By bashing Canada, Saudi Prince is weaponizing his oil wealth

For Saudi Arabia, a new version of checkbook diplomacy is taking shape.

The kingdom used to pursue a behind-the-scenes foreign policy, deploying its oil wealth as a carrot. Crown Prince Mohammed Bin Salman is ready to wield it like a stick.

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That's the implication of his shock move to penalize Canada for criticizing Saudi treatment of women activists. With diplomatic ties and new business deals frozen, and the managers of Saudi wealth funds under orders to sell Canadian holdings, the measures were unexpected and sweeping.

Washington and Ottawa were caught off guard. U.S. officials weren't given advanced notification that the kingdom planned to start a diplomatic brawl and are trying to persuade the Saudis not to take more action, according to a senior official who's involved in talks to mediate the crisis. Canadians were also surprised by the intensity of the Saudi response, officials said.

The escalation followed Foreign Minister Chrystia Freeland's call on Aug. 2 for the release of rights activist Samar Badawi from prison.

"It's a message not only to Canada," said Haizam Amirah-Fernández, an analyst at the Elcano Royal Institute, a Madrid-based think tank. "The warning is: If such things happen, Saudi Arabia will impose an economic price."

Prince Mohammed's supporters say the oil-rich kingdom, one of the world's largest buyers of weapons, is willing to take more aggressive actions because the soft diplomacy pursued under previous rulers yielded few results. The prince has also been emboldened by his U.S. ties under President Donald Trump, who visited Riyadh on his first overseas trip and has lavished praise on the prince and his sweeping plans to cut the kingdom's reliance on oil.

None of the Saudi moves against Canada would have happened if "Trump wasn't at the White House," Amirah-Fernández said.

The Saudis have used their economic clout to achieve political ends in the past, too -- joining the OPEC oil embargo of the 1970s, for example. But there's been a striking change of tempo under Prince Mohammed, King Salman's son and the power behind the throne. He's deployed military force as well as money, sending his expensively equipped army and air force to Yemen, where a Saudi-led coalition is struggling to defeat Shiite rebels after more than three years of an increasingly brutal war.

At home, Prince Mohammed has promoted himself as a champion of economic and social progress -- taking measures including allowing Saudi women to drive for the first time.

But some of his actions have been controversial, like the rounding up of dozens of princes, billionaires and officials in November in what the government said was an anti-graft crackdown. Some of those who pushed for social changes have been detained on national security grounds. Others said they were told not to discuss reforms. Critics say it's an indication of the domestic limits of the new Saudi tolerance.

The Canadian spat shows that there are limits abroad, too. And it's not the first diplomatic fight Prince Mohammed has picked.

In November, Saudi Arabia recalled its ambassador to Germany. It also cut back commercial ties with some German companies, people with knowledge of the matter said in March. That move came after the EU country's then-foreign minister suggested that the kingdom had orchestrated the surprise resignation of Lebanese Prime Minister Saad al-Hariri, a charge it denies. (Some accounts of the Hariri episode suggested that the Lebanese leader was actually put under house arrest by the Saudis.)

Saudi Foreign Minister Adel Al-Jubeir said the kingdom's response to Canada was spurred by an "unacceptable interference in our domestic affairs."

Even before Freeland's critical tweets, the Saudis may have been angry at the Prime Minister Justin Trudeau's administration for its lukewarm support of a $12 billion deal to sell combat vehicles. Trudeau signed off on the agreement reached by his predecessor, but was criticized at home for selling weapons to a country with a questionable human rights record that could use them to quell domestic unrest.

The prime minister's Liberal party "took a lot of flak over the deal," said pollster Nik Nanos. "There was a lot of debate as to whether they would approve this, in what was a case of classic trade-off between jobs and human rights.''

Closer to home, Saudi Arabia built a four-country coalition that has placed neighboring Qatar under economic and diplomatic embargo for more than a year, accusing it of financing terrorism and pursuing covert links with Iran. The boycott has had little success in forcing a change of course on Qatar, which denies the charges. Saudi officials and their allies say they're prepared to keep the embargo in place for as long as it takes to achieve results.

Read More: Saudi Arabia Is Said to Block Some German Business Over Rift

Looking at the various episodes, one can see a possible clarification "of the Saudi foreign policy decision-making methods," said Paul Sullivan, a Saudi specialist at Georgetown University in Washington. "They will be aggressive, and will send very strong signals to those who criticize or challenge them."

After receiving one of those signals, Canadian Prime Minister Justin Trudeau told reporters that his government doesn't want poor relations with the Saudis but will will "remain firm" on human rights. The U.S. is trying to get the issue resolved privately, the official in Washington said.

Al-Jubeir has warned that further sanctions are on the way, and may affect investment flows between the countries. The kingdom's central bank and pension funds have already begun selling Canadian assets, according to people familiar with the matter.

Read More: Saudi Investment Freeze Doesn't Amount to Much in Canada

The impact on the Canadian and Saudi financial markets has been limited. The Saudi escalation, however, doesn't square with the kingdom's need to attract foreign investments as part of efforts to overhaul the economy, analysts say.

"The Saudi leadership wants to drive home a message that it's fine to invest in Saudi Arabia and bring your money to Saudi Arabia, but that there are red lines that should not be crossed," said Riccardo Fabiani, geopolitical analyst at London-based Energy Aspect consultancy.

"This is the bargain they are offering to foreign partners. But this strategy is likely to backfire," he said.

 

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