Saudi oil policy not expected to be affected by leadership reshuffle

A reshuffle of the leadership in Saudi Arabia and at its state-run energy firm is unlikely to change the oil policy of the world’s biggest crude exporter, analysts said yesterday.

King Salman, who became ruler in January following the death of King Abdullah, yesterday appointed the interior minister Mohammed bin Nayef as the new crown prince, replacing the king’s half brother Prince Muqrin and gave Adel Fakeih, the labour minister, the economy and planning portfolio.

King Salman also announced the appointment of the Saudi Aramco chief executive and president Khalid Al Falih as the country’s health minister. He also replaced the veteran oil minister Ali Al Naimi as Aramco’s chairman.

Saudi shares reacted positively yesterday, with the benchmark Tadawul index closing 1 per cent higher at 9,812.40.

These changes have fuelled talk that Mr Al Naimi could be replaced as oil minister. In the past the chairman of Saudi Aramco has gone on to that position. Mr Al Naimi, who has been in his post as oil minister for two decades, was himself president of Saudi Aramco.

“Al Naimi’s oil minister’s clock was already ticking before the death of King Abdullah, the ticking is now getting much louder,” said Olivier Jakob, managing director of Switzerland-based consultancy Petromatrix. “This is probably not the last reshuffle and we need to keep in mind that the king’s son, Prince Abdulaziz, as deputy oil minister is also still waiting in the wings for a more rewarding position.”

The post of oil minister is usually held by a technocrat such as Mr Al Naimi, but the appointment of a royal to the post could have severe implications on the Saudi oil policy, which is currently aimed at maintaining market share amid tumbling oil prices.

“Will Al Falih become oil minister, which would be most in line with the ‘tradition’ of promoting the top oil technocrat to the post?” said Samuel Ciszuk, an analyst at the Swedish Energy Agency. Not having the ‘buffer’ of a technocrat at the oil ministry would risk the [royal] family being held more accountable domestically for oil market movements. Consequentially, longer term, that could politicise Saudi oil policies more.”

Saudi Arabia, the Opec kingpin, has angered some of the organisation’s hawks, such as Venezuela, by refusing at November’s meeting to cut output to shore up falling oil prices. The organisation next meets in June to decide on its output quota, which has not changed since 2008.

Brent oil prices have fallen by about 45 per cent since last June on the back of weaker demand in Asia and Europe and an oil supply glut.

But the recent Saudi military involvement in Yemen has helped to push Brent higher, above $60 per barrel, after it reached $43.5 a barrel in March.

Brent crude oil fell yesterday 0.05 per cent to $64.6 per barrel in London noon trading.

“I do not expect to see any movement on the stance towards Opec, in that the kingdom will only consider a reduction in the production quota if all Opec members and even some non-Opec producers collectively cut output,” said Richard Mallinson, a geopolitical analyst at the London-based consultancy Energy Aspects. “As that looks very unlikely, the quota is almost certain to be rolled over in June.”

In respect to the Saudi economy, the appointment of the labour minister as economy minister could mean there will be stepped-up efforts to enforce Saudisation, said Jason Tuvey, Middle East economist for Capital Economics in a note.

This is particularly so since Mr Fakeih was responsible for implementing the Nitaqat programme aimed at helping Saudis become employed in the private sector, he added.

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