Kristian Coates Ulrichsen
Saudi Arabia’s oil sector has probably never seen developments as jarring as the ones since late August. An unprecedented shakeup in the Ministry of Energy, with a member of the royal family appointed energy minister for the first time, was followed by the stunningly precise attacks on oil facilities in eastern Saudi Arabia in the early hours of Sept. 14. Once-inconceivable questions are now being asked about the extent of U.S. commitments to the kingdom’s security, which have formed the backbone of Saudi policy for decades. How will the kingdom react?
The removal of Khalid al-Falih as both energy minister and chairman of the state oil giant Aramco means that two prominent technocrats entrusted by Crown Prince Mohammed bin Salman to spearhead his vaunted “Vision 2030” economic development program, which aims to shift the Saudi economy away from oil, have now fallen from grace. Adel al-Faqih, a former minister of economy and planning once close to the crown prince, was held in the notorious Ritz-Carlton roundup in November 2017, and is still being detained.
The turmoil began on Aug. 30 when a series of royal decrees restructured the energy sector. A new Ministry of Industry and Mineral Resources was spun off from the Energy Ministry, reducing the size of what had been a kind of super ministry. A little more than a week later, al-Falih was removed as head of the truncated Energy Ministry, replaced with one of King Salman’s sons, Abdulaziz bin Salman. A son of the king by his first wife and hence a much older half-brother of the powerful crown prince, the 59-year-old Abdulaziz bin Salman became the first member of the royal family to wield ministerial responsibility for Saudi energy policy. Al-Falih was also removed as chairman of Saudi Aramco, replaced by the head of Saudi Arabia’s Public Investment Fund, Yasir al-Rumayyan.
Unlike the rapid promotion of the crown prince, Abdulaziz’s appointment reflected his 32-year career in the Energy Ministry, first as adviser and undersecretary and later as deputy minister from 2004 and minister of state in 2017. During his long career, Abdulaziz has developed a reputation among energy analysts and industry insiders as a highly respected technocrat with a gift for building consensus—in marked contrast to the brash Mohammed bin Salman, 25 years his junior.
Al-Falih is believed to have lost the support of the crown prince due to a combination of insufficient enthusiasm for the long-awaited Aramco IPO and internal opposition to Aramco’s nearly $69 billion acquisition of a majority stake in the kingdom’s chemical conglomerate, Saudi Arabia Basic Industries Corp., or SABIC. The fact that he has been replaced as chairman of Aramco by al-Rumayyan, a current court favorite of Mohammed bin Salman, suggests that policies that affect Aramco will continue to bear the imprint of the crown prince and his inner circle, rather than necessarily reflect the operational requirements of the world’s most profitable energy company. Al-Rumayyan has in recent months been heavily involved in setting the final details for the planned flotation of Aramco shares, which is still slated to happen in 2019 despite the higher risk assessment in the aftermath of the September oil attacks.
It has long been an article of faith among Saudi observers that the financial and energy sectors were enclaves of technocratic expertise, protected somewhat from royal family interference.Mohammed bin Salman may have reshuffled the deck in ways that further consolidate his influence and authority over all aspects of Saudi policymaking. But he has also introduced potential new vulnerabilities. It has long been an article of faith among Saudi observers that the financial and energy sectors were enclaves of technocratic expertise, protected somewhat from royal family interference—and potential corruption—since they were the two areas of policymaking that underpinned the kingdom’s economic and therefore political stability.
The downfall of both al-Falih and al-Faqieh didn’t just take out two of the kingdom’s most capable technocrats, who were supposed to guide Saudi Arabia’s grand plans to wean its economy off of oil. It also removed the firewall that has previously separated critics of Saudi government policies from criticism of the royal family itself. The crown prince may find he is running out of people to take the fall if policy changes don’t deliver the intended results. It will be far harder to dismiss Abdulaziz bin Salman than Khalid al-Falih, especially while their father, King Salman, remains actively involved in decision-making.
There are other new sources of economic uncertainty as the dust begins to settle on last month’s oil attacks. On Sept. 30, Fitch downgraded Saudi Arabia’s credit rating from A+ to A, with a “stable” outlook, illustrating the heightened risks that may weigh more heavily on the minds of needed investors than the 2018 outrage over the murder of journalist Jamal Khashoggi in the Saudi consulate in Istanbul. If there are attacks on other parts of critical Saudi infrastructure, such as water desalination or power plants, those risks will only grow.
The oil attacks have also called into question a bellicose statement about Iran that the crown prince made more than two years ago: “We will not wait until the battle is in Saudi Arabia,” he told the Saudi TV network al-Arabiya, “but we will work so the battle is there in Iran.” But the lack of a forceful and immediate American response to the attack on oil facilities, which Saudi Arabia and the U.S. both blamed on Iran, has left the leadership in Riyadh rattled.
The investors that the crown prince needs are seeking certainty and long-term predictability, and these have been in increasingly short supply since Mohammed bin Salman burst onto the scene in 2015. The Aramco IPO may yet work out, and Abdulaziz bin Salman has all the attributes to be a successful energy minister. But the margins of error are larger than they were even a month ago and may get bigger still.
No comments:
Post a Comment