هل تتدخل الصين لإنقاذ بن سلمان وصفقة أرامكو؟

Logo of Saudi Aramco is seen at the 20th Middle East Oil & Gas Show and Conference (MOES 2017) in Manama, Bahrain, March 7, 2017. REUTERS/Hamad I Mohammed
التقدير الذي افترضه بن سلمان لقيمة أرامكو الإجمالية يزيد على تريليوني دولار (رويترز)

Will China buy Saudi Aramco?
Nick Butler’s blog
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The planned sale of a 5 per cent stake in the Saudi state oil company Aramco is still in limbo. There is no clarity on where it will be listed, on its value or, most important, on how the rights of minority shareholders can be protected in an entity that will be 95 per cent owned by the Saudi government.

The volatility of politics in Riyadh over the last few months, centred around the transfer of power from the former crown prince Mohammed bin Nayef to the 31-year-old Mohammed bin Salman, has not helped. The question now is whether the sale will go ahead or not.

There is a lot at stake. Saudi Arabia is rapidly running through its financial reserves and needs the revenue, especially given the persistence of dissent within the country over any attempts to impose austerity. The Vision 2030 plan to transform the economy cannot be properly funded without the proceeds of the Aramco sale.

The new crown prince has staked his reputation not just on the sale but also on a valuation of the company at more than $2tn — a figure rather higher than that estimated by external analysts. A failure of the sale could be a humiliation and reopen the issue of succession.

The question is whether the listing can be rescued. The answer is yes, but it may well be that one of the banks is working on a very different solution. That, however, will not suit everyone.

The obvious buyer for the Aramco stake is China, mainly for the reasons below.

China imports over 8.5m barrels of oil every day. That is up by 2.5m b/d since 2014, even at a time of relatively low economic growth.
The level of China’s imports has been pushed up by the decline in domestic production from the long-established fields in Daqing and Shengli and by the difficulty of developing other resources, including the unconventional tight oil in the Ordos basin.
China’s imports will keep growing. The country may have produced 160,000 electric vehicles last year but it also put over 24m new petrol cars on the roads. Freight business is increasing rapidly and so is internal airline travel.
China is the world’s largest importer of oil and is set to be the biggest single user in little more than a decade.
What better way for Beijing to secure a substantial part of its oil needs than to be a shareholder in a company that holds some of the world’s lowest-cost reserves? A deal could go further than a simple share purchase. A long-term sales contract for oil supplies is logical, as is the further involvement of Aramco in China’s growing refining sector, building on the existing investment in Fujian and the recently announced $10bn joint venture at Panjin in the northern province of Liaoning. As the Chinese economy diversifies from its heavy industrial base the need for more gasoline and other oil products can only grow.

Buying oil alongside shares has the added attraction of bypassing the question of exactly how big Saudi’s oil reserves are. Until the late 1980s the claimed figure was 170bn barrels but that was suddenly raised to 260bn. That level has been maintained despite the production of almost 100bn barrels.

Many consider that the upward revision owes more to politics than to geology or engineering. But in a private transaction far away from the awkward scrutiny of the US Securities and Exchange Commission or any other due diligence the number would not matter. China would have the oil it needs and the Saudis would have the money. The payment involved would be private and the crown prince’s valuation of Aramco would not be tested — at least not in public.

For the Saudis, the downside would be the closeness of a relationship with a single, powerful partner who would not regard themselves as just a minority investor. For the Chinese, the doubts will be around the stability of the current Saudi regime and the risk of an unwanted entanglement in the complex politics of the Gulf.

The transaction would be a state-to-state arrangement and this is where Saudi’s political and economic needs coincide. For decades the survival of the royal family has effectively been entrusted to the US. But in recent years America has been drawing back and is no longer in the mood to police the world.

The Saudis need more effective and stable partnerships with allies they can rely on. China may not have troops in the Middle East but it has growing influence and none of the historic legacy of distrust built up by the Americans over the last 60 years. A Sino-Saudi alliance built on mutual interest would be natural, and Aramco is a good place to start.

Of course, there would be losers — a London or New York IPO would provide huge fees for banks and law firms. But the geography of the world economy is shifting. Most of the trade in oil is now between the producers in the Middle East and Africa and the emerging markets of the south. It should come as no surprise that corporate transactions are conducted on the same axis. The world is no longer centred on the Atlantic.
This article has been amended since original publication

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