In our day-to-day work we tend to encounter a cross section of people some of whom have a fondness for authoritarian rule. Whilst we hope that the ongoing unravelling of China will give such people food for thought, an even more dramatic upheaval is playing out in Saudi Arabia where behind palace doors a young strongman is using Mafiosi tactics to entrench himself in pole position in the country which produces more crude oil than any other. Before Anuj Chopra’s riveting long read one day becomes a multi-season OTT thriller, it is worth understanding the basic faultlines which undergird countries with authoritarian rule eg. countries like Saudi Arabia.
Faultline#1: In countries controlled by tiny elites (in Saudi Arabia’s case the tiny elite seem to be extended arms of a sprawling royal family), in-fighting between the elite – rather than needs of the country or the wishes of the people – determines the country’s future. We quote from The Guardian:
“The Saudi prince was detained all night. As daylight broke, he staggered out of the king’s palace in Mecca. His personal bodyguards, who tailed him everywhere, were missing. The prince was led to a waiting car. He was free to leave – but he would soon discover that freedom was not very different from detention.
As his car pulled out of the palace gates, Prince Mohammed bin Nayef fired off a series of panicked text messages.
“Be very careful! Don’t come back!” he wrote to his most trusted adviser, who had quietly slipped out of the kingdom just weeks earlier.
When Nayef reached his own palace in the coastal city of Jeddah a few hours later, he found new guards manning the property. It was obvious that he was being put under house arrest….The previous night, 20 June 2017, Nayef, the king’s nephew, had been forced to step down as heir to the Saudi throne in an episode that one royal insider described to me as “Godfather, Saudi-style”…. Two years before, after King Salman commenced his reign, Nayef had been made crown prince at the age of 55, putting him next in line to the throne. But simmering behind the scenes was a vicious rivalry between Nayef and his upstart cousin, the king’s son, Mohammed bin Salman, or MBS as he is known, who rose from obscurity to become deputy crown prince….
For decades, the throne had passed laterally between the sons of Abdulaziz Al Saud, the founder of the modern Saudi state, ensuring a delicate power balance between the various branches of the vast royal family. Nayef’s succession would have seen the crown passing to the generation below for the first time, but still to a different branch of the family, maintaining that delicate balance. But then came the palace coup – which not only shoved aside MBS’s main rival, but also destroyed the old succession model that prized seniority and consensus within the family, by setting up the passing of power directly from father to son within one branch of the family. It enabled MBS to amass more power than any previous ruler, even before he formally ascends the throne.”
Faultline #2: Having power concentrated in the hands of a tiny unelected elite plays into the hands of foreign powers who can then manipulate the country by manipulating the unelected elite which controls that country. Quoting from the piece in The Guardian: “Nayef, who oversaw domestic security, was the CIA’s closest Saudi ally. Earlier that year, the then-CIA director Mike Pompeo had awarded him a medal in recognition of his counter-terrorism efforts that saved American lives…
But a detailed account of the events of 2017, and its shocking aftermath, is now possible, thanks to a drip-feed of palace secrets by a few senior royals and other well-connected sources who have been stripped of their influence and wealth in the age of MBS and, in the worst cases, imprisoned and tortured.
Key among those sources is a man named Saad Aljabri, Nayef’s closest adviser and intelligence chief. It was Aljabri whom Nayef texted immediately after he was released from the king’s palace, after the coup. Aljabri, 63, had long operated in the shadows and many who worked with him considered him the most powerful non-royal in Saudi Arabia. One former American official who worked with Aljabri for years described him to me as the “deep state liaison” between Saudi Arabia and western powers. In the years after 9/11, Aljabri had been promoted through the ranks of the interior ministry, eventually becoming head of counter-terrorism operations. Together, Aljabri and his patron, Nayef, modernised the kingdom’s security and surveillance apparatus. They have also been accused of targeting peaceful activists under the pretext of counter-terrorism and laying the foundations of the police state that MBS would later turn against them.”
Faultline #3: In authoritarian states, the state exists not to serve the people but to perpetuate and entrench the tiny elite. In fact, rather than pursuing economic development, such states end up transferring the nation’s resources into the bank accounts of the ruling elite. Here is our final quote from Mr Chopra’s remarkable piece in The Guardian: “….that Nayef had initially believed the worst that would happen to him was losing his official titles and receiving a handsome financial compensation in return. He expected to be treated the same way as his predecessor Prince Muqrin bin Abdulaziz, a former head of intelligence who was dismissed as crown prince in 2015. After King Salman fired him, according to a well-placed source, Prince Muqrin was lavished with farewell gifts, including a royal payout of about $800m, and the luxury yacht Solandge.
By contrast, a large chunk of Nayef’s wealth was seized. On 10 December 2017, Nayef sent a letter to HSBC in Geneva asking that his “EUR, GBP, and USD balances” be transferred to a Saudi bank account. A source with knowledge of Nayef’s assets said his bankers and lawyers in Geneva ignored such requests, suspecting that the prince was acting under duress. (HSBC declined to comment when asked how it responded to the letter. The bank requested withholding the name of the official addressed in the letter, citing safety concerns.)
The total value of Nayef’s overseas holdings is unclear. The prince’s associates say he owns prime real estate worth billions in Europe and the US. Nonetheless, what is certain is that Nayef had to surrender a substantial part of his domestic assets. The source with knowledge of these, who is based in Europe, provided a table with a breakdown of his “confiscated” companies and bank accounts – the total amount was $5.22bn.”
Our conclusion: We have our problems in India, but they pale in comparison to what powerful elites in Russia, China and Saudi Arabia are subjecting their people to.
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Note: The above material is neither investment research, nor financial advice. Marcellus does not seek payment for or business from this publication in any shape or form. The information provided is intended for educational purposes only. Marcellus Investment Managers is regulated by the Securities and Exchange Board of India (SEBI) and is also an FME (Non-Retail) with the International Financial Services Centres Authority (IFSCA) as a provider of Portfolio Management Services. Additionally, Marcellus is also registered with US Securities and Exchange Commission (“US SEC”) as an Investment Advisor.
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