What Saudi Reshuffle Portends

What Saudi Reshuffle Portends

In a surprise move, Saudi Arabia sacked its long-time oil minister over the weekend, an event that indicates the near-total control the deputy crown prince has obtained over the country’s energy industry. For many years, Ali al-Naimi, the outgoing Saudi oil minister, was the voice of Saudi Arabia’s oil industry and policy. Even seemingly insignificant remarks from Naimi could move oil prices up or down. But the 80-year-old oil minister has seen his power eclipsed by the 30-year-old Mohammed bin Salman, Oil Price reported.
Over the weekend, Naimi was pushed out in favor of Khalid al-Falih, the head of the state-owned oil company Saudi Aramco. The swap was expected and had been previously announced, but the timing came as a surprise. The move leaves the deputy crown prince with undisputed control over Saudi Arabia’s energy strategy, as well as its broader economy.
As for oil policy, however, the ouster of Naimi probably does not change much. If anything, it confirms that Saudi Arabia will continue to fight for market share, keeping production elevated to bankrupt high-cost producers such as US shale.
And why should Saudi Arabia or OPEC change course? Saudi Arabia decided not to reduce production in the face of oversupply in late 2014—a strategy, it should be noted, that had the backing of Naimi—and while it has taken much longer than expected, forcing prices to crash due to high levels of output is finally beginning to bear fruit.
The new oil minister is a close ally of the deputy crown prince. He will also travel to Vienna with less influence over fellow OPEC members as his predecessor.
Naimi had strong relationships with energy officials from other countries, often able to cobble together a consensus from governments that did not necessarily like each other. It is unclear if Falih will be able to do the same.
The outgoing minister was also sympathetic to the concerns of other OPEC member nations over low oil prices. Venezuela and Nigeria, among others, pressed hard for production cuts, or at a minimum, a freeze in output.
Naimi was open to this avenue, but Prince Salman is more hawkish and seems to be much more content with the prevalence of low oil prices. He was also able to countenance coordinated action with OPEC and non-OPEC producers, including Russia.
In summary, although the removal of Naimi injects uncertainty into the oil markets, the ascendance of the deputy crown prince likely means Saudi Arabia is doubling down on its strategy of pursuing market share. The Saudi indifference toward declining oil revenues is a self-inflicted pain that is bound to increase the country's international vulnerabilities in the near future.

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