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Here’s Why Saudi Arabia Just Fired Its Oil Minister

By Andrew Galbreath
Published on: 11:31 PST, May 7, 2016

Saudi Arabia has fired its long-serving oil minister, Ali al-Naimi, after more than 20-years of service, reports said on Saturday.

The departure effectively ends the career of one of the global oil industry’s biggest and most powerful figures, who was seen as being able to control the price of oil almost single-handedly.

The news comes as part of a wider government reshuffle announced in a royal decree by King Salman. Al-Naimi was widely seen as the public face of Saudi oil. He will be succeeded by Khalid al-Falih, former health minister and chairman of state oil company Saudi Arabian Oil Co., better known as Saudi Aramco. The royal decree, announced via state media, also renamed the oil ministry into the Ministry of Energy, Industry and Mineral Resources.

The sudden dismissal is a sign that the Kingdom of Saudi Arabia is serious about implementing reforms to eliminate its dependence on petroleum exports, and is seeking to do damage control from falling oil prices. As the world’s largest crude exporter, it has been suffering economically due to low oil prices resulting from a global production glut. In April, the country unveiled its ambitious program for economic reforms aimed at reducing the kingdom’s dependence on oil revenue, as the Wall Street Journal reported.

“The collapse of oil prices has hit the world’s biggest energy companies hard and has hurt the budgets of oil-dependent countries. In Saudi Arabia, the world’s largest oil exporter, petroleum accounted for almost three-quarters of state revenues last year.”

Al-Naimi was a strong voice against lowering Saudi Arabia’s oil production when prices fell, and was a strong advocate in the Organization of the Petroleum Exporting Countries (OPEC) for other countries to keep pumping oil to freeze output at current levels, despite the glut, chaotic oil markets, and plummeting prices. Oil prices are hovering around $45 a barrel in the worst oil crisis in a generation. Some reports also indicated that the 80-year-old al-Naimi long wanted to retire.

Last month, the powerful deputy Crown Prince Mohammed bin Salman announced the plan to diversify the kingdom’s economy. Under his program, the country will boost non-oil revenues by 600 percent, with the goal of reaching $266 billion by 2030. They will also be selling off as much as 5 percent of Aramco on the stock market, and create a $1.9 trillion public fund to invest in industries at home and abroad. The plan will allegedly enable Saudi Arabia to become one of the 15 biggest economies in the world.

“The whole thing fits into the change taking place in Saudi Arabia,” Carol Nakhle, founder of Crystol Energy in Abu Dhabi, told CNN. “This is part of major reform and a signal the government is serious about moving forward with its agenda.”

Of course, the decree wasn’t just a dismissal of the oil minister and the restructuring of one ministry, but part of a larger reform plan, as the BBC reports.

“The government shake-up, announced in a royal decree, sees a number of ministries merged and others, such as the ministry of electricity and water, scrapped altogether. A public body for entertainment is being created, and another for culture. King Salman’s son Prince Mohammad directs the country’s economic policy, and Mr al-Naimi’s removal is an indication that he wants tighter control over the commodity[.]”

Oil makes up roughly 87 percent of Saudi Arabia’s revenue, and the oil crisis has left the kingdom with a large budget deficit and struggling to balance its books through borrowing and cutting subsidies.

A freeze is still yet to happen, and Prince Salman has repeatedly made it clear that Saudi Arabia will not agree to an oil output freeze unless its regional and geopolitical rival, Iran, also agrees.

[Photo by Salah Malkawi/Getty Images]

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