Late King Abdullah bin Abdulaziz, the sixth king of Saudi Arabia, had a profound impact on the Saudi economy and oil policy. His reforms earned Saudi Arabia a seat in the Group of Twenty, the only Arab state in the G-20.
The de facto ruler of Saudi Arabia since 1995, King Abdullah’s protege is Ali Al Naimi, the Saudi Oil Minister (in office since 1995), who has implemented the kingdom’s strategy to expand Saudi Aramco’s downstream market share in China, India, South Korea, Taiwan and Singapore. Saudi Arabia’s Deputy Oil Minister is Prince Abdulaziz bin Salman, the son of the new king, the Custodian of the Two Holy Mosques King Salman bin Abdulaziz of Saudi Arabia. Prince Abdulaziz could well become the first prince of the House of Saud to become Minister of Petroleum and Natural Resources when Al Naimi, 79, announces his retirement.
Saudi Arabia, as the world’s largest exporter of oil and the largest economy in the Arab world, has systemic importance to the world economy and the international financial markets. The royal family’s smooth succession of power to new King Salman and Crown Prince Moqren, both half-brothers of the late King Abdullah, meant that Brent crude rose only 80 cents to $49. The oil market is not unnerved because the new Saudi Arabian king has pledged to continue to his predecessor’s economic and foreign policies. Saudi Arabia will continue its moderate, stabilising impact on world energy markets.
King Abdullah started a $138 billion social welfare programme and financed tens of thousands of scholarships for Saudi students to study abroad at state expense. King Abdullah was also responsible for promoting a new generation of Saudi technocrats to positions of executive influence in key state economic institutions such as Saudi Aramco, Sama, Petromin, Sabic, Sagia, banks, finance and commerce ministries. He also led Saudi Arabia into the World Trade Organisation.
Saudi Arabia’s economic growth rate and industrial diversification improved due to King Abdullah’s reforms and the kingdom has accumulated $780 billion in foreign assets while the public debt/GDP is only three per cent. Saudi Arabia is thus able to survive a protracted period of low oil prices, unlike high-cost producers with leveraged sovereign balance sheets such as Venezuela, Russia, Iran, Algeria and Nigeria.
Saudi Arabia also diversified its oil export markets in the Far East after a succession of state visits by King Abdullah and Crown Prince Salman to Beijing, New Delhi, etc.
Saudi Arabia’s six economic cities, a $12 billion science and technology university in the kingdom, a solar energy initiative, construction of 500,000 units of low-income housing and salary hikes for lower level government employees are all legacies of the late Saudi king. King Abdullah also awarded oil and gas exploration concessions to Russian, Indian, French and Chinese energy companies.
Saudi Arabia pledged at least $12 billion of a $20 billion GCC aid package for Egypt. Saudi Arabia is a lead member of the anti-ISIS coalition led by the United States.
King Abdullah’s lifetime coincided with the transformation of Saudi Arabia from a collection of tribes and regional fiefdoms into the biggest economy of the Arab world, financed by one-fifth of the planet’s proven crude oil reserves.
King Salman bin Abdulaziz has pledged to continue Saudi Arabia’s oil production and pricing policies. He has also confirmed Oil Minister Al Naimi in his post. These decisions caused Brent crude to slip in London after it rose 2.6 per cent on King Abdullah’s death.
The kingdom wants to avoid any uncertainty in its oil policy. So, Saudi production will continue near 10MBD and Saudi Aramco will discount prices to boost its downstream market share in Europe and Asia.
Saudi Arabia’s new king, like his predecessor, will do his best to boost jobs and government spending in social welfare, infrastructure projects, even though the 2015 budget projects a $38 billion deficit. However, the Saudi economy faces its biggest financial crisis since 2008 since oil prices are 90 per cent of the kingdom’s budget. The official Saudi unemployment rate is 11.8 per cent.
Saudi Arabia needs to upgrade its education and healthcare infrastructure and its financial commitment to strategic allies: Egypt, Jordan, Bahrain and Pakistan. Saudi Arabia must also cap the 2MBD in crude used for domestic electricity and air-conditioning. It is entirely possible that King Salman and Crown Prince Moqren will accelerate Saudi Arabia’s economic reforms, upgrade its commercial legal code and open up its capital markets.
By: Sarie Khaled
The writer is a Dubai-based research analyst in energy and GCC economics.
