RPT-Saudi’s Naimi cuts a lonely figure in oil battle – Reuters

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(Repeats a story issued last Dec 8, with no changes to text,
following Naimi’s replacement as oil minister on Saturday

* Naimi stuck to his guns in 20 years as oil minister

* Survival of the fittest as prices plummet

* Changing dynamic inside kingdom adds to unknowns

By Rania El Gamal and Dmitry Zhdannikov

LONDON/DUBAI, Dec 8 – If Ali al-Naimi were to
review his time as Saudi oil minister, he might feel events had
turned full circle.

Two years after the long-serving technocrat’s 1995 promotion
to become only the kingdom’s fourth oil minister in 40 years,
Naimi pushed through an ill-fated Organization of the Petroleum
Exporting Countries deal in Indonesia to lift supply just as
Asia went into economic tailspin.

Designed to punish Venezuela for flouting its output quota,
the decision has gone down in OPEC lore as the most
poorly-judged in cartel history. Oil prices halved to $10 a

Nearly two decades later, Naimi, 80, is facing another
supply crisis, driving oil prices to the lowest in six years —
at below $40 per barrel, more than $100 below the 2008
pre-financial crisis peak.

And as in Jakarta in 1997, today’s crash has been
orchestrated by Naimi himself with the same aim in mind: to
defend Saudi market share against rivals — primarily this time
against booming U.S. shale oil supply.

Throughout his career, Naimi has worked to avoid a repeat of
the error of his legendary predecessor, Sheikh Zaki Yamani, who
was dismissed in 1986 as he unsuccessfully tried to fight an oil
price collapse by unilaterally reducing Saudi output.

Instead, through three cyclical downturns in oil prices,
Naimi has always chosen to use Saudi Arabia’s vast oil supply
scale – Riyadh produces more than a tenth of global crude – and
its financial muscle to drive out higher cost rivals.

That survival-of-the-fittest strategy means refusing to cut
output unilaterally, waiting to outlast other producers before
they beg Riyadh to collaborate in joint supply curbs to rescue

“In everything Naimi did, he never wanted to repeat the
Yamani mistake,” said Gary Ross, a veteran OPEC watcher and the
founder of U.S.-based PIRA Energy.

“He was prepared to manage the market and cut only when he
had reasonable partners,” said Ross, who participated in the
first and only successful oil cooperation talks between OPEC and
Russia in early 2000. “Today, from the Saudi prospective, they
have no allies.”


Oil market watchers pore over Naimi’s every word, and his
past actions, to try to predict how the veteran tactician will
act. He has always found a way to act jointly with other
producers, rather than cut supply alone.

After the 1997 oil slump, Naimi eventually steered OPEC out
of trouble by engineering a series of cuts with arch-rival Iran
supporting the strategy amid a thawing of political relations.
Meanwhile, non-OPEC Mexico helped bring Venezuela on board.

In 2001, Naimi found new allies as, after months of
standoff, leading OPEC rival Russia pledged to join cuts, later
reneging on its promises. In 2008, all OPEC members quickly
supported supply curbs led by Saudi as oil plunged in the
aftermath of the global financial crisis.

As a result, oil prices bounced back quickly, providing the
capital for new investment in the controversial hydraulic
fracturing technology that saw U.S. shale oil supplies rocket.

That new supply source and China’s slowdown have caused the
latest downturn.

Saudi oil sources say this time around Naimi will stick to
his policy of high output levels, even if crude prices fall
further, until he finds partners to cooperate.

“If the price falls, it falls, you cannot do anything about
it. But … others will be harmed greatly before we feel any
pain,” Naimi told the Middle Eastern Economic Survey last year
in the most detailed explanation of his current thinking.

Naimi did not respond to requests to be interviewed for this
article. But his track record of holding firm until other
countries join Saudi Arabia for joint action speaks volumes.

“You can’t beat experience, and Naimi has loads of it. He
earned his wings in the 70s and 80s at Aramco and has now gone
through three iterations of a crude price cycle: early 1980s,
late 1990s, and the current one,” said Yasser Elguindi of Medley
Global Advisors.


The problem for Naimi is that he now appears more isolated
than ever before.

Described by admirers and critics alike as a great
technician, he has won respect in the industry for driving OPEC
policy along business lines and, where possible, avoiding

Yet in the Middle East, politics and oil cannot always be
kept apart. And when politics come into play, even the most
adept negotiator may be prone to miscalculation.

OPEC has weathered internal strife and conflict many times
before: wars between members — Iran and Iraq in the 1980s, and
Iraq’s invasion of Kuwait in the 1990s, both before Naimi took
the helm of the Saudi oil ministry.

But the Sunni-Shia conflicts now setting Saudi Arabia and
Iran at each other’s throats in places like Syria and Yemen are
unprecedented during Naimi’s tenure as minister.

In addition, predominantly Shia Iraq has become a de facto
ally of Iran within OPEC since a U.S. invasion ousted dictator
Saddam Hussein, and both countries have enormous potential to
increase supply.

Outside OPEC, Russia is at odds with Riyadh in Middle
Eastern conflicts, joining the war in Syria two months ago on
the side of Iranian ally Bashar al-Assad.

Meanwhile, many Saudis believe the U.S. shale oil boom has
prompted Washington to reassess its military commitment in the
Middle East that protects Riyadh in return for a sure supply of

OPEC tensions spilled into the cartel’s meeting last week
when the group failed to agree a production target for the first
time in decades, with Iran saying it would steeply increase
supply after Western sanctions are lifted next year and Iraq
saying it would boost exports too.

“Some member countries produce as much as they wish,”
Iranian oil minister Bijan Zangeneh told reporters after the
meeting in a clear reference to Saudi Arabia. “Iran will need no
one’s permission to raise its output.”

One executive from a major oil company said that while
Naimi’s tactics against U.S. shale were working and the low oil
price was beginning to depress rivals’ output, the Iranian
comeback has complicated the picture: “Sometimes it feels that
the Saudis have miscalculated how quickly Iran could clinch the
nuclear deal and return to the markets”.


At the age of 12, Naimi joined state oil giant Saudi Aramco,
riding in the back of crowded trucks to get to work. Not many
years into the job, he impressed Aramco managers by stating his
ambition to run the company.

Naimi became President of Aramco in 1983 and CEO in 1988,
the first Saudi to hold those posts, previously held only by
Americans in the historically Arab-American oil company.

As one of the country’s highest-ranking non-royals, Naimi
grew from a cautious public face into an outspoken policymaker,
given full and sole responsibility for Saudi oil policy, leaving
oil markets hanging on his every word.

Growing tired of multiple OPEC meetings a year, he blamed
the press for failing to understand his utterances and called
reporters “agents of disturbance”.

“He wants the best price and the best volumes for his
country. As for the image with media — I don’t think he really
cares,” said PIRA’s Ross.

Naimi has taken care to avoid entanglement in Saudi royal
politics. He took office the same year King Fahd suffered a
stroke and Fahd’s half-brother, Abdullah, a cautious reformer,
became de facto regent. Abdullah ruled as king from 2005 until
his death earlier this year.

This year’s political changes have been the most profound
Naimi has seen – with new King Salman elevating a fresh
generation of leadership in the form of his nephew Crown Prince
Mohammed bin Nayef and son Deputy Crown Prince Mohammed bin

Mohammed bin Salman, 30, became the ultimate oil decision
maker in April. Last month he said the kingdom was working on
reducing subsidies and introducing new taxes so the budget could
withstand the pain of lower oil prices for longer.

Some interpret that as a signal of support for Naimi’s
policies, but say the days when Naimi’s voice alone spoke for
Saudi oil policy may be over.

One insider said an indication that changes may be brewing
was that comments on oil policy had been coming not only from
Naimi and the deputy crown prince, but also from Aramco’s
chairman Khalid al-Falih and from another son of Salman, Prince
Abdulaziz, Naimi’s long-serving deputy.

“It is like having four oil ministers now in Saudi Arabia.
Everyone talks about oil policy and is a spokesman for the oil
industry. It should be only Naimi as he is the minister, but he
is slowly losing influence,” said the insider, who asked not to
be identified.

(Editing by Richard Mably and Peter Graff)

RPT-Saudi’s Naimi cuts a lonely figure in oil battle – Reuters