Moving Fast and Breaking Things: Mohammad bin Salman, Part II

Moving Fast and Breaking Things: Mohammad bin Salman, Part II

Two weeks ago, we introduced this report and covered the mass arrests that took place in Saudi Arabia over the weekend of November 4, when several princes and notable figures were detained. The official reason given for the arrests was corruption, but many have speculated that the move was a cover for Mohammad bin Salman (MbS) to consolidate power and purge elements of a potential coup. And, just before that weekend, there was a crackdown on the religious establishment of the Kingdom of Saudi Arabia (KSA). This week, we will discuss the other three events that occurred that weekend: the resignation of Saad Hariri, the missile attack on Riyadh and the crackdown on the clerics.

The Long Weekend: The Resignation
The arrests discussed in Part I would have been enough for a full weekend, but that was not all that occurred. Saad Hariri, the prime minister of Lebanon and the son of the late Lebanese political leader Rafic, was summoned to Riyadh by King Salman on Thursday night, November 2. He was asked to meet with MbS on Saturday. The Hariri family has close ties to the KSA so the request was not unusual. However, when he arrived at the palace on Saturday morning, he was made to wait four hours and then presented with a resignation speech to read on television. In the speech, he cited an assassination attempt by Hezbollah and Iranian interference for his decision to resign. It appears Hariri was under house arrest in Saudi Arabia, although there are conflicting reports on this allegation.[1] It seems that MbS has concluded that Hariri was too accommodating to Hezbollah and Iran, and wanted a new prime minister who would more strongly oppose Iran’s actions in Lebanon.

Lebanon is a very complicated nation. It was a French colony following the fall of the Ottoman Empire after WWI. The country has three primary religious divisions and two denominations within Islam. The largest group is Islam, representing about 55% of the population, evenly split between Shiite and Sunni. Christians comprise 40%, with the largest denomination being Maronite Catholic (20% of the total population). The Druze are the third group, representing about 5%. As is common with European colonial powers, France chose one group to dominate, the Christians. After the war, it was thought that this group was the largest in the colony but, over time, Muslims became the majority. Independence occurred after WWII and the first constitution gave the Christians veto power. Tensions steadily rose between the religious groups until 1975, when a 14-year civil war broke out. After the war, where over 100k died and nearly the same number were wounded, a delicate arrangement was established. The president would be Christian, the prime minister Sunni and the speaker Shiite. The Druze usually align with Muslims even though their complicated theology includes elements of both Christianity and Islam.

Both Iran and the KSA saw Lebanon as a contested territory. When the civil war ended, both agreed that Syria would oversee Lebanon. That arrangement lasted until the assassination of Rafic Hariri in 2005. The Prime Minister of Lebanon at the time, he died when a large bomb exploded near his motorcade. Although there was strong evidence that Hezbollah and Syria were responsible for the assassination, the West was not willing to enforce any actions against either. However, strong anti-Syrian sentiment, expressed in the “Cedar Revolution,” sharply reduced Syrian influence in Lebanon. The collapse of Syria, which began in 2011 as part of the Arab Spring, mostly eliminated Syria as a factor in Lebanon.

This report was prepared by Bill O’Grady of Confluence Investment Management LLC and reflects the current opinion of the author. It is based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.

Confluence Investment Management LLC is an independent, SEC Registered Investment Advisor located in St. Louis, Missouri. The firm provides professional portfolio management and advisory services to institutional and individual clients. Confluence’s investment philosophy is based upon independent, fundamental research that integrates the firm’s evaluation of market cycles, macroeconomics and geopolitical analysis with a value-driven, fundamental company-specific approach. The firm’s portfolio management philosophy begins by assessing risk, and follows through by positioning client portfolios to achieve stated income and growth objectives. The Confluence team is comprised of experienced investment professionals who are dedicated to an exceptional level of client service and communication.

[1] http://www.reuters.com/article/us-lebanon-politics-hariri-exclusive/exclusive-how-saudi-arabia-turned-on-lebanons-hariri-idUSKBN1DB0QL?feedType=RSS&feedName=worldNews