Sunday, May 8, 2016

Last Call For The Saudi Shuffle

Our good friends the Saudis are in the middle of a major government overhaul as the reality of long-term $45 oil settles in, and its effects on the economy in Riyadh.

Saudi Arabia replaced its central bank chief and long-time oil minister as part of sweeping economic changes led by Deputy Crown Prince Mohammed bin Salman to reduce the nation’s reliance on hydrocarbons.

King Salman appointed Ahmed Alkholifey to head the Saudi Arabian Monetary Agency, as the central bank is known, succeeding Fahad Al Mubarak, who had been in the role since 2011. Also out is Oil Minister Ali Al-Naimi, the architect of the 2014 switch in OPEC policy that’s since roiled crude markets, replaced by Saudi Aramco Chairman Khalid Al-Falih.

Saudi Arabia is undergoing its biggest ever economic shakeup, led by the the deputy crown prince and second-in-line to the throne, as it prepares for the post-oil era following the plunge in crude prices that started in 2014. The kingdom’s energy industry, as well as its central bank, will play a “critical role in the economic transformation” plans, said Simon Kitchen, head of macro-strategy at Cairo-based investment bank EFG-Hermes.

“The deputy crown prince has now put his stamp on both institutions,” he said.

Al-Naimi, 80, retired after heading the oil ministry for almost 21 years. His departure is another sign of Prince Mohammed’s growing influence.

At the April 17 meeting in Doha where producers discussed a possible output freeze to curb the global glut, al-Naimi lacked the authority to complete any 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.

As part of Saturday’s royal decrees, the name of the oil ministry becomes the Ministry of Energy, Industry and Mineral Resources, and will undertake tasks and responsibilities related to electricity.

Prince Mohammed’s plans, outlined in the so-called “Vision 2030” blueprint announced on April 25, include setting up the world’s biggest sovereign wealth fund, transforming Aramco into an energy and industrial conglomerate, and generating an additional $100 billion in non-oil revenue by 2020.

Prince Mohammed is the future of Saudi Arabia, or at least the future of the House of Saud. Whether or not diversification away from oil will work is anyone's guess at this point, but it's clear that the man who believes that the country doesn't have a choice is now the man in charge, and King Salman has spent a lot of political capital getting the Deputy Crown Prince into that position.

The more pressing issue is Saudi's central bank, and whether or not it will keep its currency pegged to the US dollar.  Dropping the dollar peg would cause havoc with oil prices and certainly make things more difficult here in the US, just in time for the elections.

In other words, if you think the Saudis might be sore at us for crashing the price of oil, they could cause a lot of damage come this fall.

Just sayin'.

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