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.
Yet, oil markets will be braced for an even more assertive Saudi Arabia in foreign policy. MbS, as the 31-year-old prince is known, has already supported the kingdom’s involvement in a war in Yemen, broken diplomatic ties with fellow 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 Ltd. 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 the Organization of Petroleum Exporting Countries, 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 $134.4 billion last year exporting its crude and oil refined products, down more than 60 percent from a peak of $337.5 billion in 2012, according to OPEC data.
As oil revenues plunged, the kingdom tapped heavily its petro-dollar reserves, which dropped earlier this year below $500 billion for the first time in five years. Saudi Arabia’s net foreign exchange reserves peaked at nearly $750 billion in 2014 before oil prices crashed.