Aramco flotation prompts dramatic U-turn in Saudi oil policy

The proposed stock market flotation of Saudi Arabia’s state oil giant Aramco has prompted a major shift in the country’s energy policy.

Long seen as an advocate of restraint within Opec, seeking to convince fellow members like Venezuela, Iran and Russia that fast rising oil prices benefited alternative energy providers, the world’s biggest oil exporter has performed a remarkable volte-face since announcing its decision to sell off part of its state-owned oil company, Reuters says.

Last year, in a bid to push up oil prices to maximise the valuation of Saudi Aramco, the government tried to get fellow oil producers to agree to reduce production, even threatening to pull out of Opec altogether if they did not.

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While it remains unclear how serious this threat was, “the fact such a move was considered shows how Aramco’s initial public offering (IPO) - expected to be the biggest in history - is forcing the kingdom to rethink its Opec policies”, says Reuters.

One high-level Opec source told the news agency that “Saudi Arabia is now the main price hawk”, adding that he was “surprised how quickly the kingdom had shifted from its policy of prioritizing market share, by pumping oil at full tilt, to supporting production cuts following its decision to list Aramco”.

According to sources within the Saudi government, plans have been put in place to list around 5% of Aramco by the end of 2018. The IPO is the centrepiece of Vision 2030, a reform programme devised by Saudi Crown Prince and heir to the throne Mohammad bin Salman to diversify the Saudi economy beyond oil.

However, while expected to raise in excess of $2tn to form part of a new sovereign wealth fund, the partial sell-off of Aramco has been heavily criticised within Saudi Arabia.

There are fears that once listed publicly and answerable to investors, Aramco will be liable to rules and anti-trust legislation which preclude price-fixing, potentially hampering an effective tool of Saudi state control and global influence.

Until now, says The Economist, the company has been “as cloistered from outside scrutiny as the kingdom itself” and “its finances remain off-limits to everyone except the government, its only shareholder”.