stated one Dubai-based financier. “It’s a real renaissance.”

Neighbouring Qatar, the world’s high exporter of liquefied pure fuel, is benefiting from surging fuel costs and this week dedicated to speculate £10bn within the UK over the subsequent 5 years. The small Gulf state, which is internet hosting the soccer World Cup this 12 months, is being courted by governments and vitality firms throughout Europe because the continent seeks to scale back its dependency on Russian fuel and oil.

“The Middle East is definitely the strongest region right now,” stated Credit Suisse chief govt Thomas Gottstein. “Dubai is just booming, but also Doha and Riyadh offer great opportunities for further investments. There is a huge need for financing for infrastructure, tourism and healthcare as these economies diversify.”

For some bankers, the vitality shock brings again reminiscences of the heady days of the petrodollar growth of the Nineteen Seventies, which adopted the 1973 Arab oil embargo, when a Saudi-led coalition of Middle Eastern states lower off provides to the United States and different international locations supporting Israel throughout its conflict with Egypt and Syria.

Saudi Arabia has been on a spending spree led by its $620bn sovereign funding fund, PIF, for a number of years as Riyadh makes an attempt to modernise the conservative nation. It is engaged on megaprojects, together with the bold $500bn growth of Neom, an enormous futuristic metropolis; Qiddiyah, a sports activities advanced on the sting of Riyadh, and a $10bn tourism challenge on the Red Sea. The PIF has additionally been one of the vital energetic SWFs on the worldwide stage, investing in every little thing from blue-chip firms to electrical automobile makers and gaming know-how.

With oil revenues hovering the expectation is that the spending will solely speed up. “For the foreseeable future, the Gulf will be the epicentre,” stated the Dubai-based financier. “The most interesting deals will be cornerstoned in the region — from the largest buildings in New York to infrastructure and private equity.”

The growth will give MBS vital affect in a world wearied by recession. But the crown prince’s unpredictability means Saudi Arabia might appeal to the ire of the west once more, one veteran financier warned. Western diplomats say that after Khashoggi’s homicide — and international coverage debacles involving Yemen, Canada and Lebanon — MBS has more and more centered on delivering his financial reform agenda.

However, whereas he has prevented international coverage confrontations of late, he nonetheless presides over one of many area’s most autocratic and repressive states. That could clarify why the Saudis, who haven’t joined within the western condemnation of Russia, carried one other message to Davos: that the sanctions in opposition to Moscow — and particularly these in opposition to international property on the central financial institution — set a harmful precedent. Even because the Saudi delegation loved the eye, there was a wariness that the kingdom too might someday discover itself dealing with the wrath of the west. 

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