Share this story
Close X
Switch to Desktop Site

Saudi move could boost oil prices. Ouster of oil minister paves the way for shift in oil policies

Ahmed Zaki Yamani, the personification of Saudi Arabia's controversial oil policy for a quarter of a century, was abruptly ousted so that the oil kingdom can abandon a financially ruinous strategy, leading oil analysts say. Mr. Yamani's departure, these analysts say, could mean more stable prices -- and even an attempt to boost them back toward $20 a barrel. If that were to succeed, it would reverse the downward trend of energy prices and inflation of the past year.

``It's clearly bullish for oil prices,'' says Sanford Margoshes, veteran oil analyst with Shearson Lehman Brothers.

About these ads

Saudi strategy after Yamani is uncertain, but a less confrontational attitude in the Organization of Petroleum Exporting Countries (OPEC) is likely. Crude oil futures prices rose sharply yesterday, apparently due to a belief among buyers and traders that higher prices could be on the way. But there is still an oil glut in the world, which could again push prices down.

Saudi Arabia's ``market share'' strategy'' drove oil prices from $28 a barrel last year to the mid-teens today, notes G. Henry M. Schuler of the Georgetown University Center for Strategic and International Studies. This strategy was meant to give the Saudis more control of the oil market by flooding it and slashing prices.

But it caused tremendous strains within OPEC and depleted the Saudi treasury along with the coffers of all other oil producers.

By making Yamani the scapegoat for this policy, Mr. Schuler says, King Fahd can alter their strategy without admitting the royal family made a mistake.

Schuler says Saudi Arabia has been under intense pressure to make production cutbacks -- not just from traditional foes such as Iran, Libya, and Algeria, but also from such financially strapped moderates as Nigeria, Indonesia, and non-OPEC states such as Mexico and Egypt. It's been pretty hard to justify Saudi Arabia and Kuwait having over 25 percent of total OPEC revenues and 40 percent of OPEC's hard currency reserves with only 2 percent of OPEC's population,'' he says.

``Between the political realities and the revenue realities,'' says Schuler, ``Saudi Arabia has got to back away from the policy they engaged in, and Yamani is the author of that strategy.''

King Fahd and Yamani had disagreed publicly over oil policy.

About these ads

The King is in favor of $17 to $19 a barrel oil. The ``straw that broke the camel's back,'' says Mr. Margoshes of Shearson Lehman Brothers, was Yamani's apparent approval last week of a 50-cent a barrel discount on prices to try to boost US sales.

[Yamani's acting replacement, Hisham Nazer, announced yesterday that Saudi Arabia has asked OPEC to call a meeting to set prices in line with Saudi proposals of a minimum price of $18 a barrel, reports Jim Muir from Nicosia, Cyprus.]

The circumstances of the Yamani ouster were rather harsh in a country where honor and deference are of immense importance. One analyst says Yamani heard news of his firing over Saudi radio and was referred to as ``Mr.'' instead of the honorific ``sheikh.'' This would support the ``scapegoat'' argument.

Hisham Nazer, is the kingdom's planning minister. That post depends on Saudi oil revenues to execute development projects and other spending programs. But oil revenues have fallen sharply in the past three years; Mr. Nazer has advocated higher revenues from higher prices.

Ragaei el-Mallakh, director of the University of Colorado's International Research Center for Energy and Economic Development, expects the Saudis to try to ``offset instability'' in oil markets rather than pursue a high-price strategy.

But with the world awash in oil, Dr. el-Mallakh says by December prices could be sliding again.

Bahan Zanoyan, director of the Wharton Middle East Economic Service, had been forecasting a slide in oil prices to as low as $10 a barrel this winter. He says it is surprising that prices have remained firm in the wake of the Yamani ouster.

``I'm afraid the market is going to be disappointed when those hopes are modified or shattered,'' Mr. Zanoyan says.

But oil analyst Margoshes expects that a new Saudi/OPEC strategy to boost prices will succeed. He points out that closure of an Iraqi pipeline for expansion, coupled with decreased Iranian ability to export due to bombing raids, should limit OPEC's output to 17 million barrels a day. World demand, meanwhile, should hit 18 million barrels a day by December. That would necessitate a 1 million barrels a day drawdown of inventories, causing prices to rise.

Follow Stories Like This
Get the Monitor stories you care about delivered to your inbox.