Aramco Goes Public: The Saudi Diversification Conundrum

Abstract

The state-owned oil company Saudi Aramco will float 1.5 per cent of its shares in an initial public offering (IPO) on the Riyadh stock exchange in December of this year. The long-awaited and often-postponed IPO marks a cornerstone of the Vision 2030 diversification strategy of crown prince and de facto ruler Muhammad bin Salman. It comes at a time when the oil price remains subdued as a result of the United States shale revolution; it might also be affected in the medium term by renewable energy transitions and growing e-mobility. The IPO is expected to be priced below the USD 2 trillion market value that Muhammad bin Salman initially envisaged. With a possible value of USD 1.6–1.7 trillion, Aramco would still rival the largest IPO ever: the USD 25 billion IPO of the Chinese firm Alibaba in 2014. Saudi Aramco is the producer with the lowest costs in the world of oil, while the greenhouse gas emissions from its production facilities are relatively small compared to its competitors. With its petrochemical expansion strategy it is well positioned to serve petroleum product markets such as plastics. Even in a world of stagnating or declining oil demand in the medium term, Saudi Aramco will likely show considerable perseverance. Oil remains paramount for the Saudi state, its budget, exports, and its economy. The Aramco IPO is part of a larger quest for economic diversification, and indeed for the consolidation of power in the hands of the crown prince. European politicians should still engage with Saudi Arabia economically, while using such engagement to pressure the country on human rights and regional stability. Otherwise, Saudi Arabia will increasingly turn to Asia - to where it already exports 70 per cent of its oil. What was once a mere buyer-seller relationship could gain in strategic depth.