Oil markets have all but shrugged off news of Saudi King Abdullah bin Abdul-Aziz’s week-long hospitalization for complications from pneumonia and the question it again raises of Saudi royal succession. But Saudi oil policy was still fresh on everyone’s agenda amid renewed signs that Saudi Arabia is committed to holding firm to current levels of its own production as it engages in a battle for market share.
Prices early this week fell below $50 a barrel—roughly halved since the summer of 2014—in part on the Kingdom’s decision to further trim its official selling price for Arab Light for February delivery to the United States by 60 cents a barrel, a deliberate move to secure market share in its once top priority market against rising pipeline shipments to the U.S. Gulf coast from Canada. The markets also took note of a televised speech to the Saudi Shura Council on January 6th delivered by Crown Prince Salman bin Abdul-Aziz in King Abdullah’s name in which the Crown Prince emphasized that the Kingdom will deal with the steep drop in oil prices with a “solid will” while attributing the price collapse to “slow growth in the global economy” without referring to oversupply issues.
In addition to the pressing health issues of the Saudi monarch, news of a suicide and gun attack on a Saudi border patrol on January 5th by four armed men from Iraq that resulted in seven dead raises more security concerns for the Kingdom as it faces increasing threats from the Islamic State and al-Qaeda as well as ongoing disturbances from within its own Shi’ite community. It was just two months ago that militants linked to Islamic State carried out an attack at a Shi’ite mosque in the al-Ahsa region of the Eastern Province, killing seven people. It is still unclear who carried out Monday’s border attack, with some reports suggesting that Islamic State is taking credit for the move while the Saudi Interior Ministry says it cannot tell who committed the attack until it has identified the remains and that could take some time.
It was 19 years ago in December that then Crown Prince Abdullah became regent of Saudi Arabia, effectively taking over the day-to-day running of the Kingdom following the stroke of his half-brother King Fahd bin Abdul-Aziz, and it will be ten years ago this coming August when Crown Prince Abdullah assumed the throne upon King Fahd’s death.
News of the 91-year-old King Abdullah’s hospitalization on December 31st caused Saudi stocks to slightly dip while the oil markets seemed almost indifferent to the news. The royal court revealed on January 2nd that the Saudi monarch was suffering from pneumonia, requiring temporary aid from a breathing tube, having been moved from the King Abdulaziz Medical City Hospital in Riyadh to a military hospital. Since then, there have been almost regular updates from the royal court about the King’s health in what appears calculated to reassure both the domestic population as well the international community.
It is clear that King Abdullah is in frail health, but there is also very little doubt that the succession will play out as planned, with 79-year-old Crown Prince Salman slated to assume the throne upon the King’s death. The Crown Prince has been ably filling in for the ailing monarch, despite his own health concerns, notably attending the early December heads of state GCC gathering in Doha, chairing cabinet meetings and as mentioned above, giving a televised speech in King Abdullah’s name to the Shura Council on January 6th.
In March of last year, King Abdullah named his half-brother Prince Muqrin bin Abdul-Aziz as second deputy prime minister and second crown prince. In an indication of just how difficult it is to establish the order of succession in the Saudi royal family, the position of second deputy prime minister—long the signal of the next in line behind the crown prince—had remained empty since October 2011, when Prince Nayef bin Abdul-Aziz was named Crown Prince, a period of more than two years.
At 69, Prince Muqrin is the youngest surviving son of founder Ibn Saud, and is said to be a close advisor to King Abdullah. A former officer in the Saudi air force, he was educated in the United States and United Kingdom. His appointments as second deputy prime minister and second crown prince came within hours of a visit to the Kingdom by President Barak Obama, making some surmise that the move was calibrated to reassure Washington about the Saudi line of succession before Obama’s trip.
While the appointments of Prince Muqrin to those two posts might not have gone down well with some within the royal family, it would suggest that the conservative old guard had won out and that the status quo of the sons of Ibn Saud sitting on the Saudi throne had been maintained, putting off the question of when a grandson of Ibn Saud will one day come to power. It appears that Crown Prince Salman was on board with Prince Muqrin’s promotions and the two are believed to enjoy a good working relationship.
Named head of the National Guard in 1962 and named Crown Prince in 1982, Abdullah came politically from outside the powerful “Sudairi seven” circle inside of the Saudi leadership (the seven sons of ibn Saud from Hussa Bint Ahmad Al-Sudairi, which included King Fahd and Princes Nayef and Sultan–who both served as Crown Prince and died within eight months of each other–and current Crown Prince Salman). With Crown Prince Salman eventually becoming King, a Sudairi son would again be on the throne and this could signal a shift back to policies more aligned to the United States, as was seen under the reign of the last Sudairi circle monarch, King Fahd. King Fahd was serving as King during previous periods when Saudi Arabia implemented oil market share oriented policies in 1985 and 1998.
When the current King was named Crown Prince in 1982, some Western commentators and Royal watchers raised concerns about Abdullah’s perceived reputation as a xenophobe who had a particular dislike of Americans and was open to more balanced ties with Russia. However, this proved to be an inaccurate assessment; rather the King proved to be willing to embrace a more regional focus and to remedy what he perceived as an unbalanced relationship between Riyadh and Washington. Indeed, since assuming more authority in the Saudi leadership in 1995 and then becoming King in his own right, King Abdullah demonstrated his willingness to undertake independent foreign policy stances and not always remain in lockstep with the United States on foreign policy and oil policy.
Beginning in 2003, it was with King Abdullah’s guidance that Saudi Aramco began shifting its market focus to Asia away from the United States, deciding it was more beneficial economically to concede its position as top oil supplier to the United States and instead be in the “top few” suppliers. At the same time, Riyadh also sent the political message that the Saudis were not going to acquiesce when Washington wanted support on foreign policy initiatives which deviated from the Kingdom’s national interests.
Relations between the United States and Saudi Arabia in recent years have seen the two allies take widely different stances on Iraq, Syria and Egypt. But the two countries have come together when it has been politically expedient for both of them, such as the Kingdom playing an active role in the airstrikes led by the United States on the Islamic State in northern Syria.
Over the past two decades, first as Crown Prince and then as King, Abdullah has been fully engaged in oil policy changes and has strongly backed Saudi Oil Minister Ali Naimi, who has served in his position since August 1995, and is now one of the senior members of the Saudi cabinet. As I referred to in my December 28th blog post on the 2015 Saudi budget, the Saudis were willing to sacrifice much financially in the late 1990s to engage in a price war to protect market share.
It is important to note that during the height of the current price war being marshalled by the Kingdom, on December 8th the Saudi monarch maintained Minister Naimi in his post at the oil ministry while making dramatic shifts in his cabinet that saw changes to eight ministries, sending a clear message that King Abdullah supports the current Saudi oil policy and its ramifications at home and in the markets. Crown Prince Salman’s recent reading publicly a message on oil from the King would seem to imply that he too supports the current policy.
As succession issues have loomed large on the minds of those tracking the Kingdom in the past week, it’s hard not to give thought to the next generation of princes—the grandsons of Ibn Saud—who are being positioned in the line of succession. Within recent years, King Abdullah has made several strategic choices in appointing younger generation princes to ministerial positions. Notably, in November 2012, the Saudi monarch named Prince Mohammed Bin Nayef, the son of the late Crown Prince Nayef, as his Interior Minister, and in May 2013, King Abdullah created a cabinet position for the National Guard and appointed his own son, Prince Miteb Bin Abdullah, as its minister.
It bears mention that both of these younger generation princes have made official trips to Washington in the past several months, with Prince Miteb meeting with President Obama and Defense Secretary Chuck Hagel and visiting the U.S. National Guard Command in mid-November, and Prince Mohammed making a week-long visit in mid-December, meeting with President Obama, Vice President Joe Biden, Secretary of State John Kerry, and other senior officials in the Obama Administration.