The Great Unveiling That Isn’t

‘Saudi Aaramkaro’ is how desi expats in the Gulf refer to it. Saudi Aramco, that is. With over 260 billion barrels of oil—the actual figure is a state secret—to itself under the sand, all in vast reservoirs that take the geological equivalent of a pin-prick to access, the company has had little to do but open and close spigots as and when it wants to keep the gooey stuff gushing out and cash gushing in. Billions and billions of dollars of it, enough to keep an entire country going; Saudi Arabia is financed by its revenues. Something within, though, seems to be astir. Muhammad bin Salman, son of the current ruler who has the kingdom’s oil sector under his charge, announced on 4 January that Aramco plans to hold an Initial Public Offer of its equity shares. The very mention of an IPO has startled everyone who knows anything about the company and the country that owns it.

At the very least, a public listing would involve the kind of disclosures that Aramco has never deigned to make all these decades. Also, could Saudi Arabia really be ready to share ownership of its oil reserves—no country has anything close— with investors across the world? Would market scrutiny of its operations not get in the way of strategic decisions? As the de facto boss of OPEC, a cartel that has given the world many an ‘oil shock’ in the past, it’s no ordinary company. Can such an entity be privatised even fractionally?

Well, say some analysts, things have changed—and so must Aramco. Originally called Saudi Arabian American Oil Company, a joint venture that was fully nationalised in 1980 and has since straddled world energy markets as its largest producer of crude oil, its once-famed sway over global prices seems like a distant memory nowadays.

Crude oil has been scraping $30 a barrel, only a quarter of the figure back in mid-2014, and OPEC has made no move to curtail output to push prices up again. Even as demand slumps, Aramco alone is reported to be pumping out 10.2 million barrels a day in an effort to outdo America (which has fallen behind it again) and keep its market share well above 10 per cent. Whether or not OPEC can actually squeeze overall supply anymore is also in doubt. For one, America’s shale oil revolution, enabled by fracking technology, has given it vast additional capacity to counter the cartel’s power. For another, sectarian tensions in the Middle East make it that much harder for the latter to achieve unity on any sort of output strategy; Iran and Saudi Arabia have even snapped diplomatic ties.

Aramco’s best bet, some reckon, is to just go with the flow. Its cost of production is far lower than that of others, especially in comparison with US frackers, and this lets it stay profitable even if the price of oil falls as low as $10 per barrel, by some estimates. Except for the pin-prick wells of the Gulf, most oil rigs are reported to be losing money on every barrel these days.

Aramco’s cost advantage also explains why investors would be keen on buying its shares. No matter what, it would still be the world’s No 1 oil producer, and unless the world finds a cheap alternative to hydrocarbons (for which furious efforts are admittedly being made), it’ll almost always have profits to distribute. The shares of ExxonMobil are worth more than $300 billion right now. With ten times its oil reserves, Aramco could well be worth $3 trillion plus—more than any other business on earth.

As clarifications of the proposed IPO filter in, however, it now seems all Aramco has in mind is a hiving off and stockmarket listing of its refinery business with a few petrochem units thrown in. As a refiner, Aramco’s capacity of 4.9 million barrels per day makes it the fourth largest, after ExxonMobil, Shell and Sinopec, and its CEO Amin Nasser says it is aiming for 10 million in a few years.

That, then, is the deal on offer. So while investors will get to lay their hands on some of its assets, those enormous sludge blocks under the desert shall stay firmly where they are: under the royal command of a man officially designated as the ‘Guardian of the Two Holy Mosques’ (of Mecca and Medina)… with America’s Fifth Fleet anchored in Bahrain to guard the regional status quo.

In other words, nothing of much significance is about to open up anytime soon. For Aramco, this might just be a classic game of attrition. It may simply be waiting for other producers to wilt—and close their wells—under the pressure of losses to get back to its old OPEC game. There’s no big disruptor in sight either. But the stakes, as ever, are so high that one dare not bet the house on it.

IPOOPECprivatisationSaudi Aramco