COLUMN | Saudi Arabia Update: OPEC, Ronaldo and NEOM – Oil, soccer and death sentences make macabre combination [Offshore Accounts]

By the time you read this, OPEC will likely have finished a meeting to determine whether further production cuts are needed to stabilise the price of crude, which closed above US$75 per barrel on Friday. It was up five per cent on that one day, as traders bet that the oil producers’ cartel will announce another reduction in output.

Unfortunately, most major news organisations – including Reuters, Bloomberg, and us at Baird Maritime – were barred from the meeting in Vienna, as the Saudi Arabian delegation complained that the negative sentiment of oil traders is dragging down the price of oil. Silencing the press is not the most obvious strategy to encourage positive news coverage, but when have logic and Saudi Arabia ever been associated together?

You’ll be ouching!

Prince Abdulaziz Bin Salman, Minister of Energy of the Kingdom of Saudi Arabia, delivers his statement during the general debate at the regular session of the IAEA 66th General Conference held at the Agency headquarters in Vienna, Austria, September 26, 2022. (Photo: International Atomic Energy Agency/Dean Calma)

OPEC and its allies announced a surprise production cut in April, but that led only to a brief rise in the price of oil, prompting Saudi Arabia’s oil minister, Prince Abdulaziz bin Salman, to warn that traders who bet against the price of oil rising would be “ouching”.

Meanwhile, Russia continues to pump as much oil as it can, to sell primarily to China and India via the dark fleet of illicit tankers, to fund its war effort in Ukraine, and Chinese recovery from the Covid shut-downs of last year appears more sluggish than hoped. So, there are some headwinds on the oil price, despite Saudi Aramco’s plans to make capital expenditure of US$45 billion to US$55 billion this year as part of its drive to increase its oil production capacity to 13 million barrels per day by 2027.

Princes take the lead in the family-run kingdom

At the heart of the OPEC decision-making is Prince Abdulaziz, the first member of the royal family to serve in the role. On account of his irascible outbursts against oil traders, he is known as the “prickly prince”. Obviously, it is a better nickname than that of his half-brother, Crown Prince Mohammed bin Salman. Known as the “bone-saw prince,” bin Salman is believed to be responsible for the killing and dismemberment of journalist Jamal Khashoggi at the Saudi consulate in Istanbul, Turkey, in October 2018. The Saudi government has continually denied that the Crown Prince had any involvement in Mr Khashoggi’s assassination.

Small problem balancing the budget

Rendering of NEOM’s proposed Oxagon coastal city (Photo: NEOM)

But both princes face a problem: in order to balance its budget, Saudi Arabia requires an oil price above US$80 a barrel. That’s according to the IMF, so even oil prices of around US$70 leave a gap in the state finances to fund the bone-saw Crown Prince’s “giga-projects” like the “futuristic” city of NEOM on the Red Sea coast, budgeted at US$500 billion (with a “b”) as part of his plans to transform the Saudi economy.

The first phase, the Sindalah luxury island resort and marina, designed by Italian superyacht and architecture studio Luca Dini Design and Architecture, will open next year with two golf courses and world class diving off the Sinai Peninsula.

Already the coastal works for the construction of NEOM are acting as a magnet for dredgers, landing craft, and floating accommodation. Gulf and Red Sea owners of landing craft report that they are completely sold out of vessels as the Saudi government tries to fast track construction in an area largely bereft of existing infrastructure and facilities, although the existing port of Duba was rebranded the Port of Neom earlier this year. Only in 2025 will the port’s first container terminal will be fully operational, and contracts have just been awarded for the design, dredging, and construction of quay walls and cargo handling equipment.

There’s a new national airline (of course)

An ADES jackup drilling rig (Photo: Transocean)

The weaker oil price has not stopped the Crown Prince splashing the cash, and not just on barges and bulldozers.

In March, Crown Prince Mohammed announced the creation of a new national airline, Riyadh Air, because the existing one, Saudi Arabian Airlines, clearly wasn’t flash enough for his vision, as the low score reviews on Skytrax demonstrate.

The kingdom’s state news agency SPA said that the new carrier Riyadh Air will serve more than 100 destinations around the world by 2030, and that the airline expects to add US$20 billion to Saudi Arabia’s non-oil GDP growth and create more than 200,000 jobs both directly and indirectly. No supporting evidence for that figure was given, but hey-ho! This plan sets Riyadh Air in direct competition with fellow state-owned rivals Etihad and Emirates of the UAE, and Qatar Airways in the Gulf. Good luck with that.

Reuters reported that Riyadh Air is wholly owned by Saudi Arabia’s sovereign wealth fund, the Public Investment Fund (PIF), which also owns the largest jackup fleet in the world – 48 rigs – via Ades. In March, Riyadh Air announced an order for 39 firm Boeing 787-9 Dreamliner wide-bodied passenger jets, and options to acquire another 33, according to Boeing. That is at least US$5 billion of capital coming from Saudi Aramco’s dividends, and a similar-sized order from Airbus for the A350 design long-haul aircraft is also in the pipeline.

Riyadh Air will support the prince’s goal of serving 330 million passengers and attracting 100 million visitors to Saudi Arabia annually by 2030. To put those numbers into perspective, Emirates carried 58 million passengers in 2019 before the pandemic, and Dubai International Airport as a whole handled 86 million passengers in 2019, whilst Singapore Airlines carried just over 20 million passengers that year and Changi Airport in Singapore handled 68 million. The Crown Prince wants the kingdom to handle more than three times as many passengers as all its airports, both domestic and international, handled on a combined basis in 2019, including pilgrim traffic.

PIF and Ades may have bought their way to the top of the rig league on the back of a seemingly limitless supply of contracts with Saudi Aramco, but beating Emirates and Qatar Airways in the sky will be a lot harder.

The public relations campaign steps up

Cristiano Ronaldo (Photo: Al Nassr Football Club)

Saudi Arabia is spending millions on friendly public relations to give a modern and open image to the outside world. You may have seen that the kingdom now hosts the former Paris-Dakar Rally, and has sponsored the breakaway LIV golf tournament, as well as most implausibly winning the rights to host the 2029 Asian Winter Games at NEOM’s snow sports mountain resort (still to be built).

The country now issues tourist visas and a certain UK researcher has been very active publishing lovely photos of the kingdom on social media, without mentioning that their road trip was maybe just a government-funded junket.

However, that is small beer compared to the news that football superstar Cristiano Ronaldo has made the move to Riyadh to play for Saudi Arabia’s Al Nassr Football Club in return for an annual salary of US$200 million for two and a half years. PIF has also bought Newcastle United Football Club in the UK and pays the annual US$60 million hosting fee for Saudi Arabia’s F1 motor. The country joined the F1 calendar at the end of 2021, hosting its grand prix alongside those of other oil-rich states like Azerbaijan, Qatar, and the UAE.

Let’s be clear: all this sports largesse and Ronaldo’s US$500 million salary is only made possible by the country’s oil wealth, the US$20 per head that every man, woman, and child on the planet contributed to Saudi Aramco’s annual profit of US$161 billion (with a “b”) in 2022.

If you filled your car with petrol last year, the chances are you chipped in for some of it, as around one in eight barrels of oil produced globally comes from the kingdom.

Some things never change

Certainly, Saudi Arabia is changing fast, but some things don’t change. All the companies and individuals rushing to embrace the spending splurge by Crown Prince Mohammed bin Salman face the unpleasant reality that those who oppose the government, like dissidents in Russia and China, have the unfortunate habit of being killed by the state.

Indeed, a few hours after the Crown Prince consolidated his power in 2017, one of his royal rivals died in a mysterious helicopter crash in Asir Province. Since then, the bodies have kept piling up.

Death to the enemies of NEOM

NEOM has been tarnished by the unfortunate death sentences imposed on three members of the Howeitat tribe in Saudi Arabia, who were reportedly arrested for resisting to make way for the construction of the NEOM project and its 170-kilometre linear city called The Line, and charged with terrorism under a law that the United Nations has called “vague”.

Fourteen other members of the Howeitat tribe were sentenced to prison terms of between 15 and 50 years for protesting against the development, as per the Saudi human rights group ALQST. During the initial protests against NEOM, one member of the tribe was reportedly killed in his own home by members of the Saudi Special Forces in April 2020 after he criticised the compulsory eviction on social media and accused Saudi Arabia of “state terrorism”.

The government described his death as the result of a dawn shootout with the security forces, as per Vice, saying that he had to be “neutralised” after “he barricaded himself in his house.”

According to submissions to the United Nations, “no investigation into the actions of the Special Forces was reportedly conducted by the Saudi authorities. Instead, they allegedly offered financial incentives to government-appointed tribal sheikhs and other notables of the Huwaitat tribe, provided that they would publicly condemn Mr. Al Huwaiti’s resistance to eviction.”

Careful what you Tweet

Saudi Arabia is a country where one law professor faces the death penalty for alleged crimes including having a Twitter account and using WhatsApp to share news considered “hostile” to the kingdom. Oh dear – must remember not to pack this laptop on my next trip to the kingdom! The Guardian reported that in 2022, Salma al-Shehab, a Leeds PhD student and mother of two, received a 34-year sentence from a Saudi court for the crime of having a Twitter account following and retweeting dissidents and activists hostile to the monarchy. Another woman, Noura al-Qahtani, was sentenced to 45 years in prison for also using Twitter, the paper reported.

“The glossy brochures don’t show that this is a city being built on forcible evictions, state violence, and death sentences,” Jeed Basyouni, Middle East director of the human rights organisation Reprieve, told German broadcaster DW. Ms Basyouni said that NEOM epitomises the “gulf between Mohammed bin Salman’s professed ‘vision’ of Saudi Arabia and the repressive reality of his rule.” Reprieve has also highlighted the case of Salman Alodah, who has been tortured and held in solitary confinement for almost six years and now faces the death penalty for mocking the Saudi monarchy.

Conclusion: more of the same

Notice that there is a huge gap between the royal talk of breaking the kingdom’s dependence on oil, and the reality of its utter dependence on oil revenues today, and its plans to increase oil output.

Whilst aged footballers are paid hundreds of millions as part of a masterplan to raise the kingdom’s prestige and that of its egotistical and murderous Crown Prince, Saudi Aramco plans to increase its production by a million barrels a year and is splurging on the highest rig count and the highest capital spending in the company’s long history. That tells you all you need to know about Saudi Arabia’s priorities.

Follow the money, as they say in your first journalism class. In Saudi Arabia, all the money comes from Saudi Aramco, and always goes through the royal family.

Probably best I turn down the invite from the Saudi consul for a friendly chat at his office tomorrow…

Background Reading

Wood Mackenzie has an excellent paper on the revival of exploration drilling in the UAE. The country is hosting and chairing the 2023 United Nations Climate Change Conference, more commonly referred to as COP28, in early December. How strange then that the UAE plans to increase its oil production from 3.5 million barrels in 2019 to five million barrels in 2027, like Aramco. Ain’t no hypocrisy like Gulf Arab hypocrisy.

See our earlier coverage of the Bone-saw Prince and his vision for reform in Saudi Arabia here. The documents establishing the link between the planes used by the assassins of Jamal Khashoggi and the Crown Prince and Saudi Arabia’s Public Investment Fund were filed by a group of Saudi state-owned companies as part of an embezzlement suit they opened in 2021 in Canada against a former top Saudi intelligence official, Saad Aljabri (here).

See NEOM’s progress film here – beginning with the optimist line “NEOM is real.” Strangely, there are no police raids or public executions in the video.

You can follow the Saudi human rights group ALQST on Twitter here under the @ALQST_En handle. Read its report, The Dark Side of Neom.

Hieronymus Bosch

This anonymous commentator is our insider in the world of offshore oil and gas operations. With decades in the business and a raft of contacts, this is the go-to column for the behind-the-scenes wheelings and dealings of the volatile offshore market.