We may never fully know what lies behind Crown Prince Mohammed bin Salman’s decision to arrest more than 200 Saudi citizens, including 11 princes and four government ministers, on corruption charges, just as tensions with Iran are escalating.
What we do know is that his move simultaneously boosted the oil price and undermined the attractiveness of Aramco to potential foreign investors. But it would be a mistake to conclude that this political decision also heralds a shift in Saudi oil policy, or permanently damages the prospects of the state oil company’s IPO.
Crude prices always rise in response to unrest in the Middle East, even when the countries involved produce little or no oil. That it has done so now, in the wake of the arrests in the region’s biggest producer and the threats against Lebanon and Iran in response to a missile launched from Yemen, should come as no surprise.
But dissenting voices are likely to fade into the background when the groups meet in Vienna on Nov. 30. The output cuts do not target a specific oil price — as Saudi oil minister Khalid Al-Falih said in June, the aim is to reduce excess inventories. That problem has not yet been resolved.
The Saudi anti-corruption purge should change nothing for the kingdom’s oil policy. MbS is surely mindful that an extension of the current output deal has already been priced into the market, and failure to deliver it at the end of the month would kill the recent rally in prices, despite the elevated tensions in the Middle East.
Assessing the impact of the detentions on the Saudi Aramco IPO is less straightforward. Ninety-five percent of the shares will remain the property of what is now clearly an unpredictable government. If the arrests turn out to be no more than a purge of opponents to the crown prince’s accession to the throne, potential investors will run for cover.
Foreign investors’ appetite for a piece of a partially-privatized Saudi Aramco will not depend on whether the price of oil at the time of listing is $50, $60, or $70 a barrel. A decision to invest in the company will depend much more on the dividend and taxation policies of the major shareholder — the Saudi government — and the investor’s view of the long-term future for oil.
Source Credit: Bloomberg Business Week
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