Posted: 22 November 2019
Domestic demands and Aramco’s IPO
There are a number of domestic imperatives at work in the sale of the Aramco stake, though. Falanx Assynt’s managing director Charles Hollis, in comments to journalists a briefing this week, noted that a number of businessmen had been moving money out of the country over the last two or three years, amid scepticism of MBS’ Saudi Vision 2030. “Those with cash in the country “are under considerable pressure to invest or be under some form of house arrest”, as is the case with Alwaleed bin Talal, who is not allowed to leave the country.
Further risks come from the encouragement of small retail investors to take out loans in order to acquire shares in Aramco. Should the price decline, Hollis said, this would leave these people with negative equity, “which would tarnish the whole project” and the blame would be laid on MBS.
The Saudi government has played an important role in subsidising the lives of its citizens. While lifting costs per barrel of oil are possibly the lowest in the world, the International Monetary Fund (IMF) has said the fiscal breakeven price is more than $80 per barrel, in order to cover the country’s expenditures.
An effort to reduce benefits in 2015 was very unpopular, leading the government to change its tack and bring them back. “It is important for [MBS] to deal with this economic challenge in order to secure his future.” According to Falynx, Saudi’s reserves have been run down by around $200bn over the last four years.
The 2017 arrests of many leading lights of the Saudi society, infamously held in the Ritz Carlton, was “in part to provide revenue stream, it was not a genuine anti-corruption push – or at least that’s how it is seen in Saudi Arabia. Rather it provided [MBS] with immediate funds for the Saudi concerns.”