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Saudi Arabia: Khalid al-Falih appointed Saudi oil minister, replacing Ali al-Naimi

Ali al-Naimi, left, was shuffled out of office, replaced as oil minister by Khalid al-Falih. (Getty images)

Ali al-Naimi, left, was shuffled out of office, replaced as oil minister by Khalid al-Falih. (Getty images)

conbio.info /2016-05-10 / Lennart Ljungblom 

Saudi Transfer Khalid al-Falih appointed Saudi oil minister, replacing Ali al-Naimi

Key implications 

Saudi Arabia’s King Salman appointed Khalid al-Falih, 56, Saudi Aramco’s chairman and former chief executive, as minister of energy, industry, and mineral resources on 7 May 2016. Al-Falih replaces Ali al-Naimi, 81, a commanding figure in the world of oil during the two-plus decades that he guided Saudi Arabia’s oil policy as minister.

The appointment of al-Falih does not signal a change in oil policy. Indeed, Saudi oil policy is now being closely directed by Deputy Crown Prince Mohammed bin Salman, also known as MbS, who is second in line to the Saudi throne. Al-Falih is among the inner circle of officials advising Prince Mohammed.

In his first public statement as minister, Al-Falih has affirmed that Saudi Arabia intends to continue supplying current and increasing volumes of oil to markets. Increased output will inevitably reduce the kingdom’s spare production capacity unless that is also increased.

Among Al-Falih’s major tasks will be preparing Aramco for a partial privatization that is a keystone of the kingdom’s new strategy to reduce reliance on oil revenues. A growth narrative could increase the company’s attractiveness to investors.

 Khalid al-Falih replaces Ali Naimi as Saudi oil minister

Saudi Arabia’s King Salman appointed Khalid al-Falih, Saudi Aramco’s chairman and former chief executive, as head of the newly named Ministry of Energy, Industry, and Mineral Resources on 7 May 2016. Al-Falih replaces Ali al-Naimi, 81, a commanding figure in the world of oil during the two-plus decades that he guided Saudi Arabia’s oil policy as minister. Like al-Falih, Naimi was once chairman and chief executive of Aramco. Both are technocrats and are not part of Saudi royalty. Last year, al-Falih was appointed health minister, a post he has now relinquished. He remains chairman of Saudi Aramco. Naimi will continue as an advisor to the royal court.

Al-Falih’s appointment and the expanded role of the ministry—until this past weekend just the Ministry of Petroleum and Mineral Resources—were part of a much larger reorganization of the country’s institutions and of the officials who lead them. King Salman issued more than four dozen decrees covering a wide range of changes—from appointing a new governor (Ahmad al-Kholifey) for the Saudi Arabian Monetary Authority to creating a “General Authority for Entertainment,” an unusual development in a country whose citizens have followed an austere lifestyle in public places.

The new teams are now in position to implement the kingdom’s recently approved “Saudi Vision 2030” strategy to rapidly reform—revolutionize, really—the economic and social structure in ways that would make the country markedly less reliant on oil revenues.

The appointment of al-Falih does not signal a change in oil policy. Indeed, it signals continuity. Al-Falih has been closely involved in Saudi oil policymaking since at least 2009, when he was appointed chief executive of Aramco. More recently, he has publicly explained and elaborated on Saudi oil policy (for instance at the World Economic Forum in Davos), which underwent a major change in 2014.

The direction of oil policy has now been taken over by Prince Mohammed, who has subordinated it to the larger needs of economic, structural, and social reforms detailed in the Saudi Vision 2030 program promoted by him and approved by King Salman in late April. Al-Falih is one of the inner circle of experienced but younger officials who have been advising Prince Mohammed on the Vision 2030 project and who are now being tasked with implementing it.

Al-Falih has affirmed that Saudi Arabia intends to continue supplying increasing volumes of oil to markets. In his first official statement after he was appointed minister, al-Falih on 8 May said Saudi Arabia was “committed to meeting existing and additional hydrocarbons demand from our expanding global customer base, backed by our current maximum sustainable capacity.” Saudi Arabian officials say the kingdom currently has the capacity to produce about 12.5 MMb/d of oil, well above production of about 10.2 MMb/d in recent months.

Saudi officials have been explicit about the country’s oil policy. In his last major address, al-Naimi told the IHS CERAWeek conference in February that Saudi Arabia, among the lowest-cost producers, would not cut output to subsidize relatively high-cost oil producers.

Among al-Falih’s major tasks will be preparing Aramco for a partial privatization which is a keystone of the kingdom’s new strategy to reduce reliance on oil revenues. Increasing output and growing markets fit well with Saudi plans to privatize as much as 5% of Aramco.

Main source: IHS Energy report

conbio.info /2016-05-10 / Lennart Ljungblom 

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