Blood and Oil, page 11
Mohammed got to know McKinsey’s lead partner in the country, Gassan al-Kibsi, who went to work in the Middle East after graduating from the Massachusetts Institute of Technology. Mohammed offered him a bold vision to polish: Saudi Arabia would untether its fortunes from oil and connect its once insular economy to the rest of the world.
The consultants could turn Mohammed’s ideas into plans with credible metrics and benchmarks that would satisfy the World Bank and the International Monetary Fund, as well as skeptical older Saudi officials. He paid McKinsey and another firm, Boston Consulting Group (BCG), tens of millions of dollars to write reports on every aspect of his vision. McKinsey worked on economic modernization and bureaucratic reforms.
Mohammed began using KPIs as part of his attempt to reform the government. Ministers like Falih and those in charge of the economic transformation and even entertainment were given KPIs that they had to meet in advance of periodic reviews. If they failed, they risked dismissal. To give the ministers a further incentive to focus their energy on governance, rather than the old practice of skimming money from companies that signed government contracts, Mohammed changed the ministerial pay structure. In the past they had received about $10,000 per month, plus benefits and a bonus, and the king would generally turn a blind eye to kickbacks. Under Mohammed, the ministers would each get several million dollars a year. But they would have to meet their KPIs, and the government would no longer turn a blind eye to kickback schemes.
He also set his sights on the lazy and ossified cultures inside ministries like the Ministry of Finance, where just about everyone seemed to be coasting along a few years away from retirement. He empowered Mohammed al-Jadaan, a longtime corporate lawyer whom the prince leaned on for a variety of powerful jobs, to gut the Ministry of Finance and replace its ranks with younger staff with banking backgrounds. Gone were the days of easy hours, steady work, and guaranteed pensions.
The changing way of government life was most apparent in weekly meetings of the Council of Economic and Development Affairs, which Mohammed invented to replace an older, more bureaucratic predecessor. Instead of providing dry updates and patting themselves on the back and praising the vision of their glorious leaders, ministers were expected to present in stages a vision for their ministries, a strategy for achieving it, and then updates on their progress. Before they could even present, they had to get past a special group within the council that vetted presentations. The then-thirty-year-old Mohammed would ask questions and sometimes yell at an obstinate minister who was twice his age. As a minister steadily walked the room through a seventy-page presentation, Mohammed was known to ruffle the papers as he raced ahead to read the whole document and begin writing down follow-up questions.
“It was difficult for everyone at first,” said Adel al-Toraifi, the then–culture minister who was present at the vettings. “This wasn’t what people were used to.”
Away from McKinsey and Aramco, Mohammed was presiding over actions that were far from Western norms.
* * *
Al-Awamiyah sits about thirty miles up Saudi Arabia’s Persian Gulf coast from Aramco’s headquarters, an oasis town of about twenty-five thousand that hasn’t experienced the same relative peace and prosperity as the rest of the kingdom in the decades since it started pumping oil.
What sets Al-Awamiyah apart is that its residents are largely members of the kingdom’s Shia Muslim minority. That’s a problem in a monarchy allied with Sunnis. In the eyes of the clerics who have propped up the Al Saud since the kingdom’s founding, Shia Muslims aren’t real Muslims. They’re heretics. And in the eyes of the Saudi government, any Shia is suspected of having sympathy with Iran, the kingdom’s archenemy.
Saudi Shia historically have had trouble getting decent jobs and access to government services. For decades, Al-Awamiyah and neighboring towns have been the site of routine protests met by brutal crackdowns. Led in recent years by a Shia cleric named Nimr al-Nimr, residents have taken to the streets to demonstrate on local and international matters alike, violating Saudi laws against public demonstrations in the process.
Even worse than the demonstrating he incited was Nimr’s message. “In any place he rules—Bahrain, here, in Yemen, in Egypt, or in any place—the unjust ruler is hated,” Nimr said in one sermon broadcast on YouTube and viewed by 1.6 million people. “Whoever defends the oppressor is his partner with him in oppression, and whoever is with the oppressed shares with him his reward from God.” In other sermons he called the king and his family “tyrants” and said, “We don’t accept Al Saud as rulers. We don’t accept them and want to remove them.”
Mohammed had even less tolerance for Shia dissent than his predecessors. And like them, he was especially sensitive to those who questioned Al Saud’s legitimacy to rule. That’s why, on a morning in early January 2016, Nimr and forty-seven others were marched into a Riyadh square and killed, some by beheading, others by firing squad.
The executions attracted public outrage. The government claimed Nimr was killed for disobeying the Saudi state, taking up arms, and trying to get a foreign power involved in Saudi matters. One Saudi official said Nimr was responsible for a physical threat against the crown prince, Mohammed bin Nayef. But Amnesty International and other human rights groups said his real crime was simply criticizing the royal family. Nimr’s brother was arrested for tweeting news of the execution.
The confrontations led to protests in Iran and incendiary statements from government officials there. Calling the remarks “hostile,” Saudi Arabia expelled Iranian diplomats, and Iran reciprocated. With the execution and the war in Yemen, Mohammed had put himself on a collision course with Iran.
But inside the kingdom, many felt the message of Nimr’s execution was clear: There were some things Mohammed was not changing. And one of those things was that people who questioned his family’s rule could lose their heads.
On balance, though, Mohammed succeeded in convincing influential Westerners that he was the reformer they’d been waiting to see in Saudi Arabia for decades.
In January 2016, the same month Nimr was decapitated, retired four-star general and former CIA director David Petraeus took a trip to Riyadh. He’d been hired by the private equity firm KKR & Company for his expertise on international markets, and he and firm founder Henry Kravis were interested in potential investments in the region.
Petraeus had led several US efforts in the Middle East and was in charge of US Central Command, which oversees military efforts in the Middle East, from 2008 to 2010. He had a deep history with the kingdom and with members of the Al Saud. As a general, he had spent time with Kings Fahd and Abdullah. He knew Abdullah’s son Miteb, who had been National Guard chief, and hosted Salman on a visit to the United States in 2012. In 2015 he met Mohammed in Washington, DC.
When Mohammed got word that Petraeus was in Riyadh, he invited him for a meeting. The prince wanted to show him something, Mohammed’s emissary said. While Kravis continued on with his trip, Petraeus agreed to stay in Riyadh for the meeting.
Mohammed’s men brought the former general to a palace, ushering him through one grand room to another and finally into Mohammed’s office. Waiting there was a familiar face, Saudi Arabia’s ambassador to the United States, Adel al-Jubeir. He was there to translate for Mohammed, who wanted Petraeus to be one of the first Americans briefed on details of the consultant-driven plan to remake the Saudi economy. The prince called it Vision 2030.
Petraeus was blown away. He’d spent years meeting with stooped old princes who lived in fear that change could upend their rule. Here was a thirty-year-old prince laying out a detailed plan to radically transform the Saudi economy starting immediately. Mohammed was tall and vital, with his prominent nose and wide smile. “Great features,” Petraeus recalls thinking. “If you wanted to design a Saudi prince, that’s what he would look like.” Even more surprising in a country where leaders and progress moved glacially, “He conveys energy. He conveyed urgency.”
Mohammed talked for two hours straight, giving astonishingly detailed financial projections from memory, never looking at notes. One by one, he named categories of the economy that could be built up, or invented from scratch, to reduce the Saudi dependence on oil, and he recited how quickly each of those categories could grow and how much income they could bring in. The plan blended practical changes—lower subsidies, new taxes—with seemingly outlandish ones, like a new state on Saudi Arabia’s Red Sea coast with flying cars and robotic workers that wouldn’t be unveiled for more than a year.
“Look, General,” Mohammed said, “if we only achieve 60 percent of what it is that we are striving to accomplish, wouldn’t that be extraordinary?”
“It would be extraordinary,” the general said. “It would be phenomenal.”
There were small signs on that visit that Mohammed was maneuvering to gain power over family rivals. Petraeus, like other US intelligence officials, had a long and warm relationship with Mohammed bin Nayef, the crown prince who stood between Mohammed and the throne. Petraeus asked Jubeir, the ambassador to the United States, to set up a meeting with the crown prince. But it never happened.
Petraeus figured the crown prince was busy. But when he returned to the United States, he got a puzzling message from a person close to Mohammed bin Nayef: “MBN missed seeing you. Why didn’t you stop by?”
Wowed by the prospect of an early role in the world’s largest IPO, bankers from the United States and Europe filed onto first-class flights to Riyadh to meet the prince. They included Achintya Mangla, a London-based banker at J.P. Morgan, and Jonathan Penkin, from Goldman Sachs Group. These were the top IPO bankers in the world, and like their bosses they were putting all their efforts into pitching the prince. There were not only hundreds of millions of dollars in fees for the taking but years of major transactions they could take part in. It was an investment banking gold rush.
Larry Summers, the former US Treasury secretary and Harvard University president, came to visit. So did former House majority leader Eric Cantor. Both were working with boutique investment banks seeking a piece of the Aramco deal. Former UK prime minister Tony Blair was too. He had spent his years after government service advising government leaders—some widely considered despots—on reforms and consulting with companies working in totalitarian countries, amassing a fortune in the tens of millions of dollars. He spent an evening in a desert tent with Mohammed, discussing the philosophy of governance and power. Blair was working for JPMorgan Chase at the time, though one of his staffers said they didn’t discuss banking.
Buzzing around the early-stage talk was Michael Klein, a former Citibank deal maker who worked closely with Alwaleed bin Talal for years. Operating as the proprietor of his own financial firm, he leveraged his contacts with Khalid al-Falih, the energy minister whom he knew from another deal, to get an early consulting role on Aramco. He soon ingratiated himself with the head of Saudi Arabia’s sovereign investment fund and was among the first to suggest that international investors could value Aramco at $2 trillion.
When Mohammed told bankers from the United States and Europe in follow-up visits that he expected a $2 trillion valuation, they nodded and said yes. In fact, the prince would later tell people, one big European bank said it could be worth $2.3 trillion.
While titans of finance were gravitating toward the kingdom, Mohammed started to develop some nagging suspicions about the consultants he’d been relying on to formulate his vision. The McKinsey and BCG people were certainly smart, but such consultants were also mercenaries, and they had an intrinsic conflict of interest: It never behooved the consultants to say no. If the prince asked whether some outlandish scheme was feasible it would always be in their interests to say yes. Consultants make money by getting assigned to giant projects, not by telling their employers that such projects are bad ideas.
Mohammed understood this conflict of interest, and even as he had McKinsey and other consultants working on dozens of projects throughout the government, he told Saudi confidants that he believed the country leaned too heavily on foreign expertise. The expats whom Saudi Arabia paid generously for their knowledge of oil or engineering or economics had little personal stake in the kingdom’s success or failure; they got paid whether their plans worked or not.
Mohammed started seeing examples of these conflicts in every aspect of the consultants’ work. The prince loved KPIs, but some of the ones McKinsey came up with were fuzzier than he liked. And most of the consulting firms didn’t have significant offices in Saudi Arabia. Instead they flew their experts back and forth from Dubai, since their American and European staffers didn’t want to live in Saudi Arabia, where alcohol was illegal and women, under the law, were subordinate to men. How, Mohammed wondered, could he entrust the future of his country to a bunch of people who wouldn’t even live there temporarily?
The project was supposed to help Saudi Arabia achieve certain goals by 2030. So Mohammed proposed he only pay the consultants based on results. “I’ll pay you when you reach the KPIs”—in 2030, the prince said. The consultants balked. They’d be paid as they went, or they wouldn’t take the job.
The expenses quickly grew. Over five years or so, a Vision 2030 effort to remake the Saudi military racked up $250 million in consulting fees without much change to show for it. The consultants recommended a complicated structure that imposed a large civilian bureaucracy over uniformed leaders, alienating officers who would have to buy into the plan for it to work. Frustrated by the stalemate, the official in charge of the transformation tried to address the problem by hiring a new consultant to evaluate the other consultants’ work. The new consultant was dismissed after filing a report that concluded the entire effort was bound to fail and didn’t address the kingdom’s biggest military problem: Saudi Arabia spends about 10 percent of its GDP, an unsustainable amount of money, on the military, in part to provide jobs to members of powerful Bedouin tribes. Without trimming that spending, the new consultant said, Saudi Arabia would have trouble achieving the economic growth Mohammed sought.
For many in the US government, the Aramco IPO and other splashy achievements were far down on the list of priorities. While the US ambassador to Saudi Arabia, Joe Westphal, talked with New York Stock Exchange leaders and Mohammed about having the IPO in New York, he and others from the US government urged Mohammed to focus on the less publicly noticeable priorities of border security and developing an effective system to ward off attacks on Saudi oil installations.
* * *
It seemed like an April Fool’s joke.
John Micklethwait, the Oxford-educated editor in chief of Bloomberg News, went on TV on April 1, 2016, to report that Saudi Arabia was going to start a $2 trillion investment fund. “An amazing thing,” Micklethwait called it. “If you think about it, it’s enough to buy Google, Microsoft, Alphabet”—Google’s parent company—“the whole lot of them. Warren Buffett.”
Mohammed had revealed the plan during a five-hour interview in which he outlined his strategy to reinvent the Saudi economy. His ideas made sense, in the abstract, to foreign economists and business leaders. Mohammed would use cash from the Aramco IPO to invest in new industries, giving his country new sources of income beyond oil.
But no one could figure out how it would work in practice. Was it possible to pour that much money into global markets without inflating a giant bubble? And who would Mohammed put in charge of managing the investments? The man currently heading the sovereign fund, Yasir al-Rumayyan, was chiefly known, at home and abroad, as an easygoing luminary of the Riyadh golf community who had a taste for fine cigars and after-hours bars in Dubai frequented by long-legged, short-skirted Russian women.
Skeptical or not, the Western attention alone was a victory for the prince. By the end of April, he’d be on the cover of an issue of Bloomberg Businessweek magazine detailing the transformation plan for Saudi Arabia that the consultants had prepared. Vision 2030 had taken hundreds of Saudi and foreign consultants months to finish, and it laid out broad goals the United States and World Bank had been suggesting for years. An economy with incentives for entrepreneurship and innovation and freedoms for women to join the workforce would certainly create a stronger nation, the foreigners argued.
Mohammed’s plan set an almost ludicrously ambitious timeline for reaching those goals, considering Saudi Arabia was a country with roughly the same economic structure as when oil money started flowing about a half century earlier. “All success stories start with a vision, and successful visions are based on strong pillars,” the Vision 2030 statement said. The three pillars were making Saudi Arabia the heart of the Arab and Islamic world, becoming a “global investment powerhouse,” and turning the country into a “global hub connecting three continents” and an “epicenter of trade.”
Once the announcement was made, Mohammed knew he needed to show progress quickly. In the ensuing weeks he grilled Saudi officials and foreign consultants alike on how they could show their ideas were working. He’d lose patience with, say, the finance minister and turn instead to the Ministry of Economy and Planning for an urgent task. “The principles changed every week. The wheel gets reinvented every few days,” a person working for BCG complained.
The sovereign wealth fund debut showed the world Mohammed was planning to spend. A month later he hosted US secretary of state John Kerry on his yacht the Serene. But he still needed a splashy deal to introduce the Public Investment Fund (PIF) as the new investor on the block.
Not long before, Mohammed had been introduced to Travis Kalanick, founder of the then-hot start-up Uber. The men developed a rapport—the prince would later call the entrepreneur a friend—and Mohammed saw Uber as an attractive investment. The business press fawned over the company. It was expanding quickly all over the world and could play a big domestic role in Saudi Arabia, with women still prohibited from driving. Mohammed and Kalanick discussed an investment. At the beginning of June, the fund wired a total of $3.5 billion to Uber. For that, Mohammed became the biggest investor in the world’s hottest tech start-up, and he got his staffer, the fund’s chief Yasir al-Rumayyan, on Uber’s board. He’d proven the kingdom was doing something differently.
