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Three Reasons Why Saudi Arabia Flip-Flopped On Iran. And Now Supports The US "Nuclear Deal"

Back in April, when the first outline of the Iran nuclear deal first appeared, Saudi Arabia (together with Israel) would have none of it. As the Atlantic Council summarized back then, "Saudi Arabia and Israel find themselves in the same camp as opponents of a nuclear deal with Iran, but the Sunni kingdom and Jewish state have very different reasons for their opposition. Israelis are concerned mainly with a nuclear-armed Iran, while the Saudis worry more about Iran’s growing regional influence, analysts said March 16 at the Atlantic Council.... for the Saudis … it’s been a traditional concern about Iran’s intentions in the Gulf."

One month later, the Saudi snub was heard around the globe when King Salman skipped a summit of Gulf Arab leaders at Camp David, which was widely interpreted as the latest embarrassment for the US president by a long-time mid-east US ally.

And then, a few months later, just as the new Saudi KJng Salman arrived in the US for his first trip since assuming the throne in January (and rented out all 222 rooms at the Washington D.C. Four Seasons hotel), something unexpected happened: Saudi Arabia gave its blessings for the Iran deal. This is what Deutsche Welle reported on Friday:

 Saudi Foreign Minister Adel al-Jubeir said on Friday that President Barack Obama had assured the Saudi king that the deal agreed in July with Iran prevents Tehran from acquiring nuclear weapons, includes inspections of military and suspected sites and has a provision for re-imposing sanctions should Iran violate the agreement.

 

Al-Jubeir said that under those conditions, Saudi Arabia would support the deal.

 

"Now we have one less problem for the time being to deal with, with regards to Iran," al-Jubeir said after a meeting between the king and Obama on Friday. "We can now focus more intensely on the nefarious activities that Iran is engaged in in the region.

As BBC confirmed, "Saudi Arabia has said it is happy with President Obama's assurances that the recent nuclear deal with Iran will not imperil the Gulf states. Saudi Foreign Minister Adel al-Jubeir said his country was satisfied that the deal would contribute to security and stability in the Middle East."

So what prompted the Saudis to change their mind in such a short time frame? There were three main reasons.

First, as we reported some time ago, since the primary driver behind the Iran "deal" is not the Obama State Department but the US military-industrial complex, which is hoping for yet another regional flash point to capitalize on selling weapons into yet another war, one of the side deals cut with the Saudis to make the Iran deal more appetizing was a $1bn arms agreement, which senior US officials told the NYT would provide weapons for the Saudi military for the campaign against the jihadist group Islamic State and the Houthi rebel movement in Yemen.  The deal primarily comprised missiles for US-made F-15 fighter jets, the officials said. More importantly, it boosts US GDP at a time when the US is desperate for any incremental growth.

Second, as Al Arabiya reported yesterday, Saudi Arabia unveiled a giant raft of investment and partnership potential opportunities in sectors including oil and gas, civil infrastructure, and banking as part of a 21st century vision of the cooperation between the two long-term allies, sources told Al Arabiya News on Saturday. The vision was presented by Saudi Deputy Crown Prince and Defense Minister Mohammad bin Salman, who also heads the kingdom’s economic and development council.

The list of proposals includes the kingdom’s state-run oil giant Saudi Aramco rolling out new projects in refining, distribution and support over a five-year period.

 

Mining was also mentioned as a “promising” sector, with plans to work with U.S. companies to extract vast deposits of phosphate, bauxite and silica.

 

In the healthcare sector, Saudi authorities seeking to double the clinical capacity in the next five years are slated to work with U.S. health insurers to set in place a new national program.

 

Foreign direct investment - which so far has been a rarity in the kingdom - is also mentioned as being among the plans, with major U.S. retailers expected to be invited to set up shop.

Who will benefit the most from all of this? Why the US again:

U.S. banks and finance firms are also to be invited to enter Saudi, with retail and commercial institutions mentioned by sources. American lenders are also suggested to tap in to the kingdom’s lucrative mortgage market.

 

With the Saudi government ramping up investment in free zones, roads, and communication networks, the kingdom will soon “aim to employ and rely completely on U.S. construction companies,” sources told Al Arabiya News.

 

The proposals were based on studies conducted by leading business and technology consultants, including Booz Allen Hamilton and BCG.

 

On Friday, during Saudi King Salman’s visit to Washington, the king told reporters that his country must allow more opportunities for U.S. and the kingdom to do business.

Because if the US can't growth from within, and it the domestic US oil industry is now in shambles with mass shale defaults just over the horizon, what better place to invest money than the country whose oil production policies are among the key drivers for collapsing oil prices.

Third, and perhaps most important, is that with oil at $50 and lower, Saudi Arabia is in dire financial straits as we have been covering extensively over the past month, leading to fear not only about the record Saudi budget deficit, but also concerns that the Saudi Riyal could be the next currency to lose its USD peg and devalue.Which means that just like US shale companies, Saudi Arabia is suddenly all too reliant on capital markets access, and the generosity of creditors to fund its record budget deficit, which is only set to rise (as we previews back in November 2014). AFP with the explanation:

Saudi Arabia will cut spending and issue more bonds as it faces a record budget shortfall due to falling oil prices, the finance minister said on Sunday. The kingdom -- the biggest Arab economy and the world's largest oil exporter -- is facing an unprecedented budget crunch after crude prices dropped by more than half in a year to below $50 a barrel.

 

"We are working... to cut unnecessary expenditure," Assaf told Dubai-based CNBC Arabia in Washington, where he is accompanying King Salman on a visit.

 

He said the government would issue more conventional treasury bonds and Islamic sukuk bonds to "finance the budget deficit" -- which is projected by the International Monetary Fund at a record $130 billion (117 billion euros) for this year.

 

The kingdom has so far issued bonds worth "less than 100 billion riyals ($27 billion/24 billion euros)" to help with the shortfall, he said, without providing an exact figure. "We intend to issue more bonds and could issue sukuk for certain projects... before the end of 2015," Assaf said.

Recall that in addition to China and the rest of the EMs and petro-exporters, Saudi too has been burning through US reserves (i.e., mostly Treasurys): "Jadwa said that by the end of July the government had withdrawn $82 billion from its reserves, reducing the assets to $650 billion. The reserves are expected to drop to $629 billion by the end of the year, Jadwa said." We'll take the under.

To summarize: in order to get the Saudis to "agree" to the Iran deal, all the US had to do is remind King Salman, that as long as oil is where it is to a big extent as a result of Saudi's own record oil production, crushing countless US oil corporations and leading to the biggest layoffs in Texas since the financial crisis, the country will urgently need access to yield-starved US debt investors.

If in the process, US corporations can invest in Saudi Arabia (and use the resulting assets as further collateral against which to take out even more debt), while US military corporations sell billions in weapons and ammo to the Saudi army, so much the better.

And that is why Saudi King Salman flipflopped on short notice.

And then, there is Donald Trump...

I will be in Washington D.C. on Wednesday,1 P.M.,in front of the Capitol, to protest the horrible and incompetent deal being made with Iran.

— Donald J. Trump (@realDonaldTrump)