Aramco IPO part of larger game plan

|By Arabian Post Staff|The announcement by Saudi Deputy Crown Prince Mohammed bin Salman about a possible floatation of state-owned oil firm Aramco is part of a larger game plan, a report by a US private intelligence corporation has concluded.

“Whether or not the IPO happens is not important. What is vitally important is that it was publicly discussed by the Crown Prince of Saudi Arabia. He was fully aware of the consternation the statement would elicit from within the kingdom and across the world. He knows there could be political repercussions. Yet he said it,” points out the report titled ‘Saudi Arabia and the Politics of Oil’.

The report says two things can be deduced from this new “openness.” One is that the direction of financial developments in Saudi Arabia has forced it to contemplate radical steps, and the Crown Prince judged it necessary to alert the public of the possibility. The second is that the steps that must be taken could threaten the survival of the regime.

According to the report, there are two key reasons Aramco is so important to Saudi Arabia. First, Aramco is the world’s most valuable company, with an estimated worth of several trillion dollars. Oil revenues constitute 90% of the government’s revenue and 40% of its GDP. Second, Aramco is the country’s source of geopolitical power. Saudi Arabia—and Aramco by extension—holds the world’s second largest proven crude oil reserves.

Since the Saudi government nationalized Aramco, the company has become the crown jewel of the kingdom and the key driver behind Saudi Arabia’s technological, military, and economic expansion. It is also a symbol of the triumph of the Saudi royal family.

The report concludes that the combination of low oil prices and regional instability directly threaten Saudi Arabia’s survival and created a financial situation that is untenable for the Saudi regime. Saudi Arabia is not in dire straits at the moment, with sufficient reserves to sustain the country for a few years. However, if these reserves do run out, it will be in hazardously deep trouble.

“There is one key principle driving Saudi Arabia to sell shares in Aramco: the kingdom needs money. And it’s more than Aramco’s operations can provide in the current context of long-term low oil prices. The kingdom needs money to buy time,” says the report.