Publications: Notes at the Margin

The Saudi Gambit: Threat to Big and Small Oil (August 12, 2019)


Last week, Reuters broke the story that Saudi Arabia was moving again toward an initial public offering (IPO) for Saudi Aramco. In the following days, Bloomberg, The New York Times, and The Wall Street Journal picked up the news. Each report noted that Crown Prince Mohammed bin Salman (MBS) expects the IPO to value the firm at $2 trillion. This amount implies that selling five percent of the company would raise $100 billion.


Many analysts are skeptical of this valuation. They are probably correct. Some suggest the privatization might not proceed if bankers fail to make the firm’s worth match MBS’ target, apparently estimated by consultants at Mackenzie.


However, the sale may proceed even if the firm were valued at less than $2 trillion. Why? By selling say $300 or $400 billion in shares (putting the company’s worth at $1.2 trillion or $1.6 trillion), the Saudis could put much of the shareholder-owned private-sector oil industry in jeopardy. Even a firm as large as ConocoPhillips might be at risk.


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