Will the world's biggest oil company go public?
As Saudi Arabia mulls the public listing of its state oil company Aramco, part of what Prince Muhammad bin Salman admits could be a 'Thatcherite revolution,' the implications for the Kingdom and the region could be momentous.
The Saudi state oil behemoth Aramco confirmed Friday it is considering a public listing.
A flotation of Saudi Arabian Oil Co., as the firm is also known, would likely create the world’s largest listed company, with estimates placing its value anywhere between $1 trillion and $10 trillion. The current largest public company, Apple Inc., is valued at $535 billion.
Saudi Aramco is the world’s largest oil company, controlling about ten times the reserves held by Exxon Mobil Corp., and supplying about ten percent of the world’s oil.
While any listing is likely to begin with only a small portion of the company’s value – their statement talks of “an appropriate percentage of the Company’s shares” – the real significance lies in what this represents for the Kingdom and the wider world.
Certainly the collapse of world oil prices, from $115 per barrel in July 2014 to below $35 today, has put untold stress on the Saudi economy, wiping out $100 billion of their foreign reserves.
And yet, as noted in The Economist, who first reported this story, the crash in the price of oil has come about “partly because Saudi Arabia seems determined to protect its share of the oil market.” But low prices are no boon for a country that relies so heavily on black gold for its revenue: fully 90 percent of Saudi Arabia’s income is from oil.
So, what else is going on?
The geopolitical scene in the Middle East is shifting, with the United States stepping back, Iran emerging from decades of sanctions, and a Shia-Sunni struggle pulling at the seams of an already-fragile region. Moreover, the picture within Saudi Arabia is changing, with power moving to a younger generation, notably the king’s 30-year-old son, Muhammad bin Salman.
In recent months, this trend has manifested itself in ways that have grabbed the world’s attention: Saudi Arabia’s increased assertiveness in its foreign policy, not least in confronting its rival Iran, alongside its crushing of dissent at home.
Indeed, the execution of 47 people by the Kingdom on January 2nd, including that of prominent Shia cleric Nimr al-Nimr, which sparked the storming of the Saudi embassy in Tehran, targeted not only Al Qaeda-affiliated terrorists, but also some who were simply calling for the fall of the ruling Al Saud family.
Yet the mooted flotation of Aramco reflects a deeper shift, whereby the Kingdom is contemplating the opening up of its closed economy and government.
Prince Muhammad told The Economist that this “blueprint” for change has several facets. Already, spending cuts have been implemented, to be joined by hefty price rises in subsidized goods (such as gasoline, electricity, and water) and increased taxation.
Equally important is the drive to shrink the state until it serves only the most basic and vital functions. This wave of privatization and diversification will attempt to address the needs of a young, burgeoning workforce.
Of course, such a sea change is not guaranteed to be welcomed by all, but perhaps memories of the Arab Spring in other Middle East nations will prove a restraining hand.
It may be difficult to overstate the significance of these upheavals, both regional and internal. The Economist asserts that “the outcome will determine the survival of the House of Saud and shape the future of the Arab world.”