Trouble in paradise

In an increasingly multipolar world where the latest presidential elections resulted in the expected return of Donald Trump to the White House, the next US President is likely to deal with a Middle East that looks irremediably different from the region that he left at the end of his last mandate. The repercussions of Russia’s invasion of Ukraine and, above all, the spillover of the ongoing conflict in Gaza have until now further diminished Washington’s standing among local leaders, who also happen to be aware by now of the unpredictable nature of Trump’s policies and decisions for good or bad.

Considering the lasting legacy of the Abraham Accords and his first foreign trip as President to Riyadh in 2017, it is highly likely that Trump will seek to reinforce the existing partnership with Saudi Arabia, the regional heavyweight in the Gulf region. Building upon an excellent understanding with Crown Prince Mohammed bin Salman al-Saud (also known as MbS), the incoming US President is expected to foster bilateral relations with a pivotal country for long neglected by the Biden administration just before a surprising reversal of policy forced by oil imperatives and the Ukraine conflict.

The developments of the past few years have highlighted the centrality of ar-Riyadh in the geopolitics of the region, that is also reflected in the geo-economic sphere. The kingdom’s massive efforts to diversify the economy away from fossil fuels (showcased at the latest Future Investment Initiative and with the spending spree in sports that resulted in the recent confirmation that Saudi Arabia will host the 2034 FIFA World Cup) resulted in an upgrade (from A1 to Aa3) from the global rating agency Moody’s, who credited the continued progress according to the Vision 2030 plan.

Despite the remarkable achievements of the Saudi economy, progress have stalled on megaprojects, leading to unexpected twists. The resignation of Nadhmi al-Nasr, CEO of Neom, has produced shockwaves beyond Saudi Arabia, raising further concerns about the viability of the futuristic project and denting MbS’ ambitions. Already in April the Saudi government had scaled back some of the targets for the green megacity that includes The Line, a 170km smart city that, according to the original plans, would have accommodated 9 million people. Other issues, including human rights concerns, are keeping away foreign investors.

Nasr has been replaced by Aiman al-Mudaifer, previously in charge at the real estate division of the Public Investment Fund (PIF), the US$925 billion sovereign wealth fund of Saudi Arabia that owns, develop and funds Neom. A powerful instrument of economic statecraft, PIF too is undergoing a spending review, as Riyadh forecasts a US$26,88 billion fiscal deficit in its 2025 budget, due to economic headwinds (including declining oil prices). A sign of challenging times ahead, even for Saudi Arabia, a country with strong economic fundamentals facing a turning point and a complex energy transition.