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Analysis: Saudi Arabia's weekend purge seen oil neutral, but raises investment concerns

A series of high profile arrests in Saudi Arabia over the weekend have further consolidated Crown Prince Mohammed bin Salman's grip on power.

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The move is unlikely to have immediate implications for the oil markets, but have raised some concerns about the investment climate in the world's largest crude oil exporter.

Eleven princes, four sitting ministers and "tens" of former ministers were arrested on Saturday on orders from the new anti-corruption committee headed by the crown prince, the Saudi-owned Al Arabiya news reported Sunday.



The new anti-corruption committee was established by Royal Order on Saturday and is headed by the crown prince.

In a statement, Saudi Arabia's Center for International Communication said the "launch of a new anti-corruption drive was part of an active reform agenda aimed at tackling a persistent problem that has hindered development efforts in the kingdom in recent decades."

Among the princes arrested are billionaire investor Prince Alwaleed bin Talal, Prince Miteb bin Abdullah who was also ousted from his post as head of the National Guard, and Prince Turki bin Abdullah who was once governor of Riyadh. Prince Miteb was once considered a strong contender for the throne.

"The dismissals and detentions suggest that Prince Mohammed rather than forging alliances is extending his iron grip to the ruling family, the military, and the national guard to counter what appears to be more widespread opposition within the family as well as the military to his reforms and the Yemen war," James M. Dorsey, a senior fellow at the S. Rajaratnam School of International Studies in Singapore's Nanyang Technological University, said in a note Sunday. "It raises questions about the reform process that increasingly is based on a unilateral rather than a consensual rewriting of the kingdom's social contract," Dorsey said.

The arrests were followed by Saudi Arabia intercepting a ballistic missile fired by rebels in Yemen towards one of the kingdom's major international airports. "For oil, Saudi, Yemen and Lebanon will likely give the market headline jitters but unlikely to lead to crude oil disruptions," Fareed Mohamedi, chief economist of energy consultancy Rapidan Group, told S&P Global Platts Sunday.

At 9:20 am Singapore time (0120 GMT) Monday, NYMEX December crude futures were up 20 cents at $55.84/b while ICE January Brent crude was up 23 cents at $62.30/b.

The prompt-month contracts for NYMEX crude and ICE Brent settled Friday at highs last seen in the summer of 2015, extending a rally that began last month. NYMEX December crude settled $1.10 higher at $55.64/b. ICE January Brent rose $1.45 to settle at $62.07/b.

The main drivers lifting prices Friday were the US oil rig count and talks that Nigerian militants had abandoned a ceasefire agreement.


OIL POLICY ARCHITECT


"Oil policy, domestically, and towards OPEC won't change," Mohamedi told Platts earlier.

Prince Mohammed is the key driver of the OPEC kingpin's oil policy. He recently reaffirmed his backing for an extension to OPEC's crude oil output cut beyond its current March 2018 deadline to rebalance the global market.

"The kingdom affirms its readiness to extend the production cut agreement, which proved its feasibility by rebalancing supply and demand," the crown prince said in a statement in late October.

OPEC members and 10 non-OPEC producers led by Russia, have committed to cut a combined 1.8 million b/d from the market in a bid to lower record high crude oil inventories. The initial six-month deal was extended in May to March 2018.

Prince Mohammed is also championing a dramatic reboot of the Saudi economy to diversify away from crude. He is the architect of the Saudi Aramco IPO, which forms the cornerstone of his Vision 2030 plan to modernize the economy.


IMPACT ON INVESTMENT


Riyadh is underpinning its growth strategy on the Aramco IPO, which it hopes will bring in foreign investment, Mohamedi said.

Analysts expressed concerns about the recent developments and their impact on Saudi Arabia's image as an attractive investment destination.

"[The purge] hardly makes KSA [Kingdom of Saudi Arabia] attractive to foreign business," Simon Henderson at the Washington Institute told Platts Sunday.

"Foreign view on purge is trouble," Olivier Jakob at PetroMatrix said in a tweet Sunday. But the Saudi Arabian General Investment Authority lauded the move. "We believe that the establishment of the Anti-Corruption Committee chaired by HRH Crown Prince Mohammed bin Salman is a vital step in creating a fair and level playing field for all potential investors," Ibrahim Al Omar, the Governor of the SAGIA said.

"This is a clear sign that the kingdom is ready to protect companies', and individuals' investments from legally reprehensible actions," Al Omar said, adding that such policies are internationally accepted norms that will positively impact the country's overall economic well-being.

-- Mriganka Jaipuriyar, mriganka.jaipuriyar@spglobal.com
-- Adal Mirza, adal.mirza@spglobal.com
-- Edited by Geetha Narayanasamy, newsdesk@spglobal.com