Saudi Prince to Take Oil Public

Prince Mohammed bin Salman was named the crowned prince of Saudi Arabia on Wednesday. The 31-year-old Prince has plans to improve Saudi Arabia’s economy by reducing the country’s dependence on oil in his plan known as Vision 2030. He plans to do that by taking Saudi Aramco, the national oil company, public. Wall Street bankers came in to assess the company for its initial public offering which is expected to be valued at hundreds of billions of dollars.

Prince Mohammed has started off his reign by replacing the country’s longtime oil minister, Ali al-Naimi, with one who agrees with the path that the prince has set the country on. Supporters of the Prince say that he will bring a fresh look to the economy and help modernize and diversify it. Critics believe that he is too inexperienced and is undermining experienced officials, like Ali al-Naimi.  Paul Stevens, a Middle East energy analyst at Chatham House, a research organization based in London, states, “the problem is he is unpredictable, and it is not clear who he is relying on for advice.” Prince Mohammed plans to raise to cost of oil so that that value of Saudi Aramco shares will be valued highly when it is taken public.

Currently, oil prices are at $45 a barrel which is down by 20 percent since mid-April. In 2014, barrels were placed at over $100. Saudi Arabia is a part of the Organization of the Petroleum Exporting Countries (OPEC) which is an organization of 14 different countries who produce oil and make decisions together on how much oil should be produced. OPEC has been trying to increase the cost of oil by limiting its production. However, their efforts have not had the effect they were hoping for as there is still a large supply of oil coming from shale oil production in the United States and increased production of oil in other countries.

Prince Mohammed’s leadership could also lead to a lower than hoped for initial public offering as he has flip flopped on his oil strategy. He originally stated that prices did not matter, but when they got too low he then supported the decision to decrease production in hopes of raising oil prices.  FGE, an energy consultancy wrote, “we should be prepared for Saudi Arabia to do whatever it takes to keep the prices above $50 a barrel. If the I.P.O. is to go ahead, prices cannot go below $50 a barrel.”

The question still remains on whether reducing oil production is the best move for Saudi Arabia and the rest of OPEC as other countries continue to produce and supply more oil to make up for OPEC’s diminished production.

Featured Image Via President of Russia