5 challenges facing Saudi Arabia under new King Salman

King Salman, 79, became ruler of Saudi Arabia on Friday after the passing of his half brother. -- PHOTO: AFP/HO/SPA
King Salman, 79, became ruler of Saudi Arabia on Friday after the passing of his half brother. -- PHOTO: AFP/HO/SPA

King Salman, 79, became ruler of Saudi Arabia on Friday (Jan 23) after the passing of his half brother Abdullah bin Abdulaziz, 90.

While observers have widely predicted a smooth transition to King Salman, there is concern that his poor health means his rule could be relatively short. The transition in power also comes at a critical moment as Saudi Arabia, the world's largest oil exporter and a key US ally in the Middle East, struggles with falling oil prices and rising Islamist violence.

Here's a look at the challenges facing Saudi Arabia:

1. Succession crisis

King Salman is in poor health, reportedly suffering from dementia. This raises doubts that he will be king for much longer. His named successor, Crown Prince Prince Muqrin, 69, is his brother and the youngest son of the country's founder Abdulaziz al-Saud.

Saudi Arabia's succession system involves the throne being passed down among Abdulaziz's sons, from the oldest to the youngest. But the problem with such a succession system is that some of his sons passed on before they could take the throne.

The issue was illustrated when then Crown Prince Sultan bin Abdulaziz, slated to succeed the late King Abdullah, died in 2011 before he could take the throne. The position of Crown Prince was then passed on to another brother Nayef bin Abdulaziz, who passed away in 2012.

When Crown Prince Muqrin takes the throne from King Salman, he could name as successor a member of a new generation - Abdulaziz's grandsons - of which there are at least 30 who could be in line for the throne. But the kingdom has no clear plan yet for such a transfer.

2. Volatility in oil prices, power broker status at stake

- Market watchers expect the passing of King Abdullah to increase uncertainty and volatility in oil prices in the near term.

Saudi Arabia is the world's top oil exporter, and oil prices have been plunging due to the kingdom's refusal to cut high production levels and surrender market share to rising US output.

Prices, however, surged on Friday following King Abdullah's death, with investors watching to see if King Salman will maintain the high oil output in the face of a global supply glut. It is something he is expected to continue to drive out rival producers, but he will have to make that tough decision - whether to continue to live with the lowered prices.

- Analysts have said the succession has also focused attention on the future of the oil minister Ali Al-Naimi, who reportedly wanted to step down but was persuaded to stay by the late King. Uncertainly over the minister's fate under the new king, and whether that would change energy policy, may add to market uncertainty.

- Another challenge is Saudi Arabia's status as the linchpin of global oil is at stake and it comes from the kingdom itself. As its population grows and its economy expands, it consumes more than a quarter of the oil it produces and the demand continues to grow, leaving less available for export.

British think tank Chatham House has warned that "the world's largest exporter of oil is consuming so much energy at home that its ability to play a stabilising role in world oil markets is at stake". Increasing fuel use at home could erode Saudi Arabia's spare capacity, the crucial safety cushion of extra output it keeps in reserve to deploy when supply is disrupted. As this security blanket shrinks, the risk of a supply crunch and subsequent oil price rises intensifies.

Energy efficiency measures could be applied and subsidies cut, though the latter would be an unpopular move.

3. Domestic headaches

As its economy is overly dependent on oil revenue and undermined by lavish subsidies, the falling oil prices also mean that Saudi rulers have less leeway to manage the needs of a rapidly growing population plagued by an unemployment rate that went up to a high of 12.4 per cent in 2011, mostly among educated young Saudis, which forms the largest group of the population.

Foreigners make up about 30 per cent of Saudi Arabia's population of 28.8 million and receive less pay, providing stiff competition in the job market. The kingdom has to figure out how to address the employment situation and social unrest that might arise.

4. Regional travails

As an ally of the West and the most important member of the Gulf Cooperation Council due to its large size and top oil producer status, Saudi Arabia is expected to provide regional leadership amid regional turmoil.

- Iran:

It is engaged in proxy battles with regional rival Iran. As the spiritual leader for Sunni Muslims through its guardianship of the holy sites Mecca and Medina, it exerts some influence, but it is vying for that influence with Shi'ite-dominated Iran.

Due to Western sanctions and economic isolation, Iran's budget cannot afford for oil prices to fall below US$100 (S$133) a barrel, as it increasingly depends on exports of the commodity to Asian countries. But Saudi Arabia, who holds the key to controlling oil prices, can keep them low to punish Iran for supporting the Shi'ite-led regime in Syria.

- Yemen:

The collapse of the Western-backed Yemen government, as it is convulsed by an increasingly powerful force of Iran-backed rebels and a resurgent Al-Qaeda, will also be a source of concern for Saudi Arabia. There are fears that without the backing of Yemen's government, which has allowed drone strikes on militants, it will become a breeding ground for Al-Qaeda in the Arabian Peninsula (AQAP), thus destablising Saudi Arabia.

- Bahrain:

Unrest in Bahrain, which is also a Sunni-ruled monarchy that is a Western ally, will also be of concern. Bahrain has seen protests by its Shi'ite majority since 2011, and had previously invited Saudi Arabia to help suppress the rebellion. However, the trials and jailing of Shi'ite opposition leaders in the small country have provoked international criticism, including from Iran.

Earlier this week, Iran said it was ready to engage in a frank dialogue with Saudi Arabia over some of these issues. How the talks between the two powers go will play a part in calming the upheaval in the region.

5. Islamist threat

Saudi Arabia is wary of the rise of militant groups like the Islamic State in Iraq and Syria (ISIS), which has taken over swathes of Iraq and Syria, and whose influence has led to militant attacks in Europe and Australia, and fighters heading there from around the world.

Last year, Saudi Arabia announced it was joining the US-led coalition against ISIS. Although it is unclear how many Saudi troops are involved and what they are doing, the kingdom's participation raised worries that militants may retaliate against it.

jerlee@sph.com.sg

Sources: The Straits Times archives, Agence France-Presse, Reuters, New York Times, Bloomberg, Financial Times, Xinhua