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Saudi Arabia sunset
Stuart Hampton

The Saudis: Making Money in a Down Oil Market

by Stuart Hampton | Dun & Bradstreet Editor

January 13, 2016 | No Comments »

Saudi Arabia sunsetSaudi Arabia, the world‘s largest oil producer, has a way to make a lot of money from oil in the current low-price environment, even as other oil producers and oil companies blame it for the glut that has forced down global prices.

By continuing to produce oil and taking advantage of the kingdom’s lower costs, it has forced Venezuela, Russia, and Nigeria, not to mention US shale producers, to shut down their more expensive exploration and production operations.

But Saudi Arabia has another ace up its sleeve: the privatization of the world’s largest state-owned oil company, Saudi Aramco.

Saudi Aramco dates back to 1933 when Saudi Arabia agreed to open up a large area for exploration by Standard Oil of California (now Chevron).

With estimated reserves of more than 266 billion barrels of crude oil and production of 10 million barrels of crude a day, Saudi Aramco could bring in billions of dollars of revenues with an IPO. The sale could also open the floodgates for the government to offload other assets (it owns $170 billion worth of shares in other companies listed on the Saudi Stock Exchange).

Turning oil assets into short-term cash would not only help the Saudis address the kingdom’s current budget deficit (15% of GDP); it would also give Riyadh more time to punish competitors in the oil market by keeping prices low.

Reapolitik, and royal politics, and roil politics in action.

British editorial veteran Stuart Hampton has been covering oil and gas companies for Hoover’s since the Neogene-Quaternary period. Well, actually, since the early 1990s. For the best overview of the oil industry and its history he recommends Daniel Yergin’s “The Prize.” You can also follow Stuart on Twitter.


Photo by Flickr user Wajahat Mahmood, used here under a Creative Commons license.

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