Changes in the corporate world reflect new balance in oil power

Theodore Karasik explains how Sudairy Aramco formalises the use of the company as a potential political tool.

Sudairy Aramco is increasingly involved in the country’s social and economic development. Ali Jarekji / Reuters

Last month, Saudi Arabia’s King Salman increased the power of the new Deputy Crown Prince, Mohammed bin Salman, by placing him in a position of direct control over Aramco. The Sudairy – who are the direct descendants of Hussa bint Ahmad Al Sudairi – are now in control of the Saudi oil giant given that the King’s order separated Aramco from the Saudi ministry of petroleum.

But what does this change mean for internal Saudi politics and Aramco?

The move suggests a more robust nationalisation of the state-owned oil company. Aramco is now directly under the control of Prince Mohammed bin Salman’s Council for Economic and Development Affairs, which is a major Saudi policy development committee made up of ministers and officials.

Aramco is increasingly involved in the country’s social and economic development. It discusses the company’s expansion into new policy sectors, including renewable energy.

That the company’s former CEO, Khalid Al Falih, became the new health minister is a testimony to the Aramco model of management and sophistication. It is important to recall that Aramco, taken over in the 1970s by the Saudis from the Americans, has retained its US-corporate culture.

So what are the Sudairy up to with Khalid Al Falih’s transfer to health? They are trying to bring the Aramco management model into the ministry. Mers continues to be an issue and healthcare is uneven around the country. According to a Saudi health services provider, the move to an American-style medical treatment and insurance system is required soon and quickly.

Prince Mohammed bin Nayef, the Crown Prince and Minister of Interior is, of course, deeply involved in the security of Aramco. Under him, the interior ministry was established in the mid-2000s, with the help of the US-Saudi Joint Commission on Critical Infrastructure Protection and Border Security, a force for protecting Aramco energy infrastructure and operations. This 35,000-man unit provides triple layered protection.

Cyber security is also a growing component within the ministry, given the numerous attacks against the company over the past few years.

The impact of Aramco’s change in status is being felt in Kuwait, where the entire energy sector is undergoing transformation. Ali Al Omair, Kuwait’s oil minister, is planning to make sweeping personnel changes at Kuwait Petroleum Corporation and its subsidiary companies, a plan that mirrors changes at Aramco.

Importantly, there is a defence component to Aramco’s new status. The move to a Sudairy Aramco raises the issue of Saudi budget requirements for not only internal reform but also implementing the military campaign in Yemen. The Saudi government derives 90 per cent of its government revenues from the petroleum sector and with long-term plans for supporting military operations, there will be more budgetary requirements. In other words, Aramco, in a sense, is going to help fund Saudi geopolitical security goals in the Mena region.

Overall, Sudairy Aramco formalises the use of the company as a potential political tool.

Through the ministry of petroleum, Saudi Arabia has been pumping at capacity to keep oil prices low.

Most see this policy as a political instrument against certain rival countries, but the price is hurting budgets across the region, especially where oil is required to be sold at a specific price per barrel.

The political equation now is to keep Aramco prepared not only as the prime driver of energy prices and to use oil prices for Saudi domestic reform requirements and military budgetary needs.

Dr Theodore Karasik is a Dubai-based analyst on the Gulf with a specific focus on Saudi Arabia