Saudi Arabia’s government is considering selling shares in Aramco, its national oil corporation, in what The Economist says would be the global “sale of the year.”
Saudi Arabia’s government is considering selling shares in Aramco, its national oil corporation, in what The Economist says would be the global “sale of the year.” Some experts believe it could change the world’s oil order but others are skeptical.
Aramco is the world’s most powerful and mysterious oil corporation, controlling Saudi Arabia’s oil without reporting its revenue for decades. At the beginning of January, deputy prince Mohamad bin Salman announced that the government was considering the public sale of an unspecified number of shares in the company. The company made an official statement about the up-coming sale. A final decision is expected in a few months.
The news created a wave of excitement in the global media. Even a partial sale of the company’s shares would be a great deal: Aramco oil production costs are second lowest in the world, after Kuwait. Among potential initial public offering (IPO) lenders are HSBC Holdings, JPMorgan Chase & Co, as well as Deutsche Bank.
Bloomberg experts note that considering the extremely low price of oil (currently less than 30 USD per barrel), the best time to sell the shares of Aramco would have been a year ago. However even now, this step would still help Saudi Arabia to cope with a budget deficit that reached $98 billion in 2015. Selling a quarter of Aramco shares would fund the country’s budget for one year.
Many experts hope that even partial privatizing of Aramco would influence the company‘s oil policy, as the public listing would require Aramco to become more transparent. Others are skeptical about it, pointing out that the company is an important instrument for the ruling dynasty to retain power and noting that revenue from Aramco provides nine tenths of Saudi Arabia’s national budget. The conclude that any changes in shares structure would unlikely have any impact on the role of the company in the country and in the world.
The potential privatization of Aramco is in line with a “National Transformation Plan“ currently being drafted to address Saudi Arabia’s economic crisis. The plan includes measures to cut spending in the public sector, changes in tax policy, as well as other steps to improve growth in non-oil sectors.
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