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Analysis: King Salman consolidates family grip on Saudi power and Aramco

Dubai — King Salman's double shake-up of Saudi Arabia's power structure and the kingdom's key petroleum sector could have major implications for oil supply.

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Since his January 23 accession to the Saudi throne, Salman has moved quickly to influence how power will be transferred to the next generation of rulers.

Three months later he took the unprecedented step of placing two grandsons of dynastic founder King Abdulaziz al-Saud, also known as Ibn Saud, in direct line of succession: a nephew, Mohammed bin Nayef, as Crown Prince, and favored son Mohammed as Deputy Crown Prince, for the first time formalizing that position.

As well as breaking with his father's wish that the line of royal succession should favor brothers over sons, Salman simultaneously increased the power of the new deputy crown prince dramatically by placing him in a position of direct control over Saudi Arabia's oil sector.


Mohammed bin Salman, as chair of the government's Council for Economic and Development Affairs (CEDA), has been officially credited with a plan, announced Friday, to separate state-owned Saudi Aramco from the Ministry of Petroleum, to which the state oil company was formerly joined at the hip.

Instead of taking orders from the petroleum ministry, which traditionally has used Aramco to implement its policies, King Salman has now decreed that the state petroleum company will henceforth be overseen by a 10-member Supreme Council for Saudi Aramco, headed by his son.

Some analysts have applauded the move as likely to result in better governance of Aramco, freeing it from political interference from the petroleum ministry and even OPEC, as its management seeks to trim costs and improve operational efficiency in order to preserve the company's ability to generate and re-invest cash flow in what many see as a new era of lower international oil prices.

There are good financial incentives for Riyadh to place the state petroleum company at arm's length from government, thereby providing long-term protection for Aramco's commercial mandate and ensuring it remains a major engine of Saudi economic growth and foreign revenue generation for decades to come.

This is no trivial matter in a country that derives 90% of its government revenues from the petroleum sector.

The snag is that Mohammed bin Salman, who was appointed CEDA's chair only on January 29, is probably eager to make his mark as an economic visionary.

This has raised questions about whether Aramco has merely swapped vulnerability to government interference for a new, perhaps more damaging potential for royal interference.

Indeed, the rate at which the youthful Mohammed has been amassing power since his father ascended the throne has been extraordinary. With little previous government experience, the prince was immediately appointed Minister of Defense and Chief of the Royal Court.

Last week, he was also appointed Second Deputy Prime Minister as well as Deputy Crown Prince in a move that puts the three top Saudi royals -- King Salman, Mohammed bin Nayef and Mohammed bin Salman -- at the head of the Saudi Council of Ministers in their respective roles as Prime Minister, First Deputy PM and Second Deputy PM.

Although the younger Mohammed has yet to prove himself as an administrator, he already enjoys significant popularity in the kingdom due to his recent role in orchestrating air strikes against Shi'ite Houthi rebels in neighboring Yemen, so his authority is unlikely to be questioned in the near term.

Even more importantly, he has the backing of 55-year-old Crown Prince Mohammed bin Nayef, who as interior minister is an established power in the kingdom that political analysts say is now running the day-to-day affairs of the realm on Salman's behalf.

The three are expected to present a united front, not only in the interests of political stability, but also due to their significant kinship ties.

They are all members of the Sudairi line of the sprawling al-Saud family -- the direct descendants of King Abdulaziz and his favorite wife, Hassa bint Ahmed al-Sudairi.

The original "Sudairi Seven" sons, including the reigning King Salman, were the largest bloc of full brothers among the roughly 40 sons of King Abdulaziz, wielding significant coordinated influence and power throughout the second half of the 20th century.

However, they were sidelined with the 2005 accession to the throne of their non-Sudairi half-brother Abdullah.

The new line of succession seems designed to re-establish Sudairi rule as power passes to the next generation of rulers. Salman's decree notably swept aside the late King Abdullah's choice of successor, Prince Muqrin, the youngest surviving son of King Abdulaziz but crucially not a Sudairi.

IMPACT ON ARAMCO

As for Aramco, former CEO Khalid al-Falih has received a promotion to company chairman, at the same time being named health minister, which has allowed him to be appointed to the supreme council of Saudi Aramco.

However, while Falih will be expected to mentor and guide the deputy crown prince in his new role as council chair, his significant ministerial duties will preclude him from involvement in the day-to-day running of Aramco.

That will now be the purview of incoming Aramco interim CEO Amin al-Nasser, the former head of upstream operations who has 20 years of experience with the company.

But the decision not to name Nasser as permanent CEO creates an air of uncertainty over his future that is likely to ensure his full compliance with the supreme council.

Most analysts see Falih's current ministerial position as a stepping stone to a future appointment as either petroleum minister or minister of a new energy super-ministry that would take charge of Saudi Arabia's domestic energy development.

This would include pressing concerns such as integration of the kingdom's electricity grid, the development of nuclear and large-scale solar power, reform of energy and fuel subsidies, and other measures to curb soaring and often wasteful domestic energy consumption, as well as further development of the kingdom's refining and petrochemicals sector.

A promotion for Falih would clear the way for another of Salman's sons, Prince Abdulaziz, to receive a promotion to minister of petroleum from his long-held role as assistant minister.

However, that would break with the tradition of appointing a member of the Saudi royal family to head a ministry previously steered by technocrat commoners.

It is unclear how other OPEC members would react to that, and whether Abdulaziz, after being eclipsed by his younger half-brother Mohammed, would be satisfied with the task of running a ministry that has had its fangs pulled.

Certainly, with Saudi domestic oil consumption climbing and cutting into the kingdom's export potential, the expansion and modernization of the kingdom's domestic energy infrastructure are urgently needed, creating the rationale for an energy super-ministry.

Saudi investment house Jadwa, in its latest quarterly report released April, projects Saudi oil consumption will rise 13% this year to 2.7 million b/d as its new refineries reach full capacity.

A third possible course is that Riyadh might follow the lead of its close ally Abu Dhabi in expanding the petroleum ministry to encompass oversight of the entire energy spectrum, and shifting its focus to domestic rather than international affairs.

As with Abu Dhabi, that would leave senior royalty in charge of domestic petroleum affairs while retaining the option of being represented by a non-royal technocrat at OPEC.

Abu Dhabi, which dominates the UAE's petroleum sector, has long had a Supreme Petroleum Council chaired by senior royalty, setting oil policy and overseeing the operations of Abu Dhabi National Oil Co., which is in many ways a UAE analog of Aramco.

It's a model that may well appeal to King Salman and his loyal deputy, Prince Mohammed bin Nayef.

--Tamsin Carlisle, tamsin.carlisle@platts.com
--Adal Mirza, adal.mirza@platts.com
--Edited by Alisdair Bowles, alisdair.bowles@platts.com