INTERVIEW: Energy expert lays down lessons in oil and economics from the coronavirus lockdown

Illustration by Luis Grañena
Short Url
Updated 24 May 2020

INTERVIEW: Energy expert lays down lessons in oil and economics from the coronavirus lockdown

  • Christof Ruehl tells of the “roller coaster” ride of the most turbulent time in oil history

DUBAI: One of the compensations of the lockdown has been the daily webinars organized by the consultancy Gulf Intelligence on the energy industry, and in particular the Sunday show.

Not only does it set the tone for the week in the midst of the most turbulent period in the history of oil markets, but it also brings together two of the leading commentators on global energy markets for 30 minutes of cerebral sparring on a subject that always provokes strong views, never more so than in crisis.

In the red corner of the forum, John Defterios, emerging markets editor at TV network CNN; in the blue corner, Christof Ruehl, former chief economist of BP and head of research at ADIA, the UAE’s premier sovereign wealth fund, now senior research scholar at the Columbia University Center on Global Energy Policy and a fellow at Harvard Kennedy School.

The subtle differences of opinion between the two on such crucial matters as crude storage, oil demand recovery and Texas rig counts are real, but not personal. “We know each other well,” Ruehl told Arab News.

Over the course of what the oil industry is calling “Black April” — when Ruehl and his family were in enforced stay in the UAE — the two had plenty to discuss.

“It certainly was exciting. It’s been a true roller coaster,” said Ruehl, outlining the events that have taken us to an unprecedented place in the energy business — the biggest ever destruction of global demand, followed by the biggest ever cuts by Saudi Arabia and Russia in the Opec+ alliance, and the ongoing downturn in the shale business that has knocked the US off its perch of global energy dominance.

Some analysts — especially in the US — saw it all as an orchestrated design by Opec+ to destroy American shale, but Ruehl does not agree. “If you think of design as a conspiracy theory, a plot by Saudi and Russia against the US, then no. But if you think of design as a pattern that was becoming more pronounced and visible over a period of time, then in many ways, yes,” he said.


BORN: Erlangen, Germany, 1958

EDUCATION: University of Bremen, Germany


  • University of California Los Angeles, professor of economics
  • European Bank for Reconstruction and Development
  • World Bank, lead economist in Russia and Brazil
  • BP, chief economist
  • ADIA (UAE), global head of research
  • Harvard Kennedy School, senior fellow
  • Columbia University Center on Global Energy Policy, senior research scholar

The collapse in demand resulting from the pandemic lockdowns was what the economists call an “exogenous shock” accelerating pre-existing conditions in global oil markets. But he thinks that it is wrong to talk about “victors” in the oil price wars that collapsed crude prices worldwide and from which the industry is only now recovering.

“Everyone is dealing with a lower oil price. All was obliterated by the virus and the sudden collapse in demand — there are no winners here.The world will enter a period of lower oil prices, Saudi Arabia will enter a period of lower production,” he said.

Oil prices have pulled back from the bottom, having fallen through the floor on April 20 when the price of a barrel of West Texas Intermediate crude was trading at negative rates.

But there is a danger to that nascent recovery. “If prices shoot up too fast because you’ve been effective in cutting supply, you will get cheating in the Opec+ segment, and you’ll get shale and others coming back in the private segment,” he said.

High energy prices would also threaten the still-uncertain economic recovery after the lockdowns end, because “the majority of people on the planet are not oil producers, they are oil consumers,” and could also pose a risk for future investment in oil.

On the prospects for recovery, crucial both for oil prices and to prevent the world slipping into a 1930s-style Depression, Ruehl believes that we are still at the mercy of exogenous events. “Oil demand is hostage to the recovery, and the recovery is hostage to the pandemic,” he said, pointing out that most forecasters have taken a progressively pessimistic view on global growth as the lockdown continued.

Where oil prices go in that scenario is uncertain, but he is adamant that US shale, the dominant force in setting market levels for the past few years, is not “dead,” as some commentators have said. When WTI turned negative last month, it was an example of market forces working efficiently.

The demise of the old order isn’t just a change for the Middle East, but also for free-riding high-cost producers.

Christof Ruehl, Columbia University

“The US system is very flexible at closing companies down and having them taken over by others, but the assets are always there. The consolidation will leave the shale industry better organized than before, and better financed than before. That is still true despite the hit from the virus,” he said. Some shale would become profitable again at between $30 and $35 a barrel.

Other factors such as big outages by producers, or geopolitical events, have the capacity to cause oil prices to spike, but barring these “prices of $70 or $80 seem out of the question at the moment,” he said.

The carnage of the past few weeks will leave the industry permanently changed, not least in how it is governed, as the US, Saudi Arabia and Russia collaborated in an unprecedented way to halt the slide.

“Basically we had the three big producers sitting down behind closed doors and coming up with a package. Does that herald things to come?” he asked, raising the prospect of an Opec++ deal between the three producers.

On the question of US supremacy in the global energy industry, the new normal of the oil market is stark. “It wouldn’t leave the US much room to call themselves energy independent, much less dominant. The demise of the old order isn’t just a change for the Middle East, but also for the high-cost producers who were free-riding,” Ruehl said.

Can the Saudi-Russia pact on production cuts persist, given the very different pressure those two oil-dominated economies are under?

“When prices start rising again, we will see. The old world meant Saudi Arabia was able to cut output and recoup revenue from higher prices, but this got out of balance with the impact of shale. Saudi Arabia and Russia answered with Opec+, but that will not work when markets are shrinking,” Ruehl said.

Some pessimists believe the world will never again use 100 million barrels of oil a day, and that presents a unique challenge for Saudi Arabia as it strives to reduce its oil dependency.

“Nothing should distract from the fact that it is devilishly difficult to diversify a resource-dependent economy. There are very few success stories, and there are plenty of failures. Critics of Saudi Arabia should always be aware of that,” Ruehl said.

There are problems with how you assess progress away from energy dependence. “The IMF and others use non-oil GDP as an indicator. They say the oil worker, when he’s on his drilling rig, is part of oil-GDP, and when he goes back to his hotel is non-oil GDP. But to me it’s a bit of a fiction. You see how non-oil GDP goes up and down with the oil price all across the GCC,” he said.

Ruehl believes that the Kingdom needs to adapt and clarify the strategy in rapidly changing circumstances. The policy options are multiple, from picking non-oil sectors of the economy such as tourism, leisure and manufacturing for intense development, to the use of a central agency, such as the Public Investment Fund or other body, to aid development and even act as a “rainy day” fund to protect the economy from the ravages of the pandemic.

“It’s not really an emergency situation in Saudi Arabia because you have this enormous buffer of finances,” he said. But the Kingdom is at an inflection point, and needs a consistent macro-economic framework for policy making.

In the wake of the pandemic, Saudi Arabia has put in place financial packages to mitigate the effects of the economic disruption, but also taken measures to keep public finances in balance, such as tax rises and expenditure cuts.

“It could be a very bold policy move by saying that every crisis is an opportunity, and this crisis is so bad the Kingdom doesn’t want to waste the opportunity. Policy makers might be using the crisis as a way to push through changes in the labor market and government finances,” Ruehl said.

“Or the other way is to do what everybody else is doing — deploy counter-cyclical fiscal policy, keep employment protected, keep the economy protected, prevent the economy from shrinking. But then you are protecting the economic model that Vision 2030 is seeking to transform,” he said.

Which path to follow is a crucial choice for the Kingdom: “It is not for me or the IMF to say. It has to be done by people at the very center of it who have to make a very lonely decision,” Ruehl said.

INTERVIEW: Financial exec talks about Saudi home ownership in the coronavirus era

Updated 10 min 22 sec ago

INTERVIEW: Financial exec talks about Saudi home ownership in the coronavirus era

  • Saudi Real Estate Refinance Company CEO Fabrice Susini is confident mortgage demand will return

What a difference a pandemic makes. At the turn of 2020, Fabrice Susini, CEO of Saudi Real Estate Refinance Company (SRC), could look back on two years of significant progress toward the provision of affordable home ownership for the Kingdom’s aspirational young population.

Increased property ownership was one of the main aims of the plan to diversify the Saudi economy away from oil dependency, setting a target of 70 percent home ownership by 2030.

It was all going to plan. New mortgage issuance had been “staggering,” Susini said, and SRC had reached its target of facilitating 60 percent home ownership with months to spare.

“It was a very positive story,” he said, allowing him to work on the next phase of Saudi Arabia’s move toward being a home-owning economy — buying more mortgage portfolios from banks and other mortgage originators, injecting more liquidity into the housing market via domestic and international sukuk issuance, and offering new long-term fixed-rate mortgages to potential and actual home owners.

The economic lockdown that took increasing effect from March has changed the figures on which those plans were based. New mortgage applications, which has been running between SR20 million ($5.3 million) to SR50 million per week, dropped into single-digit millions as potential buyers were forced to stay at home rather than go viewing properties and took stock of their spending plans in light of the economic downturn that followed the pandemic outbreak.

“We expect to report a sharp drop for April and May. I would be surprised if the numbers remain the same,” Susini said. “But the fundamentals remain the same. It is still an underserved market, compared with the demands and needs of the young, dynamic population aspiring to home ownership. The process may be slowed by a couple of months, but the demographic is still there. There will be a slowdown but I’m sure a catch-up is coming and the forward movement will resume.”

One reason for his optimism is the action taken by the financial authorities to support the economy in its hour of need, especially the stimulus packages unveiled by the Saudi Arabian Monetary Authority (SAMA) and the Finance Ministry.

“There has been a lot of support coming through for small to medium businesses and private companies, and that will balance and smooth out the process. I don’t see a big hit coming,” he said.

Effective monitoring and control of SAMA liquidity injections would ensure they reached the SME and private sector organizations they are mainly intended to help, he added.

“I’d be very surprised if any significant proportion was not properly channeled to the private sector and SMEs,” he said.


BORN: Rome, 1964


  • Law degree, Paris X Nanterre University, France
  • Banking and finance degree, Sciences Po, Paris
  • Master’s degree, finance, Dauphine University, Paris
  • MBA, London Business School


  • Relationship manager, Societe Generale
  • Analyst, Bayerische Landesbank
  • Global head of securitization, BNP
  • CEO, Saudi Real Estate Refinance Company

The mortgage industry in Saudi Arabia enjoys significant subsidies from the government for its products, and while some of these have been changed in recent week, reducing subsidies to mortgages for military and some civilian personnel, he does not see this as the beginning of a trend to remove subsidies for mortgages in the broader scope of SRC’s business.

“There is no danger to mortgage subsidies that I am aware of. The budget has been carried out, the resources are there. But of course we want to make sure that every riyal of subsidy is used to its most effective extent,” Susini said.

“When we saw the situation was becoming more challenging, the SAMA package was a great help by injecting liquidity into the financial system, but we also wanted to be more proactive ourselves in the relationship we have with our borrowers and our partners. We didn’t just want to wait until people were actually in difficulties before we acted,” he added.

The result was the “forbearance” plan for borrowers, by which SRC asked its mortgage partners to offer a three-month mortgage holiday to those who felt the need, and many took up the offer. “A big majority has gone for it. We see ourselves as a ‘citizen’ company and we do not just want to rely on the authorities. We asked ourselves what we can do in terms of citizenship and public policy initiatives,” Susini said.

There seems little prospect of a cascade of mortgage defaults as long as the current policy of government support continues, and SRC and mortgage originators persist with the policy of showing patience and understanding in difficult economic circumstances.

Nonetheless, prospective home owners are facing big challenges. Not only has the lockdown made the market mechanics of home-buying more difficult, with viewings almost impossible in the light of curfews and travel restrictions, but there is also the question of whether people will hesitate over such a life-changing decision. Will they want to buy a house or apartment while the pandemic continues to rage?

Susini thinks customers will learn to prioritize their financial decisions more carefully. “You might defer the purchase of a new car, but still want to buy a home. You would direct your choice toward those things you regard as more important. Home ownership is probably regarded as more essential,” he said.

The appetite of Saudi citizens for house purchase in the new circumstances will be better judged when SAMA and other financial bodies publish official figures in the near future, he said.

With regard to the overall health of the real estate market, Susini said that he has not seen a significant fall in property prices, but underlines the fact that SRC caters mainly for the affordable segment of the market, where big falls in value are less likely. He noted that apartments have been holding their value “quite well” in comparison with bigger units like townhouses and villas.

In an era when global interest rates are falling toward zero in many parts of the world, there could be an incentive for customers to go for the long-term fixed-rate deals SRC is offering.

“We’re seeing the need for more awareness of the benefits of fixed rates. Borrowers can grasp the benefit of remortgaging at rates that are significantly lower now than they were before. It is a choice for the borrower really. They can either own their home more quickly than before, or maintain their payments on more sensible terms. It can be beneficial for them whether rates are subsidized or not,” he said.

SRC reduced its lending rates for long-term fixed mortgages last month, is first cut this year following two rate reductions in 2019. Borrowers could now take advantage of a 5 percent rate on a 25-year mortgage, Susini said.

SRC is also working hard on the digital space, with online facilitators becoming more crucial to home purchase. The company is in the early stages of a study on fintech and digital mortgage origination, and some initiative could be forthcoming by the summer, he said.

“If you can talk of a silver lining from the current situation, it is that it is accelerating the digitization of financial processes. The payment processes are already quite well developed, but the sale of processes presents more of a challenge. The health ministry has organized some innovative processes around the digital market place, and the justice ministry has done good work on the digital origination of contracts.”

The strategy of including mortgage originators in the SRC set-up will continue, and Susini is holding talks with financial and corporate firms to bring more products under its portfolio. 

SRC is owned by the Public Investment Fund, the Kingdom’s $325 billion sovereign wealth fund, so it has access to finance at the highest level. But under Susini’s stewardship there has also been a willingness to raise money in local markets via domestic sukuk issues. Two have already been launched, and a third is lined up to take place in the summer.

After that, the company will be work on an international bond offering toward the end of the year, though he declined to say how much would be raised.

“We want to ensure we can continue to finance mortgages, to have sufficient tools and channels so that no bank or finance company is stopped from offering mortgages because of issues to do with capital ratios of liquidity,” Susini said.

He viewed recent downgrades by ratings agencies of banks’ creditworthiness or prospects as a “gray cloud” over liquidity.

“We want to be ready so that primary originators of mortgages have all the tools necessary to keep operating regardless of the problems they might face,” he added.