Syed Rashid Husain
The grand, old, wise man of the industry Ali Al-Naimi has finally spoken. Through his 317-page memoirs, “Out of the Desert: My Journey from Nomadic Bedouin to the Heart of Global Oil,” to be published next month by Portfolio Penguin, the old man is opening up his heart – to the extent possible – to an eagerly awaiting global audience.
Ali Naimi has been an industry insider - and - for decades. His beginnings were humble. He joined Saudi Aramco at the age of 12, as an office boy. And decades later, he became the CEO of Aramco – the world”s largest and most integrated oil company. Hardly a few in the world could boast of such a meteoric rise. And he didn”t stop there. King Fahd selected him to be the Saudi oil minister. In this capacity, he was often dubbed as the wheeler and shaker of the global energy world.
His words carried weight then. And his words carry weight - now too!
In his memoirs, the excerpts of which were carried by Bloomberg, delving into history, Ali Naimi hints at the undercurrents impacting the decisions of a turbulent energy world. Having had the opportunity to witness and influence the decisions of the turbulent energy world, he was apparently recording – for the sake of posterity - things and events from a very exclusive pedestal.
The memoirs also provide a historical background to the issues of this day. Today, Russian participation in any proposed OPEC output cut remains significantly important for the health of the markets. Naimi but has a very clear and, one could say, loaded opinion about it.
For his own reasons, developed after decades of interaction with Russian leadership on energy issues, Naimi is not ready to trust Russia actually standing up to its commitments. And he has reasons for that.
During his final years in the office, he became increasingly convinced, there was “zero” chance of countries outside the group joining in production cuts. When asked by one of his colleagues about the possibility of leading non-OPEC countries such as Russia, Mexico, Kazakhstan and Norway joining an OPEC oil output cut, he says, “I held up my right hand and made the sign for zero.”
Naimi has even less confidence on Igor Sechin, the powerful head of Russian energy company Rosneft. In the memoirs, Naimi recalled how Sechin “didn”t follow through” on his promise to cut output in 2008-09 during the global financial crisis.
In the memoirs he also offered the first on-the-record account of a meeting between himself, Sechin and Venezuelan and Mexican officials in Vienna in November 2014, when both Russia and Mexico declined to cut production. “It looks like nobody can cut, so I think the meeting is over,” the former Saudi minister recalls saying, adding that even his own team was “clearly as unprepared for my response as the other ministers.”
Some recent developments provide credence to his impressions.
Only earlier this month, while in Istanbul, at the WEC moot, Russia pledged, and at the highest level, to join OPEC in cutting output. Russian President Vladimir Putin told the conference in clear-cut terms, his country was “ready to join joint measures on reducing the production of oil.”
Yet Russia”s most influential oil executive, Igor Sechin, categorically told Reuters later, his company will not cut or freeze oil production as part of a possible deal with OPEC. “Why should we do it?” Sechin said when he was asked if the company will cap its output.
With Naimi convinced that others may not be ready join and share the pain of coordinating an output cut with OPEC, he appears least prepared to undertake the entire burden of cutting output on OPEC shoulders. Although while in the office, he avoided coming out openly on such sensitive issues, yet, his position, as revealed in the autobiography remained fairly simple. “If we, Saudi Arabia, or OPEC as a whole, cut production without the participation of major non-OPEC members, we would be sacrificing revenues as well as market share.”
Explaining the November 2014 OPEC decision, allowing the producers to produce at will, he underlines, the best way to re-balance the market is still to let supply, demand and prices work. “The oil market is much bigger than just OPEC. We tried hard to bring everyone together, OPEC and non-OPEC, to seek consensus. But there was no appetite for sharing the burden,” he emphasized. “So we left it to the market as the most efficient way to re-balance supply and demand. It was - it is - a simple case of letting the market work,” he continues to insist.
The book also takes us back to the days, when the late King Abdullah in the capacity of the Crown Prince visited the United States. And there in a meeting with the executives of the global oil majors, he invited them to invest in the energy sector of the Kingdom. Many in the room were taken by surprise that evening by the offer. For Riyadh to open up its energy sector was beyond their imagination.
But the initiative soon got embroiled into an argument. As per reports, the late Prince Saud Al-Faisal was leading the initiative of foreign participation in the upstream energy sector. But on the domestic front, the number of adversaries, led by Naimi, was simply too much. Minister Naimi finally concedes, he had to battle ministers and princes” to keep international oil companies away from the kingdom”s oil riches.
Naimi also now accepts it was wrong on his part to defend $100 a barrel price as fair to consumers and producers. The policy ended up in more competition, he now agrees. “That price unleashed a wave of investment around the world into what had previously been uneconomic oilfields,” including US shale, the Arctic and ultra-deep water.
Naimi is also critical of the role of “swing producer” that Saudi Arabia adopted for itself, way back in 1983, while the legendary Shaikh Ahmad Zaki Yamani was still at the helm. At an OPEC meeting in May 1983, Riyadh accepted the role of “swing producer,” something Naimi says proved to be a “momentous and, in many ways, unfortunate decision.”
And it was apparently his distaste for Saudi Arabia playing swing producer, that he pulled the Kingdom out of the role, at the earliest possibility, insisting that by adopting this role, Saudi Arabia was promoting inefficient producers – at the cost of efficient producers. As evident from the excerpts carried by Bloomberg, he hence continues to emphasize that Saudi Arabia should not play the role of swing producer, despite the financial pain of lower prices today.
Naimi is often regarded as the architect of the market-based policy within the OPEC. And he has a reason for that. “I will let history be the judge as to the success of our market-based policy,” he writes in the epilogue of the book.
Let history judge the grand, old man!
