By Confluence Investment Management. Originally published at ValueWalk.
On June 20th, King Salman of Saudi Arabia announced that his son, Prince Mohammed bin Salman (MbS, as he is affectionately known), would be the new crown prince, replacing Prince Mohammed bin Nayef. Although the move was momentous, it was not necessarily unexpected. MbS’s stature in the kingdom had been rising since he was appointed as deputy crown prince in 2015, while Prince Nayef, who had been appointed as crown prince at the same time, held a lower profile and was generally overshadowed by his younger cousin.
However, over the past two weeks, details of the change emerged in the major U.S. media.1 Although the initial reports suggested the change was consensual, recent articles, referenced below, make it clear that Prince Nayef was ousted.
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In this report, we will discuss the history of the succession of Saudi kings to highlight how the eventual ascension of MbS will represent a major break with history. We will then examine the details of the ouster and the potential for opposition to MbS taking power. We will analyze what the eventual kingship of MbS might mean for the region. As always, we will conclude with market ramifications.
Historical Context
Saudi Arabia was founded by Ibn Saud, a charismatic sheik who created the modern kingdom. Through military campaigns and intermarriage, Ibn Saud gradually unified the territory on the Arabian Peninsula to create the modern Saudi state. During this process, he had at least 22 wives and 45 sons, 36 who survived to adulthood. He ruled Saudi Arabia from its founding in 1932 to 1953.
Due to the large number of sons, Ibn Saud created a succession plan that would shift from brother to brother rather than from the eldest brother to his eldest son, a process known as primogeniture. This succession plan did manage to maintain peace among the founder’s sons but it also held the potential for an eventual crisis as the generation of the sons of Ibn Saud aged out.
Even the process of kingly succession from brother to brother did not occur without tensions. The first, King Saud, the eldest son of the founder, ended his rule in abdication. King Saud was erratic and a spendthrift; he attempted to assassinate Egyptian President Gamal Nasser and engaged in a proxy war against Egypt in the Yemen civil war in the early 1960s. However, the key concern about King Saud was that he had 30 sons and was steadily putting them in positions of power, undermining the authority of King Saud’s brothers. The clergy and Saud’s powerful brothers (Princes Khalid, Fahd and Abdallah, all three future kings) conspired to force Saud’s ouster. In 1964, Saud was deposed in favor of his brother, Faisal, Ibn Saud’s third son. King Faisal was the prime minister during the Saud administration.
Faisal was a sober, thrifty, religious man who introduced public education for both men and women to the kingdom, but opposed the Arab nationalist movement of Nassar and Hafez Assad in Syria. At the same time, he supported unity among Shiites and Sunnis, a position opposed by the Saudi clergy. He opposed communism and Zionism as well, and ordered the Arab Oil Embargo in response to U.S. support for Israel during the Yom Kippur War in 1973. King Faisal was assassinated by a half-nephew in 1975.
The next king, Khalid, was essentially a caretaker monarch. His brother, Prince Fahd, managed the kingdom’s day-to-day operations. Khalid suffered from heart disease and died in 1982; he was succeeded by Fahd. King Fahd was the eldest son of Hassa al-Sudairi,2 one of the founder’s favorite wives.
Fahd had a long and eventful reign. Fearing the Iranian Revolution, he actively supported Saddam Hussein’s Iraq during the Iran-Iraq War. His oil minister, Zaki Yamani, abandoned the kingdom’s OPEC role of swing producer in 1986; this led to a collapse in oil prices and was partly responsible for the downfall of the Soviet Union. Fahd was not a fan of the influential Yamani, and eventually he unceremoniously fired him.3 King Fahd also invited the U.S. military to Saudi Arabia in the autumn of 1990 after Saddam Hussein invaded and annexed Kuwait. President George H.W. Bush and Secretary of State Jim Baker built a large coalition to oust Iraq from Kuwait, using Saudi Arabia as a base of operations. Although the execution of the war was impressive, anger at the king for allowing “infidels” to operate in the land of Mecca and Medina spawned al Qaeda, led by Osama bin Laden.
Fahd anticipated the end of his generation of kings and began the process of a more formal system of succession, allowing the current king to name his successor instead of relying on informal decisions by the sons of Ibn Saud. The edict allowed the sitting king to select using his own criteria and permitted him to pass over those with seniority, setting the stage to move to the grandsons of Ibn Saud.
Although Fahd was the longest reigning Saudi king, he suffered a series of strokes, the first in 1995. Crown Prince Abdullah increasingly ran the operations of the kingdom from 1995 until Fahd’s passing in 2005. Abdullah became king in 2005.
Unlike the worldly Fahd, Abdullah was, like Faisal, a man of personal piety. He did implement some important economic reforms, including joining the WTO. Abdullah died in 2015 and was replaced by Crown Prince Salman.
King Salman opted to demote Deputy Crown Prince Muqrin, the last “king eligible” son of Ibn Saud. He appointed Prince Nayef to crown prince and his son, MbS, to deputy crown prince.
The Ouster
On Tuesday, June 20th, Crown Prince Nayef was summoned to an evening meeting with King Salman at the royal palace in Mecca. According to Reuters,4 the king accused his nephew of unchecked dependence on narcotics that was affecting his judgement. Nayef had been the target of an al Qaeda assassination attempt5 and the resulting injuries had led him to use painkillers. The king wanted Nayef to sign a declaration that he was willingly stepping down from his position as crown prince. Nayef initially declined and so the king left him alone, effectively under arrest, while he convened the Allegiance Council, the 34-member board that consults with the king on succession matters. The council voted 31-3 to approve MbS as crown prince.
By morning, Nayef realized his position was untenable. There are inconsistent reports as to whether Nayef signed his abdication, but the final result is that he is out of power. Since then, the former crown prince has been confined to his palace under guards loyal to MbS. Nayef’s two daughters are also said to be effectively under house arrest. Although we doubt Nayef would stage a counter-coup, it does appear King Salman is taking no chances. We also note that neither the king nor his new crown prince attended the G-20 meetings in Germany earlier this month, suggesting they don’t feel confident enough to leave the
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