Saudi Aramco: The Company and the State

Saudi Aramco: The Company and the State

Al Jazeera (2019)

Film Review

It never occurred to me before watching this film that Saudi Aramco, the Saudi oil company isn’t a publicly traded company. In other words, it has no shareholders – it’s entirely owned by the Saudi royal family.

In 2016, Crown Prince Mohammad bin Salman announced plans to do an IPO (initial public offering) and list the company either on Wall Street or the London stock exchange. Had it gone forward, the IPO would have been the largest in global history. Saudi Aramco, which the Saudi government values at $2 trillion, had hoped to sell 5% of the company to private shareholders for $100 billion. The Crown Prince proposed to use these funds to finance his Public Investment Fund and Vision 2030.*

Late last year the IPO was mysteriously cancelled.

International oil analysts dispute whether Aramco is really worth $2 trillion, largely because they question the size of Saudi oil reserves. Despite the absence of any new oil discoveries (and pumping out 100 billion barrels in 30 years), the Saudi government maintains their reserves still stand at 261 billion barrels (as they did in 1989).

When bin Saman’s father Salman bin Abdulaziz Al Saud ascended to the throne in 2015, he made drastic changes to the law of succession, essentially concentrating power in the hands of his son Mohammad. Some of bin Abdulaziz’s brothers remain attached to a system in which the royal family made collective decisions instead of ceding power to a single monarch. Several reportedly opposed Vision 2030, which is why the Crown Prince had them arrested in 2017 and confiscated their estates.

The capital flight triggered by these arrests not only scared off foreign investors, but also cast a cloud over Aramco’s potential ability to attract shareholders.

Analysts also point to other factors in bin Salman’s decision to postpone the IPO:

  1. Saudi budgetary problems stemming from military over-commitments in Yemen, Bahrain and Syria.
  2. Ongoing economic blockade against regional ally Qatar.
  3. The absence of a stable Saudi system of taxation (at present Aramco revenues fund 87% of the government budget).
  4. The absence of a a work ethic in Saudi Arabia. Because basic needs are heavily subsidized, the Saudi population doesn’t tend to see work as a valuable part of their lives – leading to enormous government dependence on foreign workers.

*Saudi Vision 2030 is a plan to reduce Saudi Arabia’s dependence on oil, diversify its economy, and develop public service sectors such as health, education, infrastructure, recreation and tourism

 


 

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