Saudi’s Aramco IPO Goes From Bad To Worse With New Middle East War Starting

Credit to Author: Paul Fosse| Date: Sun, 05 Jan 2020 01:36:13 +0000

Published on January 4th, 2020 | by Paul Fosse

January 4th, 2020 by  

The Saudi government sold off a small 1.5% share of the largest oil company in the world (Aramco) about a month ago. Aramco has huge reserves and it has proven it can produce that oil at a low cost. This oil doesn’t require risky deep sea platforms, fracking, or traveling to the Arctic circle to drill. In spite of that, articles that came before the IPO were mostly negative, like this piece from the Sydney Morning Herald, which pointed out that it wouldn’t be able to raise significant amounts of money because foreigners are hesitant to buy for the following reasons:

Those looking on the bright side, that this will push up the price of oil through supply disturbances and make more money for the company, are looking in the rear-view mirror. This will work in the short term and has worked in the past, as the world has had few good alternatives to oil and still doesn’t have a good short-term solution when prices spike. But any spike in oil prices will greatly accelerate the public’s acceptance of electric vehicles and hybrid cars, and to a lesser extent accelerate the greening of the electric grid. The market for natural gas is less global (transportation costs are more significant) and Aramco has just started to sell liquefied natural gas in April 2019, so I don’t expect the price of natural gas to be nearly as affected by Middle East wars.

Even though the Saudis technically took the company public, it is public lite. They are not listed on a major exchange, just the tiny Tadawul exchange, and word is that most of the investors bought under pressure from the royal family. As the whole world learned from the Khashoggi murder, going against the royal family’s wishes carries gruesome consequences.

The Saudi government had a chance to do the right thing. If they would have sold this huge asset to the public 5 or 10 years ago when few people knew about climate change, they could have taken the proceeds and either invested in renewable energy or just invested in promising companies in any industry. This would have benefited the Saudis (since they wouldn’t be stuck with an oil company that is headed for many years of painful cutbacks). It also would have benefited the world, because it would have satisfied investor demand for oil stocks and caused other oil companies to reduce drilling due to less capital being available.

What can they do now? They can cut back their lavish spending and use their massive resources to find innovative solutions to the world’s problems. Will they do that? I try to be an optimist, but I have my doubts.

This is not investment advice (even though it wouldn’t be easy to invest in or short Aramco, since few people have access to shares on that exchange). These are just my thoughts on the situation. 
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A Software engineer for over 30 years, first developing EDI software, then developing data warehouse systems. Along the way, I’ve also had the chance to help start a software consulting firm and do portfolio management. In 2010, I took an interest in electric cars because gas was getting expensive. In 2015, I started reading CleanTechnica and took an interest in solar, mainly because it was a threat to my oil and gas investments. Follow me on Twitter @atj721 Tesla investor. Tesla referral code: