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Falih moved aside as Aramco IPO looms

Saudi oil giant's chairman exits as preparations for a partial sell-off limber up

Saudi energy minister Khalid al-Falih was once the man King Salman and Crown Prince Mohammed bin Salman (MbS) turned to when something needed fixing. While serving as Aramco CEO, he was appointed health minister to sort out a crisis in that department. He then became not only chairman of Aramco but also a minister with responsibility for energy as well as for industry and mining.

Now, in the space of a couple of days, Falih's role has diminished significantly. He is no longer the Aramco chairman; and the industry and mining responsibilities have been taken away from his ministry.

The new Aramco chairman is a former banker, Yasir al-Rumayyan. His appointment marks a new departure: it is the first time that a man with no oil experience has headed the Aramco board.

Rumayyan, a close aide of the crown prince, is also head of the Saudi Public Investment Fund (PIF), the body that is tasked with investing state money abroad as part of the aim to reduce the kingdom's dependence on oil revenue. This is the central plank in MbS' Vision 2030.

A key part of the strategy to raise money for investment is the planned initial public offering (IPO) of Saudi Aramco, discussed since 2016, but with details and timing of its implementation unclear. The latest jobs shuffle, an economics adviser to the Saudi government tells Petroleum Economist, "mean that they are going to have a real run at the IPO". "Since the money goes to the PIF, Rumayyan is the person to make sure interests are aligned. Obviously, he [the crown prince] did not feel Falih was so committed, and he was right," says the adviser.

In the past, Falih has privately questioned the wisdom of selling off part of the state energy company.

Jasta concerns

Details of when and where the IPO will take place remain elusive. In the past there has been a suggestion of a partial listing in the kingdom and then a broader one on a foreign exchange. MBS' preferred location is known to be New York. But lawyers have advised the Saudi authorities that there might be a risk of litigation under the US Justice Against the Sponsors of Terrorism Act (Jasta).

"Obviously, he [the crown prince] did not feel Falih was so committed"

Nevertheless, the adviser does not rule out the possibility that the crown prince will insist on New York for the listing. "Jasta and sovereign immunity vulnerability means they cannot list in the US without buying off the litigants, but maybe they will bite the bullet in that," he says.

Another possible reason for a further IPO delay is the current comparatively low global oil price. One of Falih's tasks has been to direct Opec+ efforts to ensure that a coordinated strategy of lowering production would boost prices. But the cuts have not achieved their goal.

For now at least, Falih remains energy minister and will have to decide whether or not the kingdom can risk losing market share by lowering output further. He will also urge his Russian counterpart, Alexander Novak, with whom he has a close relationship, not to abandon the current strategy.

But the Saudi crown prince wants to see a higher oil price, and he is a man who demands results from his appointees, no matter how great the challenges. He has shown how easily he can strip Falih of his Aramco chairmanship and some of his ministerial authority. Those who serve in high offices in Saudi Arabia these days know that their performance is under close scrutiny from the man who holds all the economic and political strings in the kingdom.

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