Saudi Arabia’s reshuffle unlikely to change Kingdom’s oil strategy

The government reshuffle in Saudi Arabia announced over the weekend is unlikely to herald a major shift in economic policy, although it may strengthen the Kingdom’s commitment to its oil market strategy, Jason Tuvey, Middle East Economist at British economic research and consulting company Capital Economics believes.

“We doubt that the replacement of oil minister Ali al-Naimi will lead to a drastic change in the Kingdom’s oil strategy. After all, his successor was chief executive of Saudi Aramco in late-2014 and thus a key architect of Saudi Arabia’s decision not to return to its traditional role as the swing producer in the market and cut oil output in order to support prices,” Tuvey said in a report, obtained by Trend.

On Saturday, Saudi Arabia’s King Salman announced a major government reshuffle and a reorganisation of key ministries.

The Kingdom’s oil minister Ali al-Naimi was replaced by former health minister Khaled al-Faleh.

Tuvey believes that his appointment could see Saudi Arabia take an even harder stance in its negotiations with other major oil producers – calls for the Kingdom to cut oil output in order to support oil prices will continue to be shrugged off.

Al-Falih is considered to be a close ally of Deputy Crown Prince Mohammed bin Salman, the driver of Saudi Arabia’s plans to overhaul its economy, Tuvey said.

He mentioned that, according to media reports, it was Mohammed bin Salman, rather than Al-Naimi, who derailed an agreement to freeze oil output at last month’s failed meeting in Doha by insisting that Iran was involved.

The last meeting of oil producers in Doha ended without reaching any agreement. The talks on oil output freeze collapsed after Saudi Arabia surprised the group by reasserting a demand that Iran also agrees to cap its oil production.

The next OPEC meeting, where the oil output freeze will be again discussed, is scheduled for June.

“Many saw the Kingdom’s insistence on Iran’s involvement through the eyes of regional politics but, as we’ve argued before, the Saudi authorities are simply taking a longer-term view of the oil market and can afford to keep oil output high (and prices low) in order to squeeze out high-cost producers,” Tuvey said.

Economist mentioned that on Sunday, Khaled al-Faleh highlighted the fact that Saudi Arabia is the only country with significant spare capacity and so should be the natural beneficiary of rising demand.

“However, while oil output is likely to rise in the coming months as domestic demand reaches its seasonal peak, we don’t think that the Kingdom would go so far as to flood an already-oversupplied market,” Tuvey said.

Source: Trend