The price of oil has fallen more precipitously than analysts thought possible. In July 2014, Brent crude went for $115/bbl on the spot market. Today, it’s under
$30/bbl. With Iran selling even more crude than expected now that sanctions are coming off, some analysts see the price dropping below $20, perhaps to the low teens. Motorists are elated. Saudi princes are not.
The Kingdom is coming into hard times, perhaps even unstable ones. Oil revenue has been doled out in prodigious amounts to a growing population, vassal states such as Egypt and S Yemen, insurgent groups in Syria and Iran, and an immense defense establishment of dubious ability.
Riyadh has signaled that domestic spending will be trimmed. There’ve been few signs of cuts to foreign groups, though. The Kingdom has recently suggested that shares in it’s oil business might go on sale in world markets. What would an initial public offering (IPO) of Aramco bring?
Perils of selling
A company whose shares are publicly traded brings in, usually, large sums of money. Aramco’s value might be twenty-five times that of Exxon Mobil. However, the Saudi princes would relinquish a great deal of discretion over the business and the Kingdom as well.
Publicly traded companies must open their books to shareholder groups and to regulatory bodies. The Saudis will never allow it. They have for years refused to answer inquiries about the size of their reserves and the water content in crude pumped from fields.
Today, the Saudi royal family runs the oil business, as completely as they run the state and its foreign policy. Selling shares in Aramco would bring people outside the family into economy and state. It is difficult to imagine Saudi Arabia granting a say in either to a foreign power or Goldman Sachs.
Perils of buying
A public offering will be tempting to institutions and nations, but risks are clear. China, though pressed with economic woes at home, would dearly love to acquire an interest in Aramco, which sells a great deal of oil to the rising power. This, however, would upset Iran, which also sells a great deal of oil of China.
Western investment groups must be looking into the prospective IPO. But due diligence will reveal human rights questions that might present legal obstacles or at least public relations nightmares.
Foreign investors will see the Kingdom’s future as less assured than Saudi Princes do. Coming years will see continued sectarian conflict in the Middle East that could easily spread into the Eastern Province. That region has the dubious honor of being home to both the richest oil fields and the densest Shia population.
Even more worrisome is the impending succession from the sons of the old warrior-king to his grandsons and grandnephews, husbands of granddaughters and grandnieces. Numbers of this new generation are conservatively placed at five thousand – hardly the manageable clique that currently manages affairs.
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The Saudis are far more likely to sell only a few parts of Aramco. Refining and petrochemical operations are thought the most likely candidates. This of course means much less revenue from the public sale of shares. And the House of Saud will still have to placate its public, subsidize its vassals, and fight its proxy wars across the Middle East.
©2016 Brian M Downing