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Bill Law

Aramco strikes have deep repercussions for Saudi Arabia's economy

A heavily damaged installation in Saudi Arabia's Khurais oil processing plant [Getty]

Date of publication: 20 September, 2019

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At a time when MbS was attempting to refloat the delayed sale of Aramco shares, the drone attacks have laid bare the extreme vulnerability of the world's largest energy company.

The drone and missile barrage that hit Saudi Aramco on September 14 with devastating accuracy has laid bare both a significant security lapse and the extreme vulnerability of the world's largest energy company. Striking, as it did, at the heart of the Aramco operations in the Eastern Province, the assault has deep repercussions for Saudi Arabia's economy.

It came at a time when the de facto leader of the kingdom, Crown Prince Mohammed bin Salman (MbS), was attempting to refloat the much delayed sale of Aramco shares. 

The company has been valued by the crown prince at US $2 trillion but prior to the attack most energy analysts valued it from US $1-1.5 trillion.

MbS had announced his plan to sell five percent of Aramco in an initial public offering (IPO) more than three years ago. At the time he told Bloomberg: "I'm trying to push for it in 2017. Aramco (IPO) will greatly benefit… the Saudi economy as a whole."

However just as MbS overvalued Aramco, so he underestimated the difficulties the IPO would face in attempting to get it placed on leading world stock markets.

Though there is no argument among analysts and potential investors that the company is well run, the stumbling block is a lack of transparency.

A London School of Economics study aptly titled Show Us the Money points out the discrepancy between officially declared public oil and gas revenues and the total value of export sales.

Aramco attacks expose Saudi vulnerability and shaky GCC security
Read also: Aramco attacks expose Saudi
vulnerability and shaky GCC security
 

In Saudi Arabia's case between the years 2002-2011 it amounted to a gap of more than $300 billion. Where, an investor, will ask has the money gone? The answer of course is into the pockets of the ruling family.

As the report, in commenting on what it calls "a huge lack of transparency", laconically notes "this gap requires pause for thought and explanation," something the Saudi authorities have thus far been unable to provide.

Still MbS is impatient to get on with the IPO for the simple reason that the ongoing slump in oil prices is squeezing the kingdom's budget at a time when he is funding mega-projects like the $500 billion NEOM mega-city, Qiddiya, an entertainment city north of the capital Riyadh and a Red Sea resort designed for the ultra wealthy.

Many observers see these projects as little more than vanity exercises that carry a huge price tag but do little to achieve the goals the crown prince called for when, in 2016, he rolled out Vision 2030, his blueprint for an economic and social revolution in the kingdom.

Days before the attack on the Aramco facilities, MbS fired the country's energy minister Khalid Al Falih and replaced him with his half brother Abdulaziz Bin Salman. He also stripped the chairmanship of Saudi Aramco from the minister and gave it to the chair of the kingdom's Public Investment Fund Yassir Al Rumayyan, described as a close confident of the prince.

The abrupt sacking of Falih and the appointment of Rumayyan who has no experience in the energy sector, rattled markets

Though Abdulaziz Bin Salman is a highly respected veteran of the oil industry, the abrupt sacking of Falih and the appointment of Rumayyan who has no experience in the energy sector, rattled markets.

No reason was given for the changes; however, Falih was seen by MbS as someone who was dragging his feet on the share sale.

The reshuffle was intended to kickstart the IPO by first of all selling one percent of Aramco shares on the Saudi stock exchange Tadawul.  

Arab Digest quoted what it called the comments of a "member from Saudi Arabia" who claimed that "having failed to sell Aramco shares in London, NYC (New York) and Hong Kong, MbS is now making last resort arrangements to sell them internally on the Saudi stock market and then force every businessman in the country with more than SAR 1 million to buy them."

Had Mohammed bin Salman not arrested more than two hundred of the wealthiest businessmen and ruling family members in the infamous Ritz-Carlton roundup in 2017 and then proceeded to appropriate their assets, the claim would seem farfetched. 

That it has the ring of authenticity about it says much about the brutal but reckless manner in which MbS is running the country and its economic engine Aramco.

Having failed to sell Aramco shares in London, NYC and Hong Kong, MbS is now making last resort arrangements to sell them internally on the Saudi stock market and then force every businessman in the country with more than SAR 1 million to buy them

The attack on the oil giant which has the mark of, if not direct, then certainly indirect Iranian involvement, should have been a wake-up call for MbS. Instead he was seen attending a camel festival the day after the attack, scarcely a reassuring sight for foreign investors who might well have expected he would be at the scene of the carnage and taking charge of efforts to get the damaged plants back up running.

There are questions too, about how the Saudis, who have spent hundreds of billions on military hardware including the most sophisticated missile defence systems, could have allowed such a brazen strike to happen. 

What prevents the Houthis or other Iranian proxies from carrying out a similar attack at any time of their choosing?

These questions should by all rights be put to the Saudi defence minister. Indeed, it could be said, the minister should have offered his resignation. But then the minister in question is Mohammed bin Salman.

In many ways the crown prince treats his country like a corporation, Saudi Arabia plc, and himself as the CEO. In that capacity, his record thus far is not an inspiring one.

He embarked on a war in Yemen in March 2015 anticipating a quick win that would burnish his reputation as a warrior prince. The war drags on into its fifth year with huge collateral damage to the Yemeni people and ongoing reputational damage to the Saudi brand.

He seized the Lebanese prime minister Saad Hariri on November 4, 2017 while he was on a visit to Riyadh and forced him to resign, a decision Hariri rescinded once he got out of the kingdom. That was the same day MbS launched his Ritz-Carlton escapade.

But the most egregiously reckless decision he took was to enable the brutal murder of the journalist Jamal Khashoggi in the Saudi consulate in Istanbul in October of last year. It was a particularly vicious act that will continue to follow him and stain his reputation for years to come.

Terrible, rash decisions, lack of forethought, a misplaced sense of his place on the world stage coupled with a stagnating economy should give pause for thought for foreign investors eying up Saudi Aramco. Business dislikes uncertainty and Mohammed bin Salman's kingdom, in the wake of the Aramco attack, is rife with it.


Bill Law is a former BBC Gulf analyst. Follow him on Twitter: @Billlaw49

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