Aramco Going Public? Where is the Catch?!

What is Saudis agenda of taking Aramco public?

Saudi’s are not pleased with gradual shift of foreign policy of the US in the Middle East and in particular West’s recent agreement on containment of Iran’s nuclear ambitions (JCPOA). Once US’s strongest ally, Saudis see this as a shift towards strengthening Shia’s state in different fronts including Syria, BBC concluded (more).

So how Aramco going public fits into Saudi’s political agenda?

Spinning off low performing assets is not a new business strategy. Other benefits of such strategy are leveraging the competitive advantage that the NOC could gain through partnership which otherwise could be costly, or even impossible. Technology transfer and securing target markets through vertical integration are examples of such advantage.

Aramco is the crown of the jewels. It is the powerhouse behind Saudi’s ambitions as the leader of the Islamic world. Thousands of Islamic schools, religion organizations and institutions all around the world depend on Saudi’s support. It is very unlikely that the whole enterprise goes public. However it is likely that Saudi’s consider certain business units for their spin off program.

We believe that Saudi’s are trying to kill few birds with one stone. In short, we see following drivers behind their recent news of considering taking Aramco public :

  1. To gain political stability and work against any agenda for splitting Saudi Arabia,
  2. Getting West’s support behind their political agenda for the Middle East,
  3. Distracting investor’s and public’s attention from Iran’s oil and gas opening in 2016,
  4. Raising cheap capital for their challenging assets,
  5. Working against evasion of capital resources for fossil based energies (mid-to-long term concern).

Would they take the whole Aramco public? We do not believe so. Even spinning off sections of Aramco would demand transparency and stringent code of conduct, what Saudi and in general any country in the Middle East is not ready for. 

Just looking at the timing of such announcement when the oil price is at 10 years low indicates that this is likely a political move targeting few short-term agendas, than a business strategy.

Syd Nejad is an expert in commercial and operations of upstream projects. He has worked in variety of roles including: strategy and corporate planning, acquisition and divestiture, portfolio optimization, asset management, production/field operations; and reserves, reservoir/exploitation engineering.