IEEJ：May 2016○ｃ IEEJ 2016

Special Bulletin

A Japanese Perspective on the International Energy Landscape (271)

May 12, 2016

Saudi Arabia Replaces Naimi with Falih as Oil Minister
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, JapanOn May 7, Saudi Arabia announced a large-scale cabinet reshuffle as ordered by Saudi
Arabian King Salman bin Abdulaziz Al-Saud. The most attention-attracting change in the reshuffle
was the replacement of the oil minister. The Saudi government dismissed Ali al-Naimi who served as
minister of petroleum and mineral resources for more than 20 years and was one of the most famed
ministers in the international oil market.
Naimi, born in 1935, is more than 80 years old. After being named Saudi oil minister in
1995, he remained active as the lynchpin of Saudi oil policy management and one of the most
famous persons in the international oil market. Naimi joined Aramco, the predecessor of Saudi
Aramco, in 1947 and built his career at the company before becoming its chief executive officer in
1983. After replacing Hisham Nasser as Saudi oil minister in 1995, he remained the oil policy front
man of Saudi Arabia, the world’s largest oil-exporting country leading the Organization of thePetroleum Exporting Countries, for more than 20 years.
Major international oil market changes during his term as oil minister include crude oilprices’ plunge triggered by the Asian currency crisis in the late 1990s, the 2003 Iraq war, oil prices’
upsurge from 2004, oil prices’ rise above $140 per barrel in 2008, oil prices’ plunge below $40/bbl
after the Lehman Shock, the Middle East’s destabilization amid the Arab Spring democratic
movement, oil prices’ stay above $100/bbl between 2011 and the first half of 2014, U.S. shale oil
production expansion responding to oil prices’ stay above $100/bbl, the oil supply-demand balance’s
subsequent easing, and oil prices’ plunge and stay at low levels under the Saudi Arabia-led market
share strategy. Naimi addressed these changes as Saudi oil minister and faced the market. As his
response and approach to and communications with the market grew more skillful, his remarks
attracted growing attention from international oil market participants. Naimi was once considered tobe the Alan Greenspan (former chairman of the U.S. Federal Reserve Board) of the international oilmarket.
Over the past several years, however, there was speculation that Naimi was willing toleave the oil minister post. Many international oil market players expected an oil minister
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replacement in the near future. In this sense, the actual replacement was not necessarily any surprise.
However, the announcement of the replacement came suddenly, creating headlines for major media
organizations throughout the world. Meanwhile, the replacement was announced as one of many
replacements in the large-scale cabinet reshuffle. My personal sentiment is that some splendor
should have accompanied the departure of Naimi who remained at the center of talks on global oil
market and price problems.
As far as the oil price problem is the central topic in the world economy and international
politics, as a matter of course, the implications of Saudi Arabia’s oil minister replacement are moreimportant. New oil minister Khalid al-Falih immediately stated that Saudi Arabia’s stable oil policy
would be maintained. Given this, Saudi Arabia is expected to make no major revision to its oil policy
in immediate future. This means that Saudi Arabia will maintain the strategy of putting priority on its
market share in response to market conditions, instead of cutting production to raise oil prices. LikeNaimi, Falih is a well-experienced oil market veteran who has served at Saudi Aramco as CEO andchairman. His skill and performance have been rated high. In this sense, Saudi Arabia’s oil policy
will maintain its continuity in certain degree before and after the oil minister replacement.
However, experts say that Saudi Arabia’s recent oil policy has reflected top government
leaders’ intentions more clearly, directly and deeply than ever. Among Saudi Arabian government
leaders attracting global attention is Deputy Crown Prince Mohammad bin Salman Al Saud. Someoil market sources say that Mohammad’s stance of conditioning Iran’s participation on an agreement
on a freeze on oil output expansion had great influence on a meeting of major oil producing
countries in Doha on April 17. The recent large-scale cabinet reshuffle is seen as one of the strategic
moves to realize the deputy crown prince’s Vision 2030 initiative to reduce Saudi Arabia’sdependence on oil and diversify its economic structure. Incidentally, Saudi Arabia took theopportunity of the cabinet reshuffle to rename the Ministry of Petroleum and Mineral Resources as
the Ministry of Energy, Industry and Mineral Resources to take charge of energy, electricity andindustry as well as oil. Falih heads the reorganized ministry.
Given that oil minister Falih reportedly has close relations with Deputy Crown PrinceMohammad, we may have to closely watch what policies or strategies the new power structure foroil policy would adopt. In this respect, some experts say that future policies and strategies may be
influenced not only by the viewpoint of oil and energy markets but also by the greater viewpoints ofgeopolitics and international relations. Attracting attention particularly will be how oil and energy
policies will be coordinated with Saudi Arabia’s relations with and policy on Iran.
New Saudi oil minister Falih will make his OPEC debut at the oil cartel’s general meetingin Vienna on June 2. Attracting global attention will be what policy stance Saudi Arabia would takein response to the changing international oil situation including the global demand trend, productionof the United States and other non-OPEC oil producers, Iran’s comeback to the market and supply
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interruptions in oil producing countries.

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