Aramco Hype: Primitivism at Its Peak

Investors not as bullish as MbS expected them to be

Tahir Mahmoud

Jumada' al-Ula' 06, 1441 2020-01-01

News & Analysis

by Tahir Mahmoud (News & Analysis, Crescent International Vol. 48, No. 11, Jumada' al-Ula', 1441)

Tesla, one of the most successful electric car makers, has not turned an annual profit for years. Yet the company and its products are on everyone’s mind. This is because the market trend is on the side of Tesla’s narrative and vision. This leads us to a discussion of the recent hyped-up reporting of the international public offering (IPO) of the Saudi oil company Aramco. While Tesla is not a profitable company, the Tesla brand and enterprise is seen as a profitable, beneficial, and successful enterprise. Even though Aramco is making billions of dollars in profits, it is already being presented as an unsustainable brand. Let us briefly analyze why this is the case.

Leading energy and financial markets experts highlighted many technical hurdles that Aramco’s public offering will face. In December 2019, one of the leading websites on energy markets, oilprice.com, forecasted that next year Aramco shares may be worth zero. According to Simon Watkins, Head of Forex Institutional Sales and Trading for Credit Lyonnais, Aramco’s bleak future is due to the fact that

US President Donald Trump is to sign the “No Oil Producing and Exporting Cartels’ (NOPEC) Bill… This Bill has a broad mandate, making it illegal to artificially cap oil (and gas) production or to set prices. Clearly, fixing (and later heavily influencing) oil pricing is the very reason why OPEC was established in 1960. Saudi Arabia has been its de facto leader ever since, and Aramco is the prime vehicle through which Saudi Arabia’s production and pricing strategies (and those of OPEC) are implemented. Nobody from the Saudi side seemed to have twigged to the fact that there was a major legal issue in this context from both the US and UK perspective as both have anti-trust (or anti-monopoly) regulations with real practical bite.

This major political problem is listed among the facts that Aramco does not actually own any of the sites from which it extracts oil or gas. Further, the Saudis lie about the fact that their oil reserves have remained the same for the past 30 years.

With an array of technical problems coming Aramco’s way, we think these obstacles are micro problems. The macro problem for Aramco is the Saudi brand itself. The Saudi regime is at its most volatile and most importantly there is a growing anti-oil narrative being formed in many societies derived from environmental concerns. Some may raise the point and say that the Saudi regime never had a positive image and yet continued to survive due to Western backing. This is a valid objection; however, the Western regimes are not what they used to be 10 or 15 years ago. NATO powers are divided and are experiencing a growing economic and political crisis. Sustaining the Saudi regime is no longer the same type of priority for them.

One of the primary problems with Aramco and Saudi Arabia’s vision is that it is rooted in the notion where oil plays a fundamental role. Essentially, the Saudi economic vision is an outdated model repackaged through a modern marketing jargon.

In January 2019, Saudi Arabia significantly decreased its financial involvement with Tesla. This financial step is symptomatic of Saudi lack of foresight. Of course, as an oil producing regime that sustains itself in power through the public treasury, it is not interested in the development of non-oil energy related industries. However, the global business trend is heading toward that direction and Saudi Arabia would benefit from having control over a business organization like Tesla in order to steer itself into the new global market of environmentally friendly energy products and industries. The reduction of financial stake in Tesla is a sign that the Saudi leadership’s economic vision is narrow and all the hype about diversification and modernization of its economy is just a PR campaign with little substance.

Prior to the barbaric murder of a former regime insider, Jamal Khashoggi, the Western media was constantly spewing information about how MbS is modernizing the political culture of the regime. Were it not for the horrific murder of Khashoggi, the corporate media would continue pushing this panegyrical narrative. Thus, the rosy picture of the Saudi regime painted by the Western corporate media should always be taken with great skepticism. Western regimes and their propaganda outlets have a vested geopolitical interest in propping-up the Saudi regime.

Going back to the economic angle on the public offering of Aramco, we should keep in mind that no major international stock exchange agreed to list Aramco. The Saudis had to launch it locally. This highlights a significant trust problem and trust is crucial in any business venture. There is a crisis of investor sentiment that is undeniable. What is more detrimental is that to “solve” the evident lack of investor trust, the Saudi regime simply forced wealthy Saudi families to buy Aramco shares. This is primitivism at its best (or worst!).

With massive Western economic backing over the past several decades, Saudi Arabia did not manage to create a robust non-oil-based industry. Comparing this to Iran’s non-oil sector and the bleak prospects of Saudi economic development are clear. Between March and November 2019, Iran exported $28.3 billion of non-oil products despite being subjected to severe sanctions.

The Western media’s favorable coverage of Saudi economic “reforms” should also be seen as soft promotion of capitalism. The Saudi regime’s lavish projects are often projected as the success of cutthroat capitalism. It is not by accident that as manifestation of corporate greed, the Donald Trump types are closely associated with the Saudi regime.