Saudi Arabia: De-escalation Drive

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On the fifth anniversary of Saudi Arabia’s Vision 2030, which aims to diversify the kingdom’s economy away from oil, its architect Saudi Crown Prince Mohammed bin Salman gave a televised interview in which he struck a notably measured tone, suggesting the kingdom is seeking to de-escalate geopolitical tensions, and keep oil prices stable. The wide-ranging, 90-minute interview broadcast on Saudi state television late on Tuesday was directed very much at a Saudi audience. The prince appeared calm, but also very aware of the details related to the progress and future plans of Vision 2030, and the urgent need to push ahead with it. “We are an oil country, not a rich country ... we were very rich in the '70s and '80s when we had [a] smaller population and a lot of oil. But now, we have 20 million and we are growing quickly,” he said. “If we do not maintain our savings ... we will be transformed into a poorer country.” To achieve the kind of economic diversification that the policy envisages, leaning harder on Saudi Aramco, the kingdom’s state-controlled energy behemoth and most valuable asset, is inevitable. “There is a wrongful perception that the kingdom of Saudi Arabia would like to dispose of the oil. Not at all,” the prince noted. He then revealed that there are discussions to sell a 1% stake in Aramco to a leading global energy company "in an important deal that would boost Aramco's sales in a major country,“ while stressing that he didn’t want to make any promises. Sources close to Aramco say the talks on selling 1% of the company have been taking place with a leading energy firm in China since before Aramco’s domestic listing in 2019 (EC Nov.22'19). This large energy company would lead a consortium of other foreign investors, the sources told Energy Intelligence. They suggested that such a deal was not imminent and could take a long time to materialize. Why the crown prince chose to mention it in the interview might reflect the kingdom's desire to continue strengthening its relations in the East at a time when the administration of US President Joe Biden is seeking to negotiate a return to the 2015 nuclear agreement with Iran, Saudi Arabia’s archrival. “China announced that Saudi Arabia is a strategic partner, then India announced the same, followed by Russia. However, we are still a strategic partner for the US as well. And so, we are strengthening our relations with everyone to serve our interests, their interests, and the international interests,” Prince Mohammed said. In terms of oil policy, for now it seems clear that the kingdom strongly supports a stable oil price, averaging at least in the mid $60s this year, which means keeping a tight grip on market management via Opec-plus. The producer group this week held a Joint Ministerial Monitoring Committee meeting which recommended no change to the earlier plan to ease oil production starting in May, as the overall market outlook still shows strong signs of recovery despite new lockdowns, notably in India following a surge in coronavirus cases (related). Delegates say Saudi Energy Minister Prince Abdulaziz bin Salman suggested calling the other ministers who are not part of the committee to approve the recommendation to keep existing policy unchanged. Unusually, consensus among all 23 members was reached via separate phone calls. Keeping the producer group united remains a top priority for Saudi Arabia’s market management strategy. Regional Changes Afoot But perhaps the most telling part of the interview was when the prince addressed Saudi foreign policy. Since his rise to power, the kingdom's de facto ruler has developed a reputation for being brash and mercurial in his approach to external affairs. However, on Tuesday his tone appeared to have changed, and his message was much more conciliatory. “Iran is a neighboring country,” Prince Mohammed said. “All that we ask for is to have a good and distinguished relationship with Iran. We do not want the situation with Iran to be difficult. On the contrary, we want it to prosper and grow as we have Saudi interests in Iran, and they have Iranian interests in Saudi Arabia.” Still, he noted concerns over Tehran’s nuclear and ballistic missile programs. “We are working now with our partners in the region and the world to find solutions for these problems. We really hope to overcome them and build a good and positive relationship with Iran that would benefit all parties.” As Energy Intelligence reported earlier this month, direct talks between Iran and Saudi Arabia have taken place in Baghdad to de-escalate tensions and end the Saudi-led war in Yemen. These talks will continue and include more senior officials, according to sources familiar with the matter (EC Apr.23'21). The prince downplayed suggestions that the Biden administration has turned its back on Saudi Arabia. “With varying US administrations, of course, the margin of difference may increase or decrease. But we are in agreement with the Biden administration on more than 90% of Saudi-US interests, and we hope to enhance it.” Sources have since confirmed that Brett McGurk, the US National Security Council’s Middle East coordinator, was due to visit Saudi Arabia this week, with a team of US envoys, on a tour of allied countries in the region (related). But with its main foreign policy driver being the kingdom's own national and security interests, Riyadh is also clearly looking to develop its ties with allies China, India and Russia (EC Mar.5'21). Staff reports Compass Points • SIGNIFICANCE: The urgent need to move Vision 2030 forward means Riyadh must keep a tight grip on oil market management. It could also partly explain the Saudi leadership's apparent wish to de-escalate tensions in the region. • CONNECTION: Job creation for Saudi Arabia’s young population has been one of the kingdom's biggest challenges. Prince Mohammed said unemployment was at 12% in the fourth quarter of 2020 and will fall to less that 11% this year as the economy experiences a V-shaped recovery. • NEXT: Watch for new moves to end the Yemen conflict and further rollout of Aramco’s asset monetization strategy (EC Apr.9'21).

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