Saudi restructures oil sector, concentrating prince's power

Saudi Arabia, the world's largest oil exporter, has restructured its hydrocarbon sector by splitting the state oil company from the oil ministry in a move that consolidates the power of the king's son over the economy.

King Salman bin Abdel Aziz al-Saud formed a 10-member Supreme Council for Saudi Aramco, headed by his son, Deputy Crown Prince Mohammad bin Salman, to oversee Saudi Aramco, the state oil company. The council will include the ministers of oil, finance, economy and the central bank governor, among others.

It is the latest measure to concentrate power in the hands of the young prince, who earlier this week was named as second in line to the throne. In January, his father appointed him defence minister and head of the council on economic and development affairs, which has the job of co-ordinating economic reforms as the kingdom grapples with lower oil prices.

Saudi Aramco is the world's largest oil-producing company, pumping more than 10m barrels a day, or almost one in every nine barrels consumed globally. The governance change breaks the longstanding link between the company and the oil ministry, with some analysts describing the move as a positive boost to oversight. Others, however, see increasing royal interference in a body that has developed a reputation for efficiency.

Mohammad al-Sabban, a senior adviser to the Saudi oil minister from 1996 until 2013, said the decision to separate Saudi Aramco from the oil ministry was primarily to create a transparent, more efficient commercial operation.

"The separation, alongside the decision to create a supreme council solely for Aramco, will mean the company is better monitored, audited and governed. It falls in line with a bunch of decisions taken of late to foster economic reform," said Mr Sabban.

But others say the new oversight body will increase royal influence over Saudi Aramco, which has operated independently from other government departments since its nationalisation in the 1980s and gained a reputation as one of the world's best-run state oil companies.

Oil experts, including Mr Sabban, say the move could be the precursor to a new "super" energy ministry that will be responsible for gas, nuclear and renewables, as well as oil.

Challenges caused by lower oil prices have prompted the need for a more efficient body to eliminate wasteful energy usage and spending. Rampant domestic energy consumption growth, rising at around 6 per cent a year, will - if unchecked - turn the world's largest crude exporter into an importer by 2030.

As part of sweeping changes in the country's top posts this week, Khalid al-Falih, Saudi Aramco's chief executive, was named head of the healthcare ministry and chairman of the state-oil company. He has also been named as a member of the supreme Aramco council. Amin Nasser, formerly senior vice-president of upstream operations, was appointed acting chief executive officer of the company on Friday.

The moves have raised questions about the country's energy infrastructure and succession planning for the veteran oil minister Ali al-Naimi, who is 80 years old and has already expressed his desire to retire.

Analysts said it was unclear if Mr Falih's move to the health ministry, which needs an experienced technocrat to lead serious reform, was a precursor to a more senior government position. Some speculate that the changes pave the way for the king's son, Prince Abdulaziz, who is the deputy oil minister, to take over as minister.

Saudi Arabia in November led Opec into a historic decision not to intervene in the oil market amid falling prices. Allowing market forces to rebalance global supply paved the way for the price of Brent crude drop to $45 a barrel earlier this year from $115 a barrel in June.

The governance changes are unlikely to have an international impact, analysts say.

"In the longer term I don't think how Saudi Arabia sets oil policy will change substantially," said Michael Stephens, head of Royal United Services Institute for Defence and Security Studies Qatar.

"Whether Saudi Arabia ramps up or down oil production has always been a political decision agreed by the very top-level executive as well as the oil ministry, particularly at a time when oil production levels have become so highly politicised."

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