Phil Flynn is writer of The Energy Report, a daily market commentary discussing oil, the Middle East, American government, economics, and their effects on the world's energies markets, as well as other commodity markets. Contact Mr. Flynn at (888) 264-5665
[William Watts, MarketWatch]
The rise of Mohammed bin Salman continues.
The 31-year-old son of Saudi Arabia’s King Salman was designated Wednesday as crown prince, making him next in line to the throne, in a shake-up that was surprising at least in terms of its timing. He replaces Prince Mohammed bin Nayef, who was stripped of all posts, including interior minister.
Prince Mohammed’s rise has captivated investors and oil traders. He has moved to consolidate power rapidly since King Salman took the throne in 2015. Here’s what investors need to know about him.
The prince has accumulated substantial influence in a short period. In 2015, he was effectively put in charge of the kingdom’s economy and defense policy. Moreover, he could become one of the youngest kings in recent Saudi history.
Incentive for higher oil prices
Oil futures LCOQ7, -2.41% CLQ7, -1.98% showed little outright reaction to the announcement. That’s largely because Prince Mohammed had already consolidated his influence over the country’s oil policy. He is seen as spearheading the planned 2018 initial public offering of the world’s largest oil-and-gas company.
The prince has sent shock waves through the market before. In April 2016, he abruptly pulled out of an accord to cut oil output, angering allies and foes alike, noted Phil Flynn, senior market analyst at Price Futures Group. Saudi Arabia eventually did agree to a deal that saw the Organization of the Petroleum Exporting Countries and several major non-OPEC producers agree to production curbs, which were recently extended.
Meanwhile, the impending Aramco IPO in 2018 is seen as providing incentive to Saudi Arabia to take whatever action is necessary to support higher oil prices
The prince’s promotion won’t do much to soothe tensions in the Middle East.
Already serving as defense minister, Salman has spearheaded the country’s military campaign in Yemen, which is aimed at fighting Iran-backed Houthi rebels and restoring the country’s deposed president.
“Salman is also expected to keep a hard line foreign policy, with military intervention in Yemen, tough policy against Qatar, and a confrontational policy towards Iran,” wrote Robert Yawger, energy futures strategist at Mizuho Americas, in a note.
The prince’s biggest ambitions lay on the home front, where he has previously laid out a program known as Vision 2030 that aims to wean the country’s economy off its dependence on oil revenues. The Saudi Aramco IPO is a crucial part of the effort, with proceeds expected to be used to invest in other industries.
Such efforts are crucial in light of a young and rapidly growing population that requires a quick pickup in private-sector job creation, economists say.
Reforms aimed at improving the regulatory environment are important, but even more crucial “will be realigning the expectations of new generations of Saudi workers to wages more competitive against expatriate labor at home, as well as workers in Asian and European emerging markets also keen to move up the global value chain,” said Tom Rogers, economist at Oxford Economics, in a note.
His designation as crown prince could help ensure that his efforts aren’t watered down. So far, investors seem to approve, with Saudi stocks rising 3% in the wake of the announcement.
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