Saudi Arabia’s Prince Al Waleed bin Talal slams kingdom’s oil policy

Saudi billionaire voices bafflement at downplaying of negative impact of lower oil prices.

Prince Al Waleed bin Talal has criticised Saudi Arabia's stance on falling oil prices. Neil Hall / Reuters

One of Saudi Arabia’s most prominent businessmen, Prince Al Waleed bin Talal, has publicly criticised his country’s oil policy, which in recent weeks has signalled an acceptance of lower oil prices in an effort to shake out higher-cost producers.

In an open letter addressed to the Saudi oil minister, Ali Al Naimi, Prince Al Waleed pointed to widely publicised remarks Mr Al Naimi made in Kuwait last month in which the minister said lower oil prices were “no cause for alarm”.

The prince wrote: “We would like to express our surprise and bafflement and repudiation of these statements and others like it that seek to downplay the negative impact lower oil prices would have on the kingdom’s budget.”

The statements by Mr Al Naimi and other recent moves by Saudi Arabia – including offering deeper discounts to customers and increasing production last month – have been interpreted as aggressive signals. Observers sense that it is determined to defend its market share, especially in Asia, even if that means a period when oil prices are well below the $100 per barrel that has been its base level for more than four years.

The kingdom’s oil policy establishment has resisted any calls for an emergency meeting of Opec or any voluntary cuts in production. Instead it seems content to let the lower prices – with benchmark Brent crude falling more than 20 per cent since midsummer highs around $115 a barrel – persist to get some of the higher-cost marginal producers, such as some shale oil producers in North America, to cut back.

But Prince Al Waleed also seemed to be aiming his remarks over the heads of policymakers at a more general audience when he wrote of the many times he has warned of an overreliance on oil for the kingdom’s budget.

“The Saudi citizen to a large extent has become conscious of this and you cannot underestimate his intelligence and his ability to get the facts. He knows full well the economic issues facing the kingdom.”

While the prince’s public statements may cause a media stir, he is not considered a part of the Saudi energy establishment. “He is a little bit of an outsider, a bit of a radical,” said David Butter, a Middle East expert at the Royal Institute of International Affairs in London.

“Because he is not that much of a player in Saudi political councils, he has a bit more latitude to go out and make statements,” Mr Butter added. “Broadly, he has progressive social views and makes his views known in Saudi political terms but I don’t think he has any real decisive influence on inside.”

The calculation that the Saudi establishment appears to be making is that it can ride out a period of oil prices significantly below $100 a barrel without it affecting too much of its ability to fund the large infrastructure programmes and social spending that have been aimed at keeping its populace contented. It is a calculation that most experts agree is correct.

As Julian Jessop, the head of commodities research at Capital Economics, points out: “There is a precedent here. Saudi Arabia responded to a glut of non-Opec supply in the second half of the 1980s by increasing its own output, eroding the profitability of other sources of oil.”

There are many options for Saudi Arabia if oil prices stay low for a period. It has plenty of scope to borrow to cover any budget shortfall – currently government debt is less than 3 per cent of GDP. Several recent indicators show its non-oil economy growing at a healthy rate and forecasters predict GDP growth this year and next will hold at around 4.3 per cent.

“Look a bit closer at what the Saudis are calculating internally about what the effect of lower oil prices might be and you’ll get a range of opinion; but broadly the Naimi view is the accepted one,” said Mr Butter. “If it turns out that for a few years they run a budget deficit they have huge leeway to issue public debt. They might start to try to tighten up spending, the public sector payroll. But it is certainly not the end of the world to have $80 a barrel for some time. Some people are saying it is potentially a good thing.”

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