When Ibn Saud, the first monarch of Saudi Arabia known as the “Desert King,” took over the country, it it looked like he had become the conqueror and ruler of a giant sandbox with a couple of holy sites. But in 1938, the world found out that Ibn Saud was sitting on the world’s largest source of petroleum. Now, the House of Saud controls the world’s most profitable company, the Saudi Arabian Oil Company, commonly known as Aramco. But no one is quite sure how much Aramco is worth. Why? Because it’s private. But if the Crown Prince of Saudi Arabia, Mohammed bin Salman (MBS), has his way, by 2021 the whole world might know just how wealthy the Saudis are — Aramco might go public.
The income and worth of Aramco has only been guessed, never confirmed. Last year Bloomberg estimated that Aramco’s net income in just the first six months of 2017 was $33.8 billion. But Aramco’s response to this guess was, “This is inaccurate, Saudi Aramco does not comment on speculation regarding its financial performance and fiscal regime.” But it is a known and confirmed fact that Aramco is the largest energy producer with the largest oil reserves in the world.
What makes Aramco even more interesting is that it’s the personal, private business of the Saudi government, or, the House of Saud. This is why Saudi princes have enough money to drive around with pet lions in the front seat of their Lamborghinis, as my brother experienced several years ago. (Yes, this actually happened.) And this is why Saudi Arabia has been shaking up global politics since 1933.
So when MBS started making plans in 2016 to take Aramco public there was serious tension and excitement. Unsurprisingly, Saudi Arabian technocrats and ministers have been pushing back against MBS’s plans. The country’s powerful energy minister Khalid al-Falih protested the initial public offering (IPO), but MBS kept pushing to get the company listed as soon as possible. But al-Falih’s protests in 2016 did curb MBS slightly and he pushed the IPO back to 2021.
MBS sees himself as a reformer and after decades of relying on a single market of oil, he is trying to diversify the Saudi economy. Taking public Aramco might do this. But change tends to unsettle an economy: The economic diversification led to the 2017 recession in Saudi Arabia, according to the Wall Street Journal. The new policies to increase non-oil revenue led decreased private-sector investment, consumer spending, and foreign direct investment hit a 14-year low.
Taking Aramco public signals a massive power shift in Saudi Arabia, which is why many technocrats, like al-Falih, are fighting MBS. In past regimes, Aramco was given plenty of independence and the company leaders held much of the power in the country. But now, politicians — MBS in particular — are back in power and don’t want the country relying on a single source of wealth.
But taking Aramco public would not help Saudi Arabia or bring the reform MBS desires. Making Saudi Arabia more economically diverse, like the United Arab Emirates, is certainly necessary to attract even more wealth and long-term investment. But going public means giving Aramco up, and the consequences of such a move would be disastrous for the Saudi Arabian royal family. It makes no sense for them to make this move.
MBS wants to sell a five percent stake in Aramco on local and foreign exchanges, according to Reuters. This would rake in a quick $100 billion and that would give Aramco a market capitalization of $2 trillion — the biggest market capitalization ever achieved by a company. Exxonmobil and Royal Dutch Shell, the second and third most valuable energy companies, would suddenly be dwarfed and look like toys next to Aramco. (Exxonmobil’s market capitalization is a mere $327 billion and Shell’s is $285 billion). With an easy cashout of $100 billion — by far the biggest IPO in history — and a market capitalization of $2 trillion, it seems like common sense to take Aramco public.
But if Aramco went public, the House of Saud would lose some of its power. The House of Saud’s total control of Aramco is what rocketed them into global power in the first place, gave them absolute power in their country, and made them leaders of the Islamic world. Aramco is their indestructible secret weapon and ultimate trump card. Loosening their hold on Aramco would be perceived as weakness by Saudi Arabia’s enemies and could call into question the regime’s legitimacy.
The long-term economic effects of taking Aramco public are also questionable. Many investors simply think it’s too ambitious to invest in the company. Sure, Aramco’s cash flow is three times more than ExxonMobil and Shell, but it’s this very prospect that could drive investors away.
Reuters reported, “Its desire for a market value six to seven times higher than those of Exxon or Shell might look too ambitious to many investors and analysts who have said the company could be worth more than $1 trillion.”
The House of Saud’s self-preservation and stability is entirely dependent on Aramco. Taking the company public would be an unprecedented reform, but MBS risks his personal and his nation’s long-term self-sufficiency in doing so.