There is a lot at stake. Saudi Arabia is rapidly running through its financial reserves and needs the revenue, especially given the persistence of dissent within the country over any attempts to impose austerity. The Vision 2030 plan to transform the economy cannot be properly funded without the proceeds of the Aramco sale.
The obvious buyer for the Aramco stake is China, mainly for the reasons below.
- The level of China’s imports has been pushed up by the decline in domestic production from the long-established fields in Daqing and Shengli and by the difficulty of developing other resources, including the unconventional tight oil in the Ordos basin.
- What better way for Beijing to secure a substantial part of its oil needs than to be a shareholder in a company that holds some of the world’s lowest-cost reserves? A deal could go further than a simple share purchase. A long-term sales contract for oil supplies is logical, as is the further involvement of Aramco in China’s growing refining sector, building on the existing investment in Fujian and the recently announced $10bn joint venture at Panjin in the northern province of Liaoning. As the Chinese economy diversifies from its heavy industrial base the need for more gasoline and other oil products can only grow.
Source Credit: Financial Times
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