Why a Potential Saudi Aramco IPO Signals Shift in Saudi Strategy....

With the recent news that Saudi Arabia may look to IPO state-owned Saudi Aramco, it is clear that the Saudi government is shifting strategy. It would appear that the new Saudi government, spearheaded by 30 year old Prince Mohammad bin Salman, is trying to use the oil price collapse over the last two years to remake the economy and shift away from an oil-funded, government-dominated system to one where private business has a larger role. Notably, Saudi Arabia’s oil income currently furnishes about 90 percent of government revenue. A full public listing of Saudi Aramaco would likely be very complicated (i.e. scrutiny on company spending, reserves and public reporting), as such, the Saudi government will likely only put a small portion of Saudi Aramco on the market or perhaps a package of refineries and other assets. Nonetheless, it is pretty clear that the countries new, younger leadership team is pushing for broad changes in the kingdom’s economy. This change is likely being driven by the Kingdom's view that oil prices will be lower for longer.