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Tom Kirkman

Saudi Arabia cash crunch requires Aramco IPO to bail out the country

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An easier solution might be to greatly reduce cash to the over 15,000 royal princes who do precisely nothing but get lavish welfare from Aramco oil money.

Or maybe stop the Saudi massively expensive war against Yemen.


Saudis "Running Out Of Money" & Urgently Need Aramco IPO Cash

Late this week Gen. David Petraeus, retired four-star Army general and former head of the CIA, appeared on CNBC and proclaimed that Saudi Arabia is “gradually running out of money.”

In the Thursday interview he addressed the on-again, off-again IPO of state-run oil company Aramco as well as Mohammed bin Salman's initiative to diversity the kingdom's economy over the coming decade to reduce oil dependency. Addressing the degree to which MbS' own success and survival is tied to the IPO, the ex-CIA director explained:

“It’s a fact that Saudi Arabia is gradually running out of money, they’d be the first to acknowledge that the sovereign wealth fund has been reduced, it’s somewhere below $500 billion now,” Petraeus, who's also currently chair of the KKR Global Institute, told the CNBC host as they spoke in Abu Dhabi.


“The (budget) deficits each year, depending on the price of Brent crude, can be anywhere from $40 to $60 billion depending on some of their activities in countries in the region.”

“The bottom line is that they need the money, they need that outside investment that is crucial to delivering ‘Vision 2030’ which cannot be realized without outside investment, this is just one component of a number of different initiatives that they’re pursuing to try to attract that outside investment,” he added.  ...


... Of course there's also the Saudi-led war on Yemen, now in its fifth year which has claimed over 100,000 lives by most estimates. This was carefully avoided in the interview. 

His comments on Saudi Aramco underscored how much is riding for the kingdom on the IPO — that it needs to be hugely successful: "The bottom line is again, they need the money. They need that outside investment..." he said.  ...

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I've mostly like Gen Petraeus, his observations are spot on. 

The adventurism in Yemen is a disaster. Silly amounts of money have also been sent to Sunni militant organizations fighting Bashar Assad. 

A couple of things the General doesn't know, or at least doesn't talk to. Vision 3030 is doomed for failure, even if oil goes to $100 barrell and the IPO evaluation is $3 trillion. Higher oil prices and a successful IPO only extend the date of collapse. 

Aramco may claim a less than $3 a barrel lift cost, but don't believe it. With their financial structure, I doubt anyone knows the lift cost  Aramco itself is quite bloated, and involved is so many things it shouldn't be as an oil company, other than the King can't trust to government to get it done. And Aramco probably works better than most things in the country. 

The fundamental challenge is a patronage society model. It's worked well for decades because they started with a low population to spread the money with, and in fairness, the royals have improved most citizens lives, especially from the mid-30s to mid-00s. But the system always depended on cash coming from oil. There are some competitive niches in the country, but not many.

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The IPO will only represent a very small percentage (1%-3%) of the company so that their control and ownership is not lost.

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