Friday, January 8, 2016

What an IPO of Saudi Arabia's Aramco Would Mean

Saudi Arabian Oil Co., aka, Aramco, the world’s largest oil producer, said it’s considering an initial public offering.

The company is likely worth trillions. Even if only a sliver were to be sold, it could easily be the largest IPO ever.

But what I find most fascinating is that Saudi Arabia is considering an IPO at a time when the oil price is very low. It suggests to me that their financial situation is tight at the present time because of the weak oil price.

I think this, to a large degree, puts to bed the idea that Saudi Arbia is deliberately pushing the oil price down to hurt Russia. I have always been in the David Stockman camp on this (SEE: It Doesn't Matter Who Controls the Oilfields that it has always been about supply and demand.

The Saudis are getting squeezed just like everyone else in the business right now.



  1. i don't really get the Saudi squeeze. its exactly what you would expect to happen when a firm tries to force it competition out of the market then raise its price to cash in but what will happen is that other producers will just stop then start up when prices rise.
    either they are morons or there is something else but i can't figure out what.

    1. Has supply and demand for oil really changed that much in the past year or two to warrant oil prices dropping from $130 to $30 a barrel? Really? Does anyone you know drive that much less or buy that many fewer goods to be delivered? The US economy may be bad but not that bad.

      You're dealing with the US and Saudi Arabia here. The US is a borderline full blown fascistic empire that still believes, to paraphrase K. Rove "when it acts, it creates its own, new realities", with all of its solvency and military potency resting on a petrodollar reserve currency, and many unpleasant realities in a domestic economy (notwithstanding RW and the Fed's pollyana-ish pronouncements) that is dependent to a great degree on oil but is also being affected by, and is threatened with further inflation pressures due to an unprecedented expansion of the money supply in recent years.

      Saudi Arabia and its ruling family is a synthetic a creation of the US and Western oil interests and, despite a severely repressive government, retrograde religious practices and overt support for Islamic terrorism, serves as a strap for the US (and Israel) in the MId-East.

      My suspicion is that the US made the Saudis an offer they couldn't refuse. SA would use its cartel power to drop the price of oil, benefiting the moribund US consumer and economy (at the expense of SA's competitors in domestic US oil patch such as shale drillers, of course) and offsetting perceptions of price inflation in that commodity and inflation basket calculations, thus providing a continuing rationale for extra low interest rates. In return, the US would ramp up covert and overt military support of SA in its existential struggle against a resurgent Iran and its proxies in Syria and, especially Yemen. Hurting Russia may have been seen as a side benefit but those who dreamt this up must've known it would hurt a country like Canada, too.

      Does this kind of thing work out perfectly? Of course not. Are the Saudis morons? Maybe, but they are simply doing what they're told. They would be toast that much faster if they didn't. So, the Saudis are facing funding shortfalls and a liquidity crunch. The Aramco (f/k/a the Arab American Oil Company and founded by Standard Oil/Rockefeller interests) IPO is a smart way for them to get some quick cash without disrupting the arrangement.