Prince Abdul Aziz the antidote to oil market uncertainty
The appointment of a new energy minister is always big news in Saudi Arabia, but the naming this week of Prince Abdul Aziz bin Salman is even bigger news, domestically and globally. Saudi Arabia is at an existential crossroads as it builds its non-oil-dependent future, while globally the oil markets are facing uncertainties about supplies, prices and non-oil alternatives. Prince Abdul Aziz may be the antidote in these uncertain times. His appointment should reassure markets and give hope to many young Saudis whose dreams are pinned to their country’s transformative policies.
Under Saudi Arabia’s Vision 2030, the mandate of the minister of energy has domestic impact over fiscal policy, industrial policy and economic diversification. Fiscally, the ministry’s actions affect how much revenue the public purse gets from the sale of oil and gas. And Vision 2030’s diversification goals depend in major part on the success of the policies undertaken by the Ministry of Energy.
As the largest global oil exporter, Saudi Arabia’s energy policy is as important to the rest of the world as it is to the country itself. Prince Abdul Aziz was preceded by five ministers who gained international prominence as ministers of petroleum and later energy. Abdullah Al-Turaiqi, the first Saudi minister of petroleum and a US-trained oil engineer, was instrumental in setting up OPEC and starting the discussions of national control of oil production decisions and a more equitable revenue distribution between producing nations and oil companies. For 24 years, the second minister, Ahmed Zaki Yamani, was OPEC’s most recognizable face and a colorful international figure. He presided over the gradual nationalization of Aramco and the establishment of the Saudi petrochemical industry. Subsequent ministers also made an impact domestically and on the world energy stage.
As colorful and competent as they were, however, oil ministers in the end carried out Saudi Arabia’s sovereign energy policy. That policy is an all-government effort led by the king and crown prince. Prince Abdul Aziz has the advantage of being privy to those discussions for decades, even having an important role in shaping them.
Saudi Arabia is on the cusp of real, existential decisions affecting its future, including those related to an Aramco initial public offering and diversification policies. Unlike other countries, diversification in Saudi Arabia is a complicated process that has at least four fundamental meanings. First, the diversification of the economic base from the dominance of the oil and gas industries to a more balanced mix that includes other sectors, such as manufacturing and services. The second is diversification of exports. Currently, oil represents more than 90 percent of Saudi exports and Vision 2030 calls for drastically reducing that share. Third, diversification in Saudi Arabia means diversifying government revenues from near-total reliance on oil to a more normal mix of oil and non-oil sources, so as to avoid the volatility to government finances that comes from over-reliance on oil income. Fourth, diversification in the energy mix itself, from fossil fuels to renewables. All of these four levels of diversification are closely related to the post of the minister of energy. Prince Abdul Aziz is well versed in all of them and his appointment should have a positive impact on how Saudi Arabia achieves these forms of diversification within the timeframe set by Vision 2030.
He is at ease as an academic economist, industrial engineer, oil technocrat and high-level policy-maker.
Abdel Aziz Aluwaisheg
The timely implementation of Vision 2030 is crucially important. There is no time to waste and, with the new, experienced minister, there will be no learning curve, as he is highly qualified and has been involved in these decisions for some time. For 30 years, Prince Abdul Aziz served as an adviser and then deputy and assistant minister of petroleum. In 2017, he was appointed as minister of state for petroleum. Before joining the ministry in 1987, he was a researcher and academic at his alma mater King Fahd University of Petroleum and Minerals, Saudi Arabia’s equivalent of America’s Massachusetts Institute of Technology. He is at ease as an academic economist, industrial engineer, oil technocrat and high-level policy-maker.
One of Prince Abdul Aziz’s lesser-known but extremely important achievements was the establishment of the Saudi Energy Efficiency Center. It was established in 2010 to promote energy efficiency and conservation policies. It sounded the alarm about runaway energy consumption in Saudi Arabia, which was growing at alarming rates, far outpacing the rates of population growth and economic development. According to the center, about 38 percent of all oil and gas produced in Saudi Arabia is consumed locally. Much of it was being wasted because of inefficient appliances, insufficient building codes and outmoded production processes. All were encouraged by low domestic energy prices.
Globally, Prince Abdul Aziz is well known to the energy markets and his appointment should be reassuring. He has witnessed many ups and downs in the oil market, from below $10 for a barrel of oil in the late 1990s to over $160 in 2008, with many highs and lows in between. As Saudi Arabia’s energy minister, he will be interested in the long-term oil policies that benefit both producers and consumers. As a major energy exporter, Saudi Arabia is deeply invested in the global economy, whose health is key to its ability to export at sustainable prices.
One of the first tasks the new minister faces is what to do about the global oil glut. OPEC oil ministers are this week meeting with their non-OPEC counterparts in Abu Dhabi to discuss why prices remain stubbornly low despite big output cuts by the OPEC+ group and supply reductions in Venezuela, Libya and Iran.
- Abdel Aziz Aluwaisheg is the GCC Assistant Secretary-General for Political Affairs and Negotiation, and a columnist for Arab News. The views expressed in this piece are personal and do not necessarily represent GCC views. Twitter: @abuhamad1