In April, Saudi Arabia announced a comprehensive roadmap called Vision 2030 to address the serious issues facing the kingdom. The 31-year-old Prince Mohammed bin Salman, second-in-line to the throne, has been given a mandate to overhaul nearly every aspect of his country’s economy and reduce its oil dependency.
The cornerstone of Vision 2030 is a listing of the kingdom’s assets, specifically a sale of Saudi Aramco, the national oil company.
Prince Mohammed has valued Aramco between $2 to $3 trillion. For context, $3 trillion is more than the combined market cap of Apple, Facebook, Google, Microsoft, Amazon and ExxonMobil.
At this valuation, selling a 5 percent stake would net the kingdom $100 to $150 billion.
Saudi Arabia took another step toward its Vision 2030 objectives with a far-reaching government shake up this past weekend. The headline move was the retirement of Ali al-Naimi, the kingdom’s long-serving and influential oil minister.
To many this move wasn’t simply the elevation of oil industry technocrat Khalid al-Falih to the position but a move to further cement Prince Mohammed’s control on Saudi Arabia’s energy policy by appointing someone from his inner circle.
While the new oil minister is certainly capable, he is unlikely to have the independent authority of his predecessor as Prince Mohammed is clearly in charge.
Oil bears will point out that not only has the Prince stated that he sees no immediate need for higher oil prices but he is also committed to a brutal market-share war with regional rival Iran.
The counter view is that the change can be bullish for oil, since a leadership change would allow for a policy change without any loss of face.
Our View: With summer approaching, baseball provides a natural analogy. Much like a great pitching performance, this move may look like a simple process from afar.
However the reality is that a great pitching performance requires a detailed and nuanced approach. In the same vein, in order for this critical move to achieve success Prince Mohammed will have to navigate a nuanced and extremely complex landscape.
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