By Nayla Razzouk, Wael Mahdi and Javier Blas/Bloomberg
Saudi Arabian Oil Minister Ali al-Naimi, the architect of the 2014 switch in OPEC policy that’s since has roiled the energy market, companies and entire economies from Mexico to Nigeria, is leaving his post.
An 80-year-old who rose from modest Bedouin roots, al-Naimi headed the ministry for almost 21 years, steering the world’s largest crude exporter through wild price swings, regional wars, technological progress and the rise of climate change as a key policy concern.
“During my seven decades in the industry, I’ve seen oil at under $2 a barrel and $147, and much volatility in between,” al-Naimi told a gathering of the who’s who of the American oil industry in February in Houston. “ I’ve witnessed gluts and scarcity. I’ve seen multiple booms and busts.”
The departure of al-Naimi, who for years could move markets just uttering a few words, is the latest sign of how the country’s young Deputy Crown Prince Mohammed bin Salman is stamping his authority over oil policy. Khalid Al-Falih, chairman of Saudi Arabian Oil Co., the state-owned producer, will replace him as minister of energy, industry and mineral resources. Al-Falih is known to be close to the king and to Prince Mohammed.
“Khalid has been integral to the current oil policy of Saudi Arabia and has worked very closely with the deputy crown prince,” said Jason Bordoff, director of the Center on Global Energy Policy at Columbia University in New York and a former White House oil official.
Saudi oil policy is unlikely to change with al-Falih. If anything, Prince Mohammed has insisted that Saudi Arabia will continue to defend its market share and won’t agree to any oil output freeze to curb the global glut without the participation of other major producers.
“We don’t care about oil prices,” Prince Mohammed told Bloomberg in an interview in April. “$30 or $70, they are all the same to us. We have our own programs that don’t need high oil prices.”
While al-Naimi enjoyed a relatively free hand to implement oil policy under King Fahd and King Abdullah, his room for maneuvering seemed to have narrowed since last year’s accession to power by King Salman and the growing influence of his young son, Prince Mohammed.
At the April 17 meeting in Doha where producers discussed a possible production freeze to shore up prices, al-Naimi lacked the authority to complete a deal, according to his Russian and Venezuelan counterparts. The view of Prince Mohammed,who had insisted that no accord was possible without Iran, eventually prevailed and the talks collapsed.
Almost 18 months before, it was al-Naimi who pushed the Organization of Petroleum Exporting Countries to leave output unchanged. Rather than cut back to sustain prices near $100 a barrel, al-Naimi’s plan squeezed higher-cost producers, particularly U.S. shale-oil drillers. The strategy is showing signs of success: the number of active U.S. oil drilling rigs has dwindled by a record amount, shale production is falling and companies of all sizes, including Exxon Mobil Corp are cutting their investment. But Saudi Arabia itself has paid a great price, with foreign-exchange reserves plummeting and economic growth slowing.
The approach has also left OPEC in tatters, pitting wealthy Gulf Arab countries, including Kuwait and Qatar, against the cash-strapped nations like Venezuela and Nigeria. The cartel, once a mighty organisation capable of roiling the global economy by keeping oil prices high, seem to have become largely ineffective.
Al-Naimi presided over a golden oil age for Saudi Arabia and OPEC. The cartel’s oil revenue soared almost 10 fold during his tenure, to $1 trillion in 2014, according to the U.S. Energy Information Administration. He was also an astute diplomat, and with the support of his long-time No. 2, Prince Abdulaziz bin Salman — an older half-brother of the deputy crown prince — al-Naimi bridged differences with Iran and Venezuela in the late 1990s, orchestrating a series of production cuts that lifted oil prices, eventually sending them above $100 a barrel.
Whenever OPEC gathered at its Vienna headquarters, al-Naimi drew the biggest swarm of journalists. Reporters tagged along each day at dawn for his habitual jog, or in later years speed-walk, on the Austrian capital’s downtown Ring Road. A few words from him during those walks could move oil markets and beyond, swaying currencies and Wall Street.
“When he talks, everybody in the market is listening because he has a track record of delivering on any promise,” said Noe Van Hulst, the former secretary general of the Riyadh-based International Energy Forum. “He is the most credible voice within OPEC and in the market.”
Al-Naimi has said he’d like to devote more time to his other job, chairman of the science and technology university in Saudi Arabia, an institute that studies and prepares for a post-hydrocarbon world. He was also appointed adviser to the royal court on Saturday.
“The problem is the harmful emissions we get from burning coal, oil and gas” he said on Feb. 23 in Houston. “The solution is to work on technology that minimizes and ultimately eradicates harmful emissions. Some don’t accept this view, but I have faith in technology.”
Al-Naimi began working at age 12 as a clerk for the Arabian American Oil Co., the forerunner of Saudi Aramco, climbing through the ranks to help the company expand beyond producing raw crude and into processing oil overseas and distributing refined products. He was promoted to president in 1984, the first Saudi to hold the post, and was named chief executive officer four years later. The government selected him to lead the ministry in August 1995.
For most of his tenure, al-Naimi was an advocate of keeping crude prices at levels acceptable to the U.S. and other importers. He often disagreed with counterparts from Iran and Venezuela, who sought higher prices by limiting supply. He worried about choking off demand.
As oil began falling in the summer of 2014, al-Naimi had an unsettling flashback to three decades earlier, when Saudi Arabia was the industry’s so-called swing producer, adjusting output to defend prices. His predecessor, Ahmad Zaki Yamani, decided in 1983 to push OPEC to cut back as producers outside the group pumped more. That, Yamani theorized, would increase prices.
The results were catastrophic: oil collapsed to $7.90 from about $40 as non-OPEC supplies expanded. Saudi production dropped by almost two-thirds in 1985, to 3.6 million barrels a day from 10.3 million in 1980.
It was a lesson that shaped al-Naimi’s response to the more recent collapse in crude prices, triggered by the surge in U.S. output.
“I saw how prices fell, so we lost on output and on prices at the same time,” he said at a March 2015 conference in Riyadh, about the experience of the 1980s. “We learned from that mistake.”
To contact the reporters on this story: Nayla Razzouk in Dubai at firstname.lastname@example.org, Wael Mahdi in Kuwait at email@example.com, Javier Blas in London at firstname.lastname@example.org. To contact the editors responsible for this story: Nayla Razzouk at email@example.com, Edward Dufner
©2016 Bloomberg L.P.
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