What the death of King Abdullah means for the price of oil

So, what has happened?

As expected, Crown Prince Salman bin Abdul-Aziz al-Saud will be his successor. While Saudi Arabia has a consultative council (known as the Shure), it has very little power, making it one of the last absolute monarchies in the world. While Salman is 79 years old, and has had health problems, all experts agree that he will be fit and able to govern.

Why does this matter?

More importantly, its control of one-fifth of the known oil reserves in the world gives its enormous power over the energy markets, as well as producing huge amounts of money for the state (90% of government revenue comes from oil).

Despite the fact that it has a population of only 30 million, its inflation-adjusted GDP is $1.5trn. This allows it to fund a programme of lavish government spending, including large amounts on its army and air force.

Try 6 free issues of MoneyWeek today

Get unparalleled financial insight, analysis and expert opinion you can profit from.

Start your trial

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

Is anything going to change domestically?

Salman is seen as much more cautious about reform, with his age (79) and ill health (he has suffered a stroke) suggesting that he will seek to consolidate the status quo.

What about foreign policy?

Saudi Arabia's feud with Iran has its roots in the fact they follow different interpretations of Islam (most Iranians are Shia, while Saudi Arabia is 90% Sunni).

Will this affect the oil market?

While the lower price will hit government revenue at a time when there is rising popular discontent, the new government has decided to re-appoint the current minister for oil. This is seen as a vote of confidence in the current policy. While oil prices rose slightly when Abdullah's death was announced, they are still at record low.