The huge reshuffle at the top of Saudi Arabian politics isn’t going to have any marked impact on the way that things are done in the country, according to a note sent by HSBC to clients on Monday.
The most high-profile and newsworthy of the changes was the ousting of Ali al-Naimi, the oil minister who served for 20 years in his position. Al-Naimi was replaced Khalid al-Fatih, the chairman of the soon to be floated state-owned oil firm Aramco. Along with that high profile change, Salman switched up the country’s water, energy, health, and transport ministers, as well as many others.
However, the changes — which are ostensibly being put in place to help with Saudi’s implementation of its new Vision 2030 strategy of reducing reliance on oil — won’t make a big material difference to the country, particularly when it comes to its position on oil supply and foreign exchange, HSBC says. Here’s the kicker, from economists Simon Williams, and Razan Nasser.
We do not expect the changes at the oil ministry or Saudi Arabia Monetary Agency (SAMA) to herald any shift in the Kingdom’s long standing FX regime or its stance on oil supply. As was evident in the recent Doha meetings, Saudi Arabia’s stance on only accepting a collective oil production freeze went beyond Al-Naimi. The new SAMA governor also comes from within the establishment, and seems unlikely to make changes to the 30-year old currency regime. Significantly, the Vision 2030 reform agenda and statements by its champion Deputy Crown Prince Mohamed bin Salman have not included any discussion of monetary reform and we continue to expect the peg to remain in place.
As HSBC notes, Saudi Arabia’s stance on freezing the production of oil is firm. It will not do so without the inclusion of Iran in any freeze, and even then it would likely be reticent to take part in a freeze when OPEC holds its next discussions in June. That stance won’t change just because of one minister, especially since King Salman wields a strong direct influence over Al-Fatih.
Foreign exchange has been an area of some concern for Saudi in recent months as the crash in the price of oil forced the country to expend its FX reserves to levels not seen in over three years, and draining the country’s economy.
However, HSBC notes that not only will new ministers not change Saudi’s stance on oil, they will also leave policy around Saudi Arabia’s currency, the riyal, largely unchanged. That will include leaving it pegged against the US dollar for the foreseeable future. Here’s HSBC’s chart on the state of the Riyal: