The privatization of Saudi ARAMCO and the future of national oil companies of the Gulf

Abstract

On November 3, 2019, Saudi Arabia announced that the national oil company, Saudi Aramco, would be partially privatized. The process is scheduled to begin on November 17. This news made a lot of noise. First, for the first time in decades, individuals (and possibly foreigners) will be able to purchase shares in one of the country's most important corporations. Secondly, we are talking about the privatization of the company, concerning which it is customary to speak in superlatives. "It is the largest oil producer in the world, with the lowest production costs, and has a reputation for being extremely well run, all of which have helped it become the most profitable company on the planet" says Simon Henderson, one of the leading experts on the oil and gas sector of the Gulf States, a fellow of the Washington Institute for near East policy. However, this "superlative degree" does not guarantee an equally excellent privatization. The father of the idea to privatize the part of Saudi Aramco was the crown Prince and de facto ruler of Saudi Arabia Mohammed bin Salman (83-year-old king Salman, as it is believed, is ill and handed over the reins of power to his son). The intention to bring Saudi Aramco to the IPO is explained by the need to find additional funds for the implementation of the Vision 2030 project-a large - scale program to diversify the Saudi economy and carry out structural changes in the country. Among other things, the money from the privatization of the company should go to create about a million new jobs, primarily for the younger generation of Saudis. Having satisfied their request for employment and self-realization, Mohammed bin Salman expects to multiply the number of his supporters. The political points thus gained will be useful to him when the issue of succession is decided; the current status of crown Prince does not guarantee him the crown, especially given that part of the Saudi elite is unhappy with his reforms. The Saudi Royal court has plenty of reasons to be cautious. First, privatization will require the disclosure of financial and technical details about the company's activities. This is something Riyadh would like to avoid. And it's not only about the traditional dislike of the Saudis to openness. More importantly, the process may reveal that the oil giant is a "paper tiger" - that is, that Saudi Aramco is not as efficient and rich as people think. In addition, the Saudi state apparatus believes that the disclosure of the volume of real oil reserves of the Kingdom can harm the country. Thus, the availability of information about Saudi Aramco could make its assets more vulnerable to lawsuits, especially if the U.S. finds that Saudi Arabia is directly involved in the terrorist attacks of September 11, 2001. Secondly, Saudi Aramco is a "national oil company". In the Arab monarchies of the Persian Gulf, this means that the enterprise is more than just a business structure. On the one hand, its activities generate income, a significant part of which is used to maintain the existing social contract in these countries. This contract implies that the state provides various benefits, and those in return refuse part of political freedoms (for example, the expression of will in elections). On the other hand, the national oil company is itself part of this contract, creating additional and not always justified in terms of managerial efficiency jobs for the local population (usually sinecure). In addition, the national oil company can serve as an instrument of foreign policy, playing the role of a conductor of soft power to the detriment of the same business interests. However, privatization implies a shift in the company's policies in favor of greater economic efficiency and greater focus on the Saudi Aramco's role as a business structure.