LONDON – Saudi Arabia replaced long-standing oil chief Ali al- Naimi and reorganised a number of ministries and central government institutions in a major cabinet shake-up.
Naimi, 80, had served as oil minister since 1995. He was replaced by Health minister and former Saudi Aramco chief Khaled al-Falih by a royal decree issued May 7th. The move was expected but still caused a spike in global oil prices.
The latest changes are in line with the government’s Vision 2030 initiative, a series of economic and social reforms designed to diversify the Saudi economy and wean it off dependency on the oil sector. The plan, under the direction of Deputy Crown Prince Mohammed bin Salman bin Abdulaziz, is designed to nurture the kingdom’s investment climate, boost tourism and kick-start a viable manufacturing sector.
Faced with a large youth population, a growing rivalry with Iran, the cost of its intervention in Yemen, low oil prices and the battle to maintain its global energy market share, the kingdom is attempting a major overhaul of its economy.
The appointment of a new Saudi oil minister, arguably the most powerful and influential individual in the global energy sector, is not a frequent occurrence. Consequently, pundits speculated the reasons behind the appointment of Falih and whether it signified a change in oil policy, a notion dismissed by industry veterans.
“A change in personnel does not equate a change in policy in this case,” said former Saudi Petroleum Ministry senior adviser Mohammad Al Sabban.
According to Sabban, there are a number of official bodies, including the Council of Economic Affairs and Development, that are tasked with drawing up the kingdom’s energy policies. A change in the ministerial position is not likely to alter that.
“The minister’s style during negotiations is up to the minister. However, he will be equipped with the Saudi position and he will try to defend and it doesn’t matter if it is Naimi or Falih,” Sabban said.
The former Naimi adviser stressed there are significant challenges ahead for the new energy minister, not the least of which is running the Petroleum Ministry, which controls numerous other entities.
Falih has to deal with the board of directors for institutions such as Ma’aden (Saudi Arabian Mining Company), the Royal Commission for Jubail and Yanbu (RCJY), the Saudi Geological Survey, Aramco and several industrial cities.
“He is also going to be the head of the King Abdullah City for Atomic and Renewable Energy,” Sabban said. “All that, coupled with his main duties, means that he has a lot on his plate and he will need to delegate some authority in order for matters to move efficiently.
“All this will be under his portfolio. The problem is if he is a central type of manager he is going to have a lot of difficulties. He has to delegate authority here and there to move the work forward, especially with the goal of serving Vision 2030 and that can’t be done if one aspect of the ministry is lagging behind others.”
A technocrat like his predecessor, Falih previously served as chief executive officer of Aramco and was minister of Health, although for less than a year. “Now he is going to speak on behalf of the kingdom whether at (the Organisation of the Petroleum Exporting Countries) OPEC or otherwise and that’s a totally different ball game,” Sabban said.
Regarding the task of representing the kingdom before OPEC, Falih’s main challenge will be how to retain and maintain the Saudis’ leadership in the cartel.
“It will probably be extremely difficult for him at the start, due to lack of experience, but I’m sure he’ll manage, garnering the experience required to defend the country’s interests,” Sabban added.
In a related development, Aramco is finalising options for its partial privatisation. The deputy crown prince said he expects the initial public offering to be valued at least $2 trillion.