Saudi Arabia has removed energy minister Khalid al-Falih, one of the most powerful figures in the global oil industry, in a dramatic shake-up at the heart of the kingdom's government.
The move, announced on Sunday, will see King Salman's son, Prince Abdulaziz bin Salman, take over as energy minister, breaking the longtime convention that members of the ruling family are not appointed to that position.
Prince Abdulaziz is a veteran of the energy ministry, which he joined in the 1980s.
But analysts said the reshuffle would send shockwaves through the global energy industry at a time when Saudi Arabia — the de facto leader of Opec — and its oil-producing allies have struggled to raise crude prices.
In Asia trading hours on Monday morning, Brent crude, the international benchmark, gained 1.1 per cent to US$62.20. West Texas Intermediate, the US benchmark, added 1.3 per cent to trade at US$57.20. Risk assets such as oil and equities were also boosted by new stimulus measures in China and expectations of lower interest rates in the US.
Olivier Jakob at Petromatrix, a consultancy, said the move brought "a new level of uncertainty to the market" as it suggested the outcome of the current oil policy had in some way not been "satisfactory" for the royal family.
"Some people will say this is a normal situation, but if you look at where prices are, Saudi Arabia is not satisfied with US$60-a-barrel oil," he said.
The dismissal of Falih — who has been the international face of the kingdom's oil policy since his appointment in 2016 — caps 10 days of changes to senior positions in the kingdom's energy sector.
Last week, Falih was replaced as chair of Saudi Aramco just as efforts are being stepped up to prepare the state oil company for an initial public offering. The government also separated the ministry of industry and mineral resources from the energy portfolio, removing Falih's oversight of industrial policy.
The veteran oil man's dismissal is indicative of Crown Prince Mohammed bin Salman's ruthless style of rule as he spearheads a highly ambitious economic reform programme.
The energy minister's job has long been viewed as one of the most secure government positions in the kingdom and above internal politics, reflecting Saudi Arabia's position as the world's top oil exporter and swing producer. Falih's predecessor, Ali al-Naimi, held the post for 21 years.
But in the three years since Prince Mohammed was appointed crown prince, he has upended convention in the absolute monarchy with his aggressive drive to reshape the conservative nation according to his vision.
Oil veteran in tune with crown prince's reforms
Prince Abdulaziz is the king's fourth son and a half-brother of crown Prince Mohammed. He joined the energy ministry in 1987 as an adviser after a brief period working at King Fahd University of Petroleum and Minerals, where he received a degree in industrial engineering and an MBA.
He was promoted to deputy oil minister in 1995 and later became an assistant minister for petroleum affairs from 2004 to 2015. During that period he led a team responsible for Saudi Arabia's oil strategy as well as long term Opec strategy. He has served as minister of state for energy affairs since 2017.
Increasingly concerned by the kingdom's growing energy consumption, he is credited with pushing the government to adopt a national energy efficiency programme, approved by the cabinet last year.
The prince, who is in his late 50s, has also been closely involved in the planning and execution of Saudi Arabia's cuts to energy subsidies as part of economic reforms.
People close to the government say no senior official is guaranteed job security in the new environment. Prince Mohammed has changed his labour minister three times as unemployment has soared above 12 per cent.
"[Falih] is the victim of underperformance of a portfolio that was too big, and at same time people feel he was getting too cocky and too arrogant," said a person close to the government.
"His ministry was into everything and many people were unhappy with the lack of progress on the industry front, which a lot of people in the private sector were banking on."
While Prince Mohammed's programme is ultimately designed to wean Saudi Arabia's economy off its addiction to oil, in the short term he needs a higher oil price to finance his plans.
"Falih has paid the price for an oil price that remains stubbornly beneath the US$70-80 range needed in Saudi Arabia — and for the persistent weakness of the kingdom's economy," said Derek Brower, a director at RS Energy Group.
Other analysts believed Falih's removal was more likely to be related to his perceived lack of enthusiasm for the delayed public offering of Saudi Aramco, the centrepiece of Prince Mohammed's transformation plan and expected to be the biggest in history.
"My hunch is [the reshuffle] has more to do with Falih not driving the IPO forward aggressively enough because so much of Vision 2030 depends on that," said Charles Hollis, managing director of Falanx Assynt, an emerging markets consultancy.
Prince Mohammed has injected new impetus into the sale in recent months. Riyadh has targeted a valuation of US$2 trillion, but analysts and bankers have warned that this might be optimistic.
The Saudi economy has struggled with subdued growth since the slump in oil prices in 2015. The government has also been grappling with a widening budget deficit, which the IMF projects will rise to 6.5 per cent of GDP this year.
Saudi Arabia has cut its oil production to fewer than 10 million barrels per day as part of an agreement between Opec and its allies in a bid to bolster prices. Oil has remained stubbornly around US$60 a barrel.
Brower said the oil market would be nervous as big Saudi policy shifts often followed the sacking of an energy minister.
"To prevent a sell off, the kingdom will need to be clear that it is sticking with its Opec cuts," he said.
Jason Bordoff, a former Obama administration energy adviser, said that while Falih was "very highly regarded" by the oil industry, Prince Abdulaziz also has strong global relationships.
"The market will probably see this as a sign of even stronger commitment to supporting prices and to the [Aramco] IPO," he said.
Falih was replaced as chair of Saudi Aramco by Yassir al-Rumayyan, a close confidant of Prince Mohammed, who heads the Public Investment Fund, the kingdom's powerful sovereign wealth fund.
Rumayyan's rise and Falih's removal are further signs that Prince Mohammed is relying more heavily on a new generation of advisers. A banker close to Saudi Aramco said that under Rumayyan, the oil company was focused on driving through the IPO this year.
"Falih was making sure everything was done carefully, and for the good of the company," the banker said.
"A man of [Falih's] stature would have found it difficult to refrain from challenging too much."
- Additional reporting by Daniel Shane.
Written by: Ahmed Al Omran, David Sheppard and Andrew England
© Financial Times