The Prince of Oil
Bloomberg Markets|August - September 2021
Saudi Prince Abdulaziz bin Salman, the most powerful man in oil, navigates unruly OPEC+ nations, huge swings in price and production—and the end of fossil fuels
JAVIER BLAS

The Boeing 767 banked over the Red Sea, turning east into Saudi Arabia. A commercial version of the plane can carry about 260 passengers. Inside this one, Saudi Energy Minister Prince Abdulaziz bin Salman and a dozen or so aides were heading home from a tumultuous meeting at OPEC’s headquarters in Vienna the day before.

For most of the journey, the jetliner had followed its expected route over Eastern Europe, the Mediterranean, and Egypt. It was a path Abdulaziz had flown scores of times. As oil minister since 2019 and a royal understudy before that, he’d attended almost every OPEC meeting in the past 35 years.

But this flight, on March 7, 2020, wasn’t typical. What occurred afterward wasn’t, either.

The decisions Abdulaziz took over the next 24 hours exposed a new Saudi oil policy—bolder, less constrained by Washington, defiant of a growing global consensus on climate change, and more centrally controlled by the royal family, including one of his half-brothers, Crown Prince Mohammed bin Salman.

They also reflected what Abdulaziz sees as his destiny: to ensure that the last barrel of oil on the face of the Earth comes from a Saudi well. As he said in June during a private event organized by Bank of America Corp., according to a person familiar with the meeting, “We are still going to be the last man standing, and every molecule of hydrocarbon will come out.”

All of this has huge implications for the world’s energy markets at a time when, in erecting a fortress to safeguard oil, Abdulaziz and Saudi Arabia seem to be on the wrong side of history. Abdulaziz, the first member of the royal family to be the kingdom’s energy minister, is the most important single person in the oil market today. As influential in global economic terms as some central bankers, he has repeatedly taken bold, successful steps to control the markets, manage the flow of oil supplies, and shore up prices.

But a rancorous OPEC+ meeting in July showed just how difficult it’s going to be for Abdulaziz to consistently get his way in an era when oil-producing nations—their self-interests often in conflict—are contemplating a future of declining oil consumption. By the time OPEC+ ministers convened over video conference, resurgent demand had already pushed crude prices up 50% this year. When the talks collapsed, oil prices jumped to the highest level in more than six years.

Abdulaziz’s time as energy minister since his appointment in September 2019 has been perhaps the most convulsive and consequential period in the history of the Saudi oil industry, overshadowed only by the first and second oil crises in the 1970s. Abdulaziz didn’t agree to an on-the-record interview for this article. Bloomberg Markets reconstructed his tenure as minister—and his rise to get there—through interviews with diplomats, consultants, traders, and current and former Saudi, OPEC+, and U.S. officials.

AFTER THE OPEC+ meeting in Vienna in March last year, Abdulaziz and his retinue boarded their waiting jet— registration number N767A emblazoned on its tail—and took off. An oil world geek monitoring the plane’s radar signature on a real-time aircraft tracking website would have known something was amiss. The plane didn’t land at Riyadh, the capital, where the energy ministry and Abdulaziz’s residence are located. It continued flying over the Saudi desert, the bleakness occasionally broken by gas flares down in the oil fields, and on toward the Persian Gulf coastline.

At 3:35 p.m. that Saturday, the jet landed at King Abdulaziz Air Base, a military complex near Dhahran in the heart of the kingdom’s petroleum industry. Abdulaziz headed straight to the headquarters of Saudi Aramco, the national oil company.

The surprise detour to Dhahran was prompted by what had happened the day before in Vienna. At a special OPEC+ meeting, Saudi Arabia and Russia (the +, as it isn’t an OPEC member) clashed over how to respond to the coronavirus pandemic that was beginning to spread across the globe.

Moscow, anxious to avoid reducing output, preferred a wait-and-see approach. Riyadh wanted to slash production— immediately. Through their association with refineries around the world, the Saudis had recognized early on that the Covid-19 outbreak was going to cause economic havoc, and they wanted to prevent a crash in oil prices.

The meeting ended without agreement. Ominously, Alexander Novak, then the Russian oil minister, said to reporters afterward, “Given today’s decision, all OPEC+ countries from April 1 have no obligations to cut output.” Now all eyes were on Abdulaziz. Asked if Saudi Arabia would follow Russia’s lead, he told reporters, “I’ll keep you wondering.”

Not for long. The drive from the airfield to the Aramco campus takes about 15 minutes. Abdulaziz’s entourage would have gone past Dammam No. 7, known as the Prosperity Well, because the day it struck oil in March 1938 marked the commercial discovery of petroleum in the country.

Over the years, the Saudis had come to believe they must always act in concert with other oil producers and not unilaterally. Now, Abdulaziz had decided to suspend that rule, if only for a short time, to make a point—we’re in charge of managing the oil market—and to teach a lesson to Russia and its president, Vladimir Putin, whose power depends in part on his country’s oil revenue.

Once inside Aramco’s main administration building, Abdulaziz did something shocking and counterintuitive for someone who’d indicated in Vienna that he favored production curbs: He ordered the world’s biggest energy company to ramp up production to maximum levels. The next day, with the oil market closed for the weekend, Saudi Arabia launched an all-out price war. It announced it would begin pumping 12 million barrels a day, an increase of more than 20% from the month before.

For the energy markets, this was the equivalent of a nuclear first strike. To push such huge volumes onto the market, Aramco slashed the price of its oil, offering refiners the largest discounts ever. The price cuts were particularly big for European oil refineries, hitting Russia’s traditional market the hardest.

When the oil market reopened on Sunday evening, Brent crude, the global benchmark, plunged almost 25% within seconds—the biggest one-day fall since January 1991, during the Persian Gulf War. The carnage extended beyond the oil market. The MSCI World Energy Index—a basket of leading petroleum companies, including BP, Chevron, Exxon Mobil, Royal Dutch Shell, and Total— plummeted almost 19%, its biggest-ever one-day drop, erasing $330 billion in share value. Over the next week, the index lost $400 billion more.

Panic gripped the White House. Breaking with decades of close cooperation, Saudi Arabia hadn’t informed Washington of its production bombshell, which caught the CIA and U.S. diplomats in Riyadh by surprise, according to Victoria Coates, a White House deputy national security adviser at the time. The administration of President Donald Trump, which saw the U.S. oil industry as a strategic and political asset, was in shock. “It was uncharted territory,” Coates says.

The oil industry and the countries that depended on it were staring into an abyss of collapsing prices. That, of course, included the Saudis, who’d just shown they were ready to shoot themselves in the foot to get production and prices back to what they deemed sustainable levels. The scenario, as risky and cynical as it was, was unfolding just as Abdulaziz intended: Create enough pain to get everyone around the negotiating table—quickly.

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