IEEJ: November 2011 All Rights Reserved
Special Bulletin

A Japanese Perspective on the International Energy Landscape (64)November 1, 2011

Saudi Crown Prince Appointment and Future Course of Saudi Arabia
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, JapanOn October 27, Saudi King Abdullah named Prince Nayef bin Abdul Aziz, second deputy
prime minister and interior minister, as the new crown prince after the announcement on October 22that Crown Prince and Defense Minister Sultan bin Abdul Aziz had passed away. The appointmentof the heir-apparent to the kingdom’s throne, subject to global attention, met dominant forecasts,
coming as no surprise.

Boasting of the world’s largest proven oil deposits, crude oil production capacity andsurplus capacity, Saudi Arabia is the most important oil-producing country, holding the key tointernational oil market stability. As a matter of course, Saudi Arabia’s domestic stability is a key
point in analyzing the international energy situation. In this sense, the crown prince appointment andthe throne succession problem in Saudi Arabia have attracted attention from energy experts
throughout the world.

Behind the global attention paid to the crown prince appointment have been various
domestic problems regarding the throne succession. First, major figures involved in the throne
succession, including King Abdullah, new Crown Prince Nayef and the late Crown Prince Sultan,
are all elderly and plagued with health problems. Crown Prince Sultan eventually passed away
before King Abdullah. The aging leadership has been a matter of concern regarding Saudi Arabia’s
future stability.

The second problem is related to the first one. The Saudi “watchers” are interested in thepossibility that the throne succession could shift from the Saudi dynasty’s aging second generation,including the incumbent king, crown prince and other children of first King Abdul Aziz Ibn Saud, tothe third generation comprising grandchildren of the first king. The problem is whether the shift tothe third generation from the second one including many royal family members could be carried out
smoothly. The third problem involves the new crown prince’s and his successor’s basic ideas about
governance and policies and the direction of their government management.

All of these problems are related to complicated domestic conditions. Experts in the world1

IEEJ: November 2011 All Rights Reserved
have various views about these problems. While refraining from looking into details in this shortreport, I would like to cite a worthwhile view that Saudi royal family members take a common
approach on governance and stability and give top priority to consensus and unity in the face ofvarious problems. In this sense, the base for Saudi Arabia’s governance and stability is steady. While
European and U.S. media have described new Crown Prince Nayef as basically conservative, thefuture direction of Saudi Arabia’s basic policies has become a focus of concern. Many analysts
conclude that given the above analysis and the consensus-oriented decision-making in Saudi Arabia,
there may be no major change in the country’s basic policies.

Anyway, the future course of Saudi Arabia’s stability and basic policies may attract global
attention from the medium to long-term perspective. Various media reports about the new crownprince appointment might have worked to stimulate interest and highlight long-pending problems
and challenges.

As a matter of course, the stability of Saudi Arabia as the most important oil-producing
country in the world is an important factor in anticipating the future international oil market, as
noted above. But we can view the international oil market and Saudi Arabia as influencing eachother. We may have to pay attention to the fact that the stability of the international oil market is a
key contributor to the stability of Saudi Arabia. This means that crude oil prices’ stability at highlevels can work to stabilize the Saudi economy and can be a key factor for Saudi state management.
The stabilization of crude oil prices might have become a very important policy challenge for Saudi
Arabia that has increased domestic spending in response to the recent destabilization of the Middle
East and North Africa political situation.

Crude oil prices have continued wild fluctuations and their future course is uncertain. If theworld economy slows down and plunges into a new recession, crude oil prices may decline sharply.
We cannot deny such possibility. Such development would not be negligible for Saudi Arabia. Insuch event, Saudi Arabia may take leadership in reuniting the Organization of Petroleum ExportingCountries to implement coordinated oil production cuts. This kind of leadership may also be achallenge for Saudi Arabia. Although Saudi Arabia led an OPEC agreement on substantial oil
production cuts in response to crude oil price drops following the Lehman Shock, we must pay
attention to the fact that major OPEC members’ economic and political environments and theirrelations have entered new phases.

Since crude oil prices, as the basic energy price, and Saudi Arabia are expected to influenceeach other, the need for more accurate analyses on their moves, relations and impacts may remainstrong.

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