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Fri 1 May 2015 11:17 AM

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Saudi Arabia to restructure Aramco, separates it from oil ministry

Sources say Supreme Economic Council has approved restructure of state-owned oil giant

Saudi Arabia to restructure Aramco, separates it from oil ministry
KSA energy

Saudi Arabia has approved a restructuring of Saudi Aramco that includes separating it from the oil ministry, a Saudi-owned TV station reported, in a decision analysts said aims to make the state oil giant more transparent and keep it away from political sway.

There were no indications that the restructuring, which Al Arabiya reported on Friday citing sources, will lead to fundamental changes in how the world's top crude exporter decides its energy policy.

Aramco officials could not be immediately reached for comment but Arabiya's reports closely reflect official thinking.

On Wednesday King Salman appointed Saudi Aramco's chief executive Khalid al-Falih as chairman of the state firm. Falih also becomes health minister under a major reshuffle in the leading OPEC state.

Separating Aramco from the oil ministry is likely to be only the first step in a shake-up of the Saudi oil sector, analysts said.

"This decision will bring more flexibility to the company to take decisions on a commercial basis, and keep full financial control," said Mohammad Al Sabban, a former senior adviser to Saudi Oil Minister Ali al-Naimi.

Others see the move as possibly paving the way for a member of the royal family to be appointed as the next oil minister to replace 79-year-old Naimi, while leaving Aramco to be run by technocrats.

Ehsan Ul-Haq, oil analyst at KBC Energy Economics, said it was highly likely that deputy oil minister Prince Abdulaziz bin Salman, a son of the King, could be appointed oil minister.

"(Falih's) shift to the health ministry suggests that he might not follow Naimi. His appointment to the chairman of Aramco, on the other hand, is only ceremonial," he said.

Aramco also posted a statement saying it now has a new 10-member supreme council headed by the kingdom's deputy crown prince.

"The Saudi Supreme Economic Council agrees on Deputy Crown Prince Mohammed bin Salman's vision of restructuring oil-giant Aramco," Arabiya reported on its Twitter account.

"Restructuring of Saudi Aramco includes separation from the petroleum ministry," the channel said.

The Supreme Economic Council is a new body formed by King Salman earlier this year to replace the Supreme Petroleum Council, which used to help set the kingdom's oil policy.

The new council is headed by another son of the king, Deputy Crown Prince Mohammed, a move seen by analysts as laying the ground for a generational shift in how Riyadh develops its energy and economic strategies.

The main tenets of Saudi oil policy - including maintaining the ability to stabilise markets via an expensive spare-capacity cushion and a reluctance to interfere in the market for political reasons - are set by the top members of the ruling Al Saud family.

Conventional thinking is that the ruling Al Saud family views the oil minister's job as so important that giving it to a prince might upset the dynasty's delicate balance of power and risk making oil policy hostage to princely politicking.

Earlier this year, King Salman promoted Prince Abdulaziz, long a member of Saudi Arabia's OPEC delegation, to the role of deputy oil minister from assistant oil minister, a post he had held for many years.

Since Abdulaziz's promotion, some diplomatic and Saudi sources have suggested the prince's experience in the sector might overcome what has always been seen as the impossibility of appointing a royal to the post of oil minister.

The restructuring of Aramco has also stacked the odds in Abdulaziz's favour as a possible successor for Naimi, some Saudi sources say.

"They are trying to rearrange Aramco and restructure the whole company. They are also trying to restructure the oil ministry and name Prince Abdulaziz as minister of energy," said an industry source in Saudi Arabia. "So that way, Aramco will be totally business oriented not an arm of the petroleum ministry."

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Antonio Martinez Niembro 5 years ago

In my opinion it is a good thing to separate Aramco business from the ministry, the first is technological and strategies oriented, the second should be political decisions oriented. However, the ministry of oil must be a experienced person coming from the oil and gas industry.

LSJ 5 years ago

This is a very important step toward developing the kingdom economy. One important goal is diversifying the GdP sources plus giving the energy sector the capabilities to face the coming competition. Another expected step is to introduce efficient taxation system, which wilł complete introducing the real power of the market through creating the lines between the sector stakeholders : Policy maker, regulator, and the operator(s). One company system will not be for ever, operators will be granted licenses, and regulators will manage the relation between the government and operators, most important that subsides will be cancel because new operators will enter for profits, all this will control the local demand and give the correct demand a color. And entering new operators mean new commetiments to open the market, I gusse you may agree we should expect a fruitful conclusion for Doha round ... Finally I can say that this step will be fruitful for the kingdom economy and the world economy.