Thursday, 12th January 2017

Speculation mounts over Omani finances, succession and Saudi relations

The Ministry of Finance in Muscat has been forced to deny a report by the Reuters news wire that the sultanate has held talks with Kuwait, Qatar and Saudi Arabia over placing a multi-billion dollar deposit with Central Bank of Oman (CBO) to help fill a hole in public finances. Citing Qatari and Omani sources, Reuters said the move would help to shore up CBO’s foreign exchange reserves and head off pressure on the rial. However, Muscat dismissed the story, releasing a statement on 10 January which said “there have not been any negations… the sultanate has enough reserves”. It added that the rial did not face any risks.

The sultanate’s financial position is far from strong. Sultan Qaboos Bin Said Al-Said issued a decree ratifying the 2017 state budget on 31 December. The budget forecasts spending of OR11.7bn ($30bn) but revenues of just OR8.6bn, resulting in a deficit of some OR3bn. This is at least lower than the OR4.8bn deficit recorded in the first ten months of 2016, but still highlights Oman’s fiscal weakness at a time of relatively low oil prices.

Developments in Oman ultimately come back to what might happen when Sultan Qaboos is no longer there to provide reassurance and stability; this episode is no different. Locals and international investors alike want to know how the sultanate might be shaped under the next ruler and what approach they might take on key decisions. Now aged 76, the sultan celebrated 45 years on the throne last summer (GSN 1,020/7). He appears in reasonably good health, despite a series of long stints abroad for medical treatment from 2014-16 (GSN 1,013/4). However, doubts about Qaboos’s health are simply a fact of life in Muscat.

Who might take over next is a thorny issue. Foreign minister Yousef Bin Alawi told Saudi Arabia’s Okaz newspaper in October that the succession was “arranged in a clear way” (GSN 1,024/6). But the handover process in Oman is easily the most opaque in the region, despite the limited range of plausible candidates in what is one of the smaller royal families. Qaboos has no children (although some locals in Muscat have been known to fantasise that a previously unknown progeny will somehow emerge after his death); he has never publically named an heir.

One name that is being more frequently mentioned in some diplomatic circles of late is Taimur Bin Assad, son of Qaboos’s first cousin Assad Bin Tariq. Assad and his brothers Haitham and Shihab have long been thought of as potential successors to the sultan. Given that the ruling family is not very big and acceptable candidates are few, there has always been a chance the succession could jump a generation. Taimur is half-Dhofari and his father is popular with the interior tribes.

Any new leader will quickly have to form a relationship with other Gulf Co-operation Council (GCC) states, particularly Saudi Arabia. There has been a good deal of tension between Muscat and Riyadh ever since Saudi Deputy Crown Prince and defence minister Mohammed Bin Salman launched his war in Yemen in March 2015. Oman has theoretically stayed on the sidelines in the dispute – and garnered praise from the United States and others over its assistance in extracting western hostages held captive by Houthi rebels – but Riyadh suspects that Muscat is, at best, turning a blind eye to weapons being smuggled through the Dhofar region to rebel groups in the conflict zone.

Saudi Arabia needs someone to act as an interlocutor with the Houthis and perhaps should be more thankful that Muscat is willing to take on that role. Junior Foreign and Commonwealth Office minister Tobias Ellwood echoed sentiments previously voiced by US secretary of state John Kerry when he praised Oman’s role during a debate in the United Kingdom’s parliament on 10 January. Ellwood paid tribute “to the work that Oman has done through its discussions, bringing the Houthis to the table so that we can get something secure for the ceasefire that we are all searching for.” He described Oman, along with Saudi Arabia and the UAE, as “the key nations providing support”.

Riyadh continues to take a far dimmer view of Muscat’s connections with the Houthis. Qaboos is expected to hold a meeting with King Salman Bin Abdelaziz in the coming weeks when the Yemen issue could be thrashed out. But even if Riyadh is able to pressure Muscat to adopt a policy more amenable to promoting its coalition, whether by offering the carrot of financial aid or perhaps by wielding a big stick, Qaboos has created a modern Oman that is unlikely to simply and unthinkingly toe the line.

Qaboos’s Oman has grown to value its independence of action. Whether the next ruler will have the cunning or the confidence to do the same is unknowable for now, but is perhaps the biggest question hanging over the succession process. Neither will the country’s weak financial position make his life any easier.

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