September 9, 2019 / 2:07 AM / 13 days ago

Breakingviews - Saudi’s new oil tsar makes a bad reshuffle worse

Saudi Arabia's King Salman bin Abdulaziz attends the 14th Islamic summit of the Organisation of Islamic Cooperation (OIC) in Mecca, Saudi Arabia June 1, 2019. REUTERS/Waleed Ali

LONDON (Reuters Breakingviews) - Saudi Arabia’s choice of oil tsar has made a problematic reshuffle at the world’s largest company worse. When Energy Minister Khalid al-Falih was replaced as chair of the kingdom’s oil juggernaut Aramco last week, the upside for potential investors in its $100 billion sale of stock from separating the corporation and its state patron was offset by the choice of successor. Removing Falih from his other job repeats the trick - and then some.

Falih’s dual defenestration means Crown Prince Mohammed bin Salman, or MbS, is doubly upending precedent. Aramco’s chairman and the energy minister have traditionally been the same person, but the oil group is now to be headed by Yasir al-Rumayyan, head of Saudi’s $300 billion sovereign wealth fund and seen as close to the young monarch. Similarly, the all-important oil minister has never come from the ruling House of Saud, but will now be Prince Abdulaziz bin Salman, MbS’s half-brother.

As an autocrat, the king and his son can do whatever they like. Falih probably had too many jobs – as well as chairing the energy group and acting as the country’s international oil point man, he also headed reforms to the kingdom’s industrial policy. His success in securing output cuts from non-OPEC members like Russia has been undermined by booming U.S. shale output and slowing global demand. So crude prices are far below what’s needed for Aramco to hit MbS’s desired $2 trillion valuation. In pure corporate governance terms, there’s logic to splitting Aramco from the ministry, and to part company with Falih, an Aramco lifer who personifies that link.

Yet the right restructuring can still have the wrong personnel. While Abdulaziz has served as deputy oil minister and has the necessary experience, he’s more of an MbS man than Falih. That echoes the sense that Rumayyan, while one of the more familiar Saudi faces to global finance, is a less independent Aramco chair. Following the murder of Jamal Khashoggi by Saudi agents last October, international investors can be forgiven for seeing greater centralisation as a negative.

Even split in two, Falih’s job is difficult. Aramco’s listing still needs to overcome disbelief over its valuation and suspicions about its governance. Ginning up the oil price implies fresh cuts that could annoy Saudi’s fellow-producer peers. The new structure just aggravates foreign investors’ misgivings.

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