After taking over defense and economic planning, Saudi Arabia’s Deputy Crown Prince Mohammed bin Salman has now stamped his authority over oil policy.
In so doing, the 30-year-old son of King Salman upended the Saudis’ decades-long approach of separating commercial from political considerations.
Over the last weekend, Saudi officials quashed an agreement among major oil producers in Doha to freeze output due to Iran’s refusal to participate, Bloomberg reported.
“Everything at Doha was about politics,” said Yasser Elguindi, an oil analyst at Medley Global Advisors, a consultant that advises large hedge funds.
“The fact that Saudi Arabia seems to have blocked the deal is an indicator of how much its oil policy is being driven by the ongoing geopolitical conflict with Iran,” said Jason Bordoff, director of the Center on Global Energy Policy at Columbia University in New York and a former White House oil official.
Ali al-Naimi, the Saudi oil minister, is a pragmatist who separated oil policy from foreign policy for the past two decades, insisting that pricing considerations such as supply, demand and inventories were the main drivers of his decisions.
That approach drove talks among Russia, Saudi Arabia, Venezuela and Qatar to agree to freeze oil production in recent weeks. As late as Saturday, officials from the four countries prepared a draft that they expected to be rubberstamped hours later by the oil ministers in Doha.
The deal would have marked the first collaboration between the Organization of the Petroleum Exporting Countries and Russia in 15 years, opening the door to the end of a glut that has driven oil prices from $100 a barrel to as low as $26.
It did not go according to plan. Instead, by Sunday morning, the Saudis insisted on the inclusion of Iran in any deal.
In fact, the U-turn was telegraphed weeks before the gathering. Prince Mohammed bin Salman, known in diplomatic circles as “MbS” and the emerging force in economic policy within the kingdom, said in two interviews that the participation of Iran was necessary for any deal.
Playing Bad Cop
The oil market took the warning more as a rhetorical warning intended for domestic consumption than a threat to the Doha talks. Since the four countries started the process to freeze output, oil prices rallied more than 35%.
"One thing we’ve learned in the oil markets: Regarding the Saudis, we now have to listen to MbS," said Michael Wittner, oil analyst at Societe Generale SA in New York. "He clearly had the final word on Saudi policy and on their stance in these talks, not Ali Naimi."
Prince Mohammed has accumulated power since his father’s ascension to the throne last year. He became defense minister and soon after launched a military campaign in Yemen. He also chairs the top economic planning body and the council that has authority over the kingdom’s giant state-owned oil company.
As a result, analysts blame Prince Mohammed for the current Saudi political mess and economic woes.
Although oil officials and OPEC watchers almost unanimously point towards the politicization of Saudi oil policy, there could be other reasons behind Prince Mohammed’s stance on Iran.
One is protecting Saudi Arabia’s oil-market share, which is projected to decline as Iran gradually increases exports to reach the level before western sanctions were imposed over its nuclear program.
The other is avoiding a sharp increase in oil prices, which could throw a lifeline to rival US shale oil producers.
The unanswered question is: Why did Saudi oil officials negotiate for weeks on a draft accord for Doha, giving the impression that a deal was possible even without Iran?
One suggestion is that Riyadh tried to use the Doha meeting to force Russia, an ally of Iran, to choose between higher oil prices and supporting Tehran. In that thesis, Naimi played the role of good cop, with Prince Mohammed acting as the bad cop.
Another theory is that Prince Mohammed made an 11th-hour intervention, forcing his team, led by Naimi, into a U-turn, with the same objective: hurt Iran.
So far, this has neither stopped Iran from achieving its oil target nor reversed the worsening trend of Saudi military campaigns and political debacles.
