New Saudi crown prince to maintain oil policy

The appointment of the 31-year-old Mohammed bin Salman as next in line to the throne of Saudi Arabia, announced yesterday, can set the direction of Saudi policy – and its massive energy sector – for decades to come.

A new crown prince ascends as oil prices slump. The appointment of the 31-year-old Mohammed bin Salman as next in line to the throne of Saudi Arabia can set the direction of Saudi policy – and its massive energy sector – for decades to come. With the kingdom facing an unprecedented confluence of economic and regional political threats, the pace of reform cannot slip.

The prince’s rise should not bring any sharp changes in the kingdom’s energy policy – on the contrary, it consolidates approaches that were already clear, under energy viceroy and close confidant Khalid Al Falih.

The kingdom’s emerging energy strategy has three pillars. Firstly, with most consequence for other oil producers, the country’s Opec policy and cooperation with non-Opec producers. When Mohammed bin Salman became the deputy crown prince in April 2015, the oil price slump was well under way, and Ali Al Naimi, the oil minister at the time, was encouraging high production to reclaim market share. Just a year later, at the infamous Doha meeting, the prince intervened to prevent an Opec agreement unless Iran agreed to limit its production.

Mr Al Naimi left his post and his successor, Mr Al Falih, then chairman of Aramco, was handed a vastly expanded portfolio that included electricity, industry and mining, effectively giving him – and therefore his boss – control over more than half of the Saudi economy.

The prince has found a common ground with the Donald Trump administration in taking a harder line against Iran, which recently renewed its own leadership. Flashpoints from Yemen, Syria and Iraq to Doha all threaten regional security and energy supplies, even while markets yawn.

Secondly, the transformation of state oil giant Saudi Aramco into a global energy champion, via its initial public offering, overseas expansion and extension into downstream markets for refining and petrochemicals.

The IPO breaks with more than 40 years of growing government ownership of the oil sector, and triggered surprise within the company. It still faces many unanswered questions, such as whether its valuation will match the aspired US$2 trillion or a much lower figure independent analysts calculate; where it will be listed, whether New York or London; and how issues of governance, reserves disclosure and non-core businesses will be dealt with. But the ascension of Mohammed bin Salman makes it almost inconceivable that there will be a change of mind on this flagship endeavour.

Thirdly, the overhaul of the domestic energy sector, removing subsidies and boosting efficiency. The kingdom’s renewable programme has advanced little, despite its wealth of solar and wind resources. Earlier efforts under the King Abdullah Centre for Atomic and Renewable Energy became bogged down in turf wars. But with Mr Al Falih now in overall control, and the country now offering its first large renewable projects, this sector should take off.

And the transfer of Saudi Electricity Company’s debts to the finance ministry, announced on Monday, paves the way for its privatisation – perhaps an even more tangled and domestically sensitive effort than the Aramco IPO, given its potential to affect Saudi families’ pockets as power and water prices rise.

We do not know whether the prince is a devotee of the Prussian military strategist Carl von Clausewitz, but he may appreciate his dictum, “The best strategy is to be very strong, first generally, then at the decisive point”. Strength in general depends on the wider economy, which needs Prince Mohammed’s Vision 2030 to be deep, sustained and accepted. The kingdom remains strong in oil, but is that any more the decisive point?

Robin Mills is the chief executive of Qamar Energy and the author of The Myth of the Oil Crisis