Editor’s note: This was authored a few days before King Abdullah died 

Saudi Arabia Succession by Bill O’Grady of Confluence Investment Management

On New Year’s Eve, King Abdullah of Saudi Arabia was hospitalized with pneumonia. According to reports, he is taking visitors and will probably survive this illness. On the other hand, the king is at least 90 years old and is becoming increasingly frail.

In light of his advanced age and declining health, an analysis of royal succession in Saudi Arabia is in order. This process is becoming increasingly uncertain. Unlike many European royal families, Saudi successions are not based on primogeniture; instead of passing from the king to his eldest son, it passes to a brother. Due to the advancing age of the second generation of princes, this process is becoming increasingly problematic.

We will begin this report with a history of Saudi kings. Following this history is an examination of the current Saudi succession, focusing on the Crown Prince and who remains as potential kings among the “second generation” of the Saudi Royal Family. In this context, we will analyze the challenges facing the kingdom and how the succession issue will likely complicate the manner in which these issues are resolved. As always, we will conclude with potential market ramifications.

History

Saudi Arabia was founded by Ibn Saud, a charismatic sheik who created the modern kingdom. Through military campaigns and intermarriage, Ibn Saud gradually unified the territory on the Arabian Peninsula to create the modern Saudi state. During this process, he had at least 22 wives and 45 sons, 36 who survived to adulthood. He ruled Saudi Arabia from its founding in 1932 to 1953.

Due the large number of sons, Ibn Saud created a succession plan that would shift from brother to brother rather than from the eldest brother to his eldest son (the aforementioned primogeniture).

The first successor was King Saud, the oldest son of Ibn Saud who survived into adulthood. He was a favorite of the founder. Unfortunately, he proved to be a problematic king. Saud ruled as if the country were his personal fiefdom, instead of a country. His policies were mercurial; sometimes, he would support Arab nationalist movements, only to later support American policy in the region which opposed nationalist programs. His personal habits were extravagant; he took on huge debts that the kingdom struggled to service. Increasingly at odds with his younger brother Faisal, it appeared a civil conflict might develop. However, the family and clergy were able to pressure Saud to abdicate in favor of Faisal in 1964.

Unlike Saud, Faisal, the third son of Ibn Saud, was a cautious, sober man who did not share the extravagant habits of his older brother. He became King in 1964 after being Saud’s prime minister. Known for personal piety and thrifty habits, Faisal put the kingdom’s fiscal house in order.

He also introduced public education in the kingdom (for both genders) and ended slavery. His foreign policy was anticommunist and pan-Islamic. Opposing the Arab nationalist movements of Hafez Assad and Gamal Nasser, Faisal wanted to build a pan-Islamic movement that would unify the region based on religion and monarchy. Unlike many of his successors, he preferred a more inclusive position on Islam, embracing both Sunni and Shia. This position actually undermined the influence of clergy in Saudi Arabia, who  tended to support a rather strict form of Sunni Islam. During his reign, relations with the U.S. were generally positive due to his opposition to communism. However, Faisal was anti-Zionist and U.S. support for Israel in the 1973 Yom Kippur War led Faisal to order the OPEC oil embargo on the U.S., which led to a quadrupling of oil prices.

Faisal was assassinated by a half-nephew, Faisal bin Musaid, in 1975. It is unclear why Musaid murdered his uncle; Musaid’s brother had been killed by Saudi security forces when he attacked a television station Faisal had commissioned. Some sources argue that the assassination was to avenge his brother’s death. Musaid did study in the U.S. at the University of Colorado and was arrested in Boulder for possession of LSD and hashish. Some speculate that drug use may have caused insanity. Regardless, he was executed in June 1975 on the charge of regicide.

Khalid, the fourth oldest son (who survived to adulthood) became the fourth king of Saudi Arabia. Interestingly enough, Khalid’s older brother, Muhammad, renounced any claim to the throne, paving the way for his younger brother to become king. Muhammad was a close confidante of both King Khalid and his successor, Fahd, discussed below. However, due to his very conservative views, Muhammad was not considered flexible enough to be king, a flaw he seemed to recognize.

Khalid was seen as a caretaker monarch. He had only a passing interest in politics, although he did ensure that all major decisions required his approval. His disinterest was part of the reason he was popular among the princes. Khalid’s reign was characterized by significant economic development. The combination of his predecessor’s austerity and the massive revenue infusion that followed the spike in oil prices after the Arab Oil Embargo funded this expansion. He also was less tolerant of religious diversity than Faisal, which boosted the status of the local clerics. Khalid had the unfortunate job of dealing with the 1979 seizure of the Grand Mosque in Mecca. This led to military operations against the militants. It also led Khalid to become even more supportive of religious conservativism.

Khalid suffered from heart disease and had a series of heart attacks and major cardiac surgeries. In 1982, he suffered a fatal heart attack and was succeeded by the prime minister and Crown Prince Fahd.

Fahd was the eighth son of Ibn Saud (seventh oldest son to achieve adulthood). He was also the eldest son of Saud and Hassa al-Sudairi,1 one of the favorite wives of the founder. Two older sons of Saud, Prince Nasser and Prince Saad, were passed over when Fahd was crowned as king. Prince Nasser, who was born to a lower ranked wife, was considered unfit due to a scandal that occurred when he was governor of the Riyadh province. Prince Saad was believed to be of weak character and not deemed to have the qualities for leadership.

King Fahd was considered worldly in his personal behavior, known for lavish trips to Europe. He made several significant foreign policy decisions during his reign. Fearing the Iranian Revolution, he actively supported Saddam Hussein’s Iraq during the Iran-Iraq War. His oil minister, Zaki Yamani, abandoned the kingdom’s OPEC role of swing producer in 1986; this led to a collapse in oil prices and was partly responsible for the downfall of the Soviet Union. Eventually, Fahd, not a fan of the influential Yamani, unceremoniously fired him.2 King Fahd also invited the U.S. military to Saudi Arabia in the autumn of 1990 after Saddam Hussein invaded and annexed Kuwait. President Bush and Secretary of State Jim Baker built a large coalition to oust Iraq from Kuwait, using Saudi Arabia as a base of operations. Although the execution of the war was impressive, anger at the king for allowing “infidels” to operate in the land of Mecca and Medina spawned al Qaeda,

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