Saudi Arabia’s reshuffle: challenges and implications for oil market

Saudi Arabia’s reshuffle: challenges and implications for oil market

Baku, Azerbaijan, May 11

By Aygun Badalova - Trend:

Last week Saudi Arabia's King Salman announced a major government reshuffle and a reorganization of key ministries. The Kingdom's oil minister Ali al-Naimi was replaced by former health minister and the chairman of the state-owned oil company Aramco Khalid Al-Falih.

The reshuffle has raised a question about the possibility of changes in Saudi Arabia's oil strategy and its implications for the world oil market.

Cyril Widdershoven, Middle East geopolitical specialist and energy analyst, partner at Dutch risk consultancy VEROCY and SVP MEA-Risk believes that the oil strategy of Saudi Arabia is not going to be changed for the foreseeable future.

"The change in the Ministry of Petroleum, removing Minister Ali Al Naimi will not result in a change in the current market share strategy put in place during the last years. Saudi Arabia's overall position as leading this OPEC strategy will continue," Widdershoven told Trend.

He recalled that in 2014 Saudi Aramco's CEO Al-Falih already stated that he is not afraid of lower oil prices. He even indicated that this could be a real opportunity to strengthen Saudi's grip on the oil market, while also addressing possible changes in the domestic energy markets.

Al Falih repeated this in January of 2016, when he indicated that Saudi Arabia should continue, even stressing that this new reality is presenting the Kingdom with the option to develop an economy ready for the Post-oil era, Widdershoven said.

Saudi Arabia, which is the largest oil producer and exported within OPEC, has been for a long time an obstacle for reaching an agreement on joint profuction cut for stabilizing oil prices. The Kingdom adhered the position to defend its market share rather than to stabilize the prices.

Widdershoven said Saudi Arabia's new 2030 strategy, which was presented by Deputy Crown Prince Mohamed bin Salman, who is also leading the Ministry of Defense, falls within this new energy strategy too.

He said that among the challenges for him is the need to set up a new strategy, in which Saudi Arabia will be moved from being a fuel addict (using almost half of crude oil production for the domestic market, but also set up a viable and aggressive two-phase approach in which Saudi Aramco will be targeting external markets (crude exports) and at same time increase international assets outside of the country (Aramco as a new integrated National International Oil Company).

The latter will be approached by increasing renewable and nuclear energy projects in the Kingdom, as this will free up additional barrels of oil and gas for exports, according to Widdershoven.

Natural and associated gas is also needed to be reinjected into the oil fields to keep production high and increase the recoverable rate of the fields, he said.

With regard to the upcoming OPEC meeting in June, Widdershoven also does not expect any real changes.

"Al Falih will be presenting the views that were presented before. His position also is linked to Deputy Crown Prince Mohamed bin Salman, who is not showing any indication that he wants to change the export strategy of Saudi Arabia or OPEC, especially not with regards to Iran, Widdershoven said.

"Both Saudi power players are putting all in place to confront Iran and block the growth of Iranian influence in the region and oil/gas markets. Al-Falih will get the support of the Arab OPEC producers, while Nigeria, Angola also will follow suit. Iran, even now, is indicating that it could be willing to join a production freeze agreement," he added.

Widdershoven stressed that for Deputy Crown Prince Mohamed bin Salman the current low oil price presents a major advantage.

"Due to so called (almost non-existing) budget difficulties, Deputy Crown Prince Mohamed bin Salman is now able to force major economic and social changes. With higher oil prices, opposition would have been enormous, as most Saudis are fuel addicts. Current financials are an opportunity to wean Saudi from its addiction, removing some regional opposition too, while setting up an unheard scale of new projects, such as the IPO," Widdershoven said.

The last meeting of oil producers in Doha ended without reaching any agreement. The talks on oil output freeze collapsed after Saudi Arabia surprised the group by reasserting a demand that Iran also agrees to cap its oil production.

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