Father Knows Best: Saudi King Steps in To Shelve Foreign Oil IPO

The public has been led to believe that Saudi Crown Prince Mohammed bin Salman had taken the reigns from his father, King Salman, and that his modernization plan to move the national economy away from complete oil dependence would be allowed to proceed unfettered. However, the shelving of the sale of a sliver of the national oil company Saudi Aramco, reportedly at the behest of the King Salman, has put into question how much autonomy the Crown Prince truly has, and where the Saudi economy may be headed.

On the Saudi Vision 2030 web page, Crown Prince bin Salman – and, notably, the ‘Chairman of the Council of Economic and Development Affairs’ – presents what is presumably his vision for the future of Saudi Arabia. He notes the holy nature of the nation with respect to Islam, but the next pillar of his plan pertains to investment, the sort of which the third pillar reveals to be foreign.

‘The second pillar of our vision is our determination to become a global investment powerhouse. Our nation holds strong investment capabilities, which we will harness to stimulate our economy and diversify our revenues. 

The third pillar is transforming our unique strategic location into a global hub connecting three continents, Asia, Europe and Africa. Our geographic position between key global waterways, makes the Kingdom of Saudi Arabia an epicenter of trade and the gateway to the world.’

The diversification of the Saudi economy was to be coupled with the relaxation of social mores associated with hardline Islam, such as a ban on women driving and strict oversight of Western entertainment. As the driving ban was lifted, women were told that they were not required to wear the traditional head cover or abaya, and conversations were sparked around the possibility that Saudi Arabia would become the Middle East’s new, relatively liberal entertainment hub, it seemed as if the vision of the Crown Prince had been set in motion.

If this were in fact the case, the next step would be a steady overhaul of the Saudi economy, with a shift towards greater diversification including partial foreign ownership of Saudi enterprises. First up, it was reported, was the sale of a 5% stake in the OPEC leader’s national oil company, Aramco. That small sliver of a stake would be sold as part of an IPO valuing Aramco at $2-2.5 trillion, a massive valuation which would help fund reinvestment in the new Saudi economy – with a few bucks going to the royal coffers, of course.

But, after two years of deliberations about the Aramco IPO, the King has apparently decided to put on the brakes.

‘The planned listing was to be the cornerstone of the kingdom’s promised economic overhaul and, at a targeted $100 billion, the biggest IPO ever. It was the brainchild of 32-year-old Crown Prince Mohammed bin Salman, heir apparent of the world's largest oil exporter.

But after months of setbacks, the international and domestic legs of the IPO were pulled.

The reason: the prince's father King Salman stepped in to shelve it, three sources with ties to government insiders told Reuters.’ (Reuters)

Interestingly, the decision was reportedly made after the King met with those closest to him. These consultants cannot be described as anything other than Saudi insiders, who are presumably far more familiar and comfortable with the traditional Saudi way of keeping business affairs and oil ownership insular.

‘The decision came after the king met with family members, bankers, and senior oil executives, including a former Aramco CEO, said one of the sources, who requested anonymity. Those consultations took place during Ramadan, which ended in the middle of June.’

The seemingly out-of-the-blue decision hints at a potential difference of opinion between father and son with respect to Aramco, whether it is merely over the timing of the IPO or a broader vision for the future of the Saudi economy. In a shell, it’s old-school versus new-school, international investment versus the all-in-the-family business model. And, perhaps the King is right. After all, Bloomberg reported positively with respect to the rationale for pausing the IPO. 

‘Listing Aramco would be “very positive long term, but at the time of the IPO, our biggest concern would be a drain of liquidity, because you would see a lot of investors selling off their shares in order to fund their applications for the IPO,” Fahd Iqbal, head of Middle East research at Credit Suisse Group AG, said in an interview with Bloomberg Television. “With the removal of that IPO for the time being, it removes a little bit of that overhang.”’ (Bloomberg)

Saudi officials maintain that the IPO is far from dead, underplaying philosophical rifts between the King and Crown Prince.

“The government remains committed to the IPO of Saudi Aramco at a time of its own choosing when conditions are optimum,” said Khalid al-Falih, Saudi Energy Minister and chairman of Saudi Aramco, in a statement. (NBC News)

However, the message is clear: while papa is still alive, he calls the shots. In a nation like Saudi Arabia, where the progressive vision of the Crown Prince is seemingly at odds with the more traditional modes of the sitting King, this could have significant ramifications. While the social loosening is not likely to be rolled back, there is clearly some hesitancy by the King to give up a stake in an oil empire that has been completely Saudi-owned since its inception.

How these fragmented visions unfold and the amount of give-and-take between father and son when it comes to the future of Saudi Arabia could become a must-watch international storyline.

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