London/Kuwait/Dubai — Saudi Arabia’s new Crown Prince, Mohammed bin Salman, will need higher crude prices to push ahead with his plans to reform the kingdom’s economy, making an about-face in oil policy unlikely in the short term.
Saudi Arabia’s King Salman made his son next in line to the throne on Wednesday, handing the 31-year-old sweeping powers as the kingdom seeks a radical overhaul of its oil-dependent economy.
Yet, oil markets will be braced for an even more assertive Saudi Arabia in foreign policy. MbS, as the prince is known, has already supported the kingdom’s involvement in a war in Yemen, broken diplomatic ties with fellow oil cartel Opec member Qatar, and confronted Iran for its alleged support of terrorism.
"Even if there is a more aggressive foreign policy, we don’t see any changes to oil policy yet," said Amrita Sen, chief oil analyst at consultant Energy Aspects in London.
After his promotion, the crown prince faces an oversupplied energy market, insufficient oil revenue to cover state spending and the challenge of seeing Saudi Aramco, the kingdom’s corporate crown jewel, through an initial public offering scheduled for next year. Saudi Arabia, the biggest producer in Opec, led the group’s decision in May to extend output cuts through March 2018 to counter a crude glut and shore up prices.
So far, it hasn’t worked. Oil dropped into a bear market on Tuesday as rising global supply undermined Opec’s effort to rein in production.
Saudi Arabia earned $134.4bn last year exporting its crude and oil refined products, down more than 60% from a peak of $337.5bn in 2012, according to Opec data.
As oil revenues plunged, the kingdom tapped its petro-dollar reserves heavily, which dropped earlier this year below $500bn for the first time in five years. Saudi Arabia’s net foreign exchange reserves peaked at nearly $750bn in 2014 before oil prices crashed.
Bloomberg, with Reuters