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Saudi Arabia's new crown prince and the outlook for the kingdom's oil sector

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Listen: Saudi Arabia's new crown prince and the outlook for the kingdom's oil sector

Saudi Arabia's King Salman has appointed his son Mohammed bin Salman as his successor, giving the young prince a free hand to carry out his ambitious economic reforms.

S&P Global Platts editors Adal Mirza and Tamsin Carlisle discuss what the announcement means for the kingdom's National Transformation Plan, which includes the sale of up to 5% of state-owned oil company Saudi Aramco through an IPO.


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Podcast Transcript

On Wednesday Saudi Arabia made an abrupt change in the kingdom’s line of succession, pushing forward the Deputy Crown Prince, Mohammed bin Salman as the next in line to the throne and dismissing his predecessor. Could you give us some background on that, Adal?

Yes, Tamsin. The move to replace the old crown prince, Mohammed bin Nayef did not come as much of a surprise. He was long perceived as stopgap. Mohammed bin Salman, or MBS as he is sometimes known, is the son of the ageing current monarch, king Salman bin Abdulaziz al-Saud.

Even before his promotion, the 31-year old MBS was dominating Saudi Arabia’s political and economic scene, holding a range of official positions, including the chair of both Saudi Aramco’s supreme council and the country’s chief economic planning and development authority.

He has emerged as the main point of contact between the kingdom and the new Trump White House, is the architect of the war in Yemen, which is deadlocked after two years of fighting, and has hardened relations with regional rival Iran. Just a few weeks ago, and only two weeks after Trump’s high-profile visit to Riyadh, Saudi Arabia severed diplomatic relations with neighboring Qatar over allegations it was financing Islamist terrorist groups in the region.

The move against Qatar, which had been brewing for some time, was seen by analysts as a way for MBS to consolidate domestic and regional support for his eventual accession to the Saudi throne. Has he achieved this objective?

His promotion has been backed almost unanimously by the Allegiance Council, which represents the ruling al-Saud family’s most senior members, so any obstacles the previous crown prince represented have now been removed. This means Saudi Arabia’s positions in the region could harden.

There are also economic and oil policy impacts to consider. MBS unveiled an ambitious reform agenda last year, Vision 2030, to wean the kingdom off its traditional reliance on crude oil export revenues.

Saudi Arabia has been battered by low oil prices. As its deficit rose last year, the government was forced to make deep cuts to state spending and slash subsidies on fuel to help it balance the books.

The elevated legitimacy from his promotion should give him the authority to push through even more reforms, and should also bolster his power to influence OPEC policy, isn’t that so?

The centre piece of the Vision 2030 is the part-privatization of Saudi Aramco, which MBS has said should be valued at around $2 trillion. This is his legacy policy.

Along with that, MBS has attempted to direct, with help from his close adviser on economic matters, Saudi Energy Minister and Aramco Chairman Khalid al-Falih, OPEC’s attempt to re-assert its ability to manage the oil market. By extension, this shores up Saudi Arabia’s position, as it is OPEC’s biggest oil exporter.

After years of allowing its members to produce freely, under the previous oil minister, last December, Falih convinced OPEC to cut production by 1.2 million b/d to address the problem of record global crude oil stocks. He even brought in major non-OPEC producers such as Russia to the deal,which runs until March next year.

However, the deal has so far failed to firm up oil prices or make a major dent in global crude stocks, and there is a suggestion that further cuts will be needed to prevent prices falling even further. Only Saudi Arabia is any position to make these cuts.

Analysts say MBS’ official confirmation as Saudi king-in-waiting will increase market confidence that OPEC will continue to follow its current policy. But at the same time they warn of the potential danger that OPEC decisions might become more politicized.