According to sources from inside Saudi Arabia and others quoted by Reuters news agency, Saudi Aramco, the world’s biggest oil company and the kingdom’s largest company, has cancelled its very awaited IPO.
The Saudi authority suddenly halted the listing plan and disbanded advisors, said various sources and one stressed an economist named Barjas al-Barjas, a former adviser, has been arrested in the meantime. “Investors were always skeptical of Saudi Aramco’s USD 2 trillion price tag,” wrote Bloomberg which was still talking quite positively just a few days ago about the planned listing, like its main competitor CNBC.
However, in July 2018, Bloomberg reporters Javier Blas and Will Kennedy did point out that “likely investors doubt the value of the proposed public offering” and asked “how will Saudi Crown Prince Mohammed bin Salman (MBS) save face?” While many analysts emphasized the potential economic reasons behind this cancellation, Cyceon thinks political reasons shouldn’t be ruled out as well.
Indeed, Saudi Arabia is undergoing significant changes mostly decided by MBS and which seem to fuel some frictions inside the Saudi power circles. Although it’s too early for these reasons to be clearly identified and assessed, the sudden move after so much publicity may prove a negative development for Saudi Arabia’s Vision 2030 and standing across the financial world.
As early as July 2017, the French energy group Total announced within the framework of the South Pars 11 project (SP11) led in association with the Chinese group PetroChina (CNPC) that it took all possible precautions to restrain the field of influence of the the Iranian Revolutionary Guards Corps (IRGC).
Following the decision of President Donald Trump to withdraw the United States from the Iranian nuclear deal (JCPOA) signed in July 2015, Total said it would discontinue its participation in SP11 if it did not obtain a specific project waiver by the US authorities with the support of the French and European authorities before November 4, 2018.
Since then, the Trump administration has reinstated the sanctions against Iran and the Congress could toughen them a little more before the mid-term elections in November.
In the absence of a US guarantee and considering the significant fines paid by European companies to the benefit of the US government in recent years, the Total group has announced its definitive withdrawal from the SP11 project despite related expenditure valued at around 40 million euros, confirming a decision known for two months according to Tehran and especially the extraterritoriality of US legislation in Europe.
“Total had little choice for two reasons. The first is caution because even with the support of the French government, there was no guarantee that the US government would be comfortable with it. The second and most important is of course the possibility at any time for the US government to paralyze the financial activities of Total knowing that US banks are present in 90% of the group’s financing operations,” said an observer.
The decision of Total is also a disavowal for the European Union (EU) which Commission has yet adopted on July 16, 2018 a legal instrument – the Blocking Statute – with a view to protecting European companies in Iran against US sanctions. Finally, in accordance with the contract signed on July 3, 2017, PetroChina is expected to acquire Total’s shares and to chair the SP11 consortium.
Saudi Energy Minister Khalid Al Falih, also Chairman of Saudi Aramco, estimates that about USD 1 trillion worth of investments have been canceled or postponed since oil prices dropped in mid-2014 when the barrel was still trading higher than USD 100.
While downward pressure on oil prices could persist according to Saudi sources, the United Arab Emirates (UAE) announced its commitment to build an oil pipeline linking the port of Assab (Eritrea) to the capital Addis Ababa (Ethiopia).
This information was made public in that same city during a meeting on August 10, 2018 between Ethiopian Prime Minister Abiy Ahmed and Emirati Minister for International Cooperation Reem Al Hashimy. This meeting followed Ahmed’s state visit in July 2018, during which he met again with Mohamed bin Zayed Al Nahyan, Crown Prince and Minister of Defense of Abu Dhabi.
Like the extension of their diplomatic mission in Astana (Kazakhstan), the UAE thus confirms their willingness to play an increased diplomatic role, not only economic, while maximizing their opportunities for international cooperation in Africa in a context of increased competition with Iran and Qatar.
Indeed, Abu Dhabi uses a military base in Assab to conduct operations in Yemen, across the Red Sea. Also, this pipeline linking Eritrea and Ethiopia is part of the dynamic of an agreement signed by the two African nations on July 7, 2018 that “ended the state of war” that lasted since the border conflict (1998-2000).
In this context, it is for Abu Dhabi to help stabilize the Horn of Africa sustainably so as not to favor the settlement of other competitors and to catch profitable opportunities through, for example, the joint exploitation of oil resources located in south-west Ethiopia, a landlocked country of 102.4 million inhabitants with growth potential deemed significant by the Emirati and Saudi business communities.