The Saudi Arabian government is seeking to confiscate $800 billion in cash and assets from the kingdom’s elite in what it is calling a ‘crackdown on corruption.’
More than 60 prominent Saudis have been detained since Saturday, including Prince al-Waleed bin Talal, a billionaire investor who has been accused of bribery, money laundering, and extortion. Many others, including hundreds of royalty, have been banned from leaving the country.
Crown Prince Mohammed bin Salman, who initiated the purge, argues the move is necessary in order to overhaul the country’s oil-dependent economy.
“It was becoming increasingly clear that additional revenue is needed to improve the economy’s performance. The government will also strike deals with businessmen and royals to avoid arrest, but only as part of a greater commitment to the local economy,” reports political risk advisory firm Eurasia Group.
Attaining even a portion of the $800 billion it is looking for will help the Saudi government, which was forced to borrow and use up reserves following a prolonged period of low oil prices.
The kingdom has used up more than half of the $730 billion it had in foreign reserves as of 2014. If it continues to use up reserves at this rate, SA could find itself on the brink of financial collapse in less than three yeras. Gaining an extra $800 billion could delay that situation by 5-8 years.
“Prince Mohammed’s power play comes with the endorsement of Donald Trump, which many have theorized is tied to the potential flotation of Saudi oil giant Aramco on the New York Stock Exchange – an uncertain outcome, given the transparency requirements that would accompany it,” reports Fortune.
Editor’s note: It is do or die time for Saudi Arabia. This confiscated cash gives them several extra years of runway before their economy crashes and burns, much like Venezuela is doing now. Like Venezuela, Saudi Arabia has become a welfare state, a de facto socialist economy, supported by oil revenue.
Saudi Arabia is burning through their cash reserve at a rate of $12 Billion per month. Their economy cannot support itself, it has little revenue and most middle and upper class citizens are on the dole. But unlike Venezuela they have no informal economy to provide food or the basics, everything is imported. Saudi Arabia’s fall will be a hard one.
The challenge is to revamp its economy to survive on less oil revenue. They have no experience in this, and probably no real concept of free enterprise or free markets. But at least now they have an extra 5-8 years to make the attempt.