Saudi Oil Minister Ali al-Naimi in Sudan on May 4. PHOTO: REUTERS
RIYADH—Saudi Arabia dismissed its long-serving oil minister Ali al-Naimi on Saturday, marking the departure of one of the industry’s most powerful figures, as the country grapples with weak oil prices.
Mr. Naimi, who had been the kingdom’s oil minister since 1995, has been a strong voiceagainst lowering Saudi Arabia’s production when prices fall, a move away from its past tactics.
Mr. Naimi was the architect of the 2014 shift in policy of the Organization of the Petroleum Exporting Countries to avoid slashing production amid a global supply glut, a move that has weighed on crude oil markets and depressed prices.
He will be succeeded by Khalid al-Falih, chairman of state oil company Saudi Arabian Oil Co., better known as Saudi Aramco.
Mr. Naimi, reached on his cell phone, declined to take questions. Mr. Falih couldn’t be reached for comment.
The royal decree, announced via state media, was part of a wider government reshuffle that includes a restructuring of the oil ministry, which has been renamed the Ministry of Energy, Industry and Mineral Resources. It comes less than two weeks after Saudi Arabia unveiled an ambitious economic reform program aimed at reducing the kingdom’s dependence on oil revenue.
The collapse of oil prices has hit the world’s biggest energy companies hard and has hurt the budgets of oil-dependent countries. In Saudi Arabia, the world’s largest oil exporter, petroleum accounted for almost three-quarters of state revenues last year.
The 80-year-old Mr. Naimi had for some time wanted to retire. His departure and Mr. Falih’s appointment were widely expected, suggesting market reaction to the moves is likely to be calm, said Jason Bordoff, director of Columbia University’s Center on Global Energy Policy. “Khalid al Falih has been a key part of the team making these decision for many years,” he said. “It represents a continuation of the path they’ve been on.”
Mr. Naimi had been saying for some time that he wanted to retire, and Mr. Falih has been within the inner circle of Saudi oil policy-making for a long time. He was being groomed for months, according to people familiar with the matter. The decree said Mr. Falih was relieved from his other post of health minister.
Khalid al-Falih, who on Saturday was named Saudi Arabia's new oil minister succeeding Ali al-Naimi, is shown in January. PHOTO: AGENCE FRANCE-PRESSE/GETTY IMAGES
Jim Krane, a fellow at Rice University’s Baker Institute, said Mr. Falih’s appointment to head an oil ministry broadened to include electricity and other resources would allow the Kingdom to better coordinate its domestic energy policy with its oil export policy. In the past, the two have often worked at cross-purposes, as domestic consumption of heavily subsidized energy has risen, undermining the state oil company’s ability to expand exports.
Saudi Arabia’s powerful deputy crown Prince Mohammed Bin Salman has already pushed through cuts in those subsidies, effectively raising the price of gasoline and other fuels for Saudi citizens. Meanwhile, the kingdom has expanded its refining capacity, creating new internal demand for crude oil.
“They need a ministry that can take a more holistic approach to energy in the kingdom,” said Mr. Krane. “They’re working to rationalize their energy policy.”
Mr. Naimi, known in oil industry circles as a technocrat’s technocrat, appeared to be losing his grasp on power when a meeting of major oil producers aimed at reaching an output freeze agreement collapsed less than a month ago, apparently because of the influence on Saudi policy of the deputy crown prince.
Efforts to negotiate with counterparts from Russia, Qatar and Venezuela to reach a deal to freeze their output at January levels were scuttled because the prince wasn’t willing to agree to a deal that didn’t include Iran.
“It was very clear that Naimi was being overruled by a royal for the first time in two decades and that was a very humbling experience for him,” said an oil minister who attended the meeting.
For Mr. Naimi, that marked the end, according to one of his assistants. “ We all knew after the Doha meeting that it was only a matter of time before he is gone,” one of Mr. Naimi’s assistants said.
Throughout his career, Mr. Naimi has worked to avoid a repeat of the mistake of his predecessor, Sheikh Zaki Yamani, who was dismissed in 1986 as he unsuccessfully tried to fight an oil price collapse by unilaterally reducing Saudi output.
Born in Saudi Arabia’s east just as oil was discovered there, Mr. Naimi tended sheep before starting as an errand boy at Aramco at the age of 12 in 1947. Mr. Naimi studied in the U.S. and then rejoined the company, marching quickly through the ranks of what became known as Saudi Aramco. He became president in 1984 and chief executive officer in 1988. He was named oil minister in 1995 by Saudi King Fahd bin Abdulaziz Al Saud.
He took office at an uncomfortable time for the Kingdom and OPEC, which it dominates. At the time, depressed oil prices had failed to rise enough to save oil producers from a continuing cash crisis.
But Mr. Naimi soon carved out an identity and transformed himself from a competent manager into one of the world’s key economic policy makers.
As de facto head of OPEC, among the first changes Mr. Naimi made was to turn its periodic gatherings into corporate-style events. He was often successful at achieving Saudi Arabia’s goals, while managing the expectations of those of adversaries within OPEC, such as Iran and Venezuela.