“There is no terror in the bang, only in the anticipation of it”– Alfred Hitchcock. The iconic shower scene in his 1960 film Psycho defines the shock element in the sub-genre of suspense. Led by Saudi Arabia, OPEC and its allies’ proposed production cut, curtailing output by 1.16 million bpd from May 2023, had a similar effect on the ‘gallery’. The embargo on Russian oil consequent to the Ukraine war was assumed to tighten the oil market. But prevailing economic and strategic political factors stymied the prospects. Markets continued to be in surplus. An anticipated record-high US oil production in 2023 and continued regional discovery of oil in Latin America could prove ‘price friendly’.
Moreover, the emerging shift in alliances while scouting for alternate supply sources is rampant in the changing energy landscape. China recently brokered an end to the diplomatic impasse between Iran and Saudi Arabia while also warming up to Moscow. Sentient of the developments and shifts, OPEC’s production cut, expressed as a stability-lending measure, commenced to energise prices through supply shocks.
Though the high prices in early 2022 fattened their sovereign funds, Arab nations are privy to the fact that relying solely on oil income is inadequate to attain long-term development. The monetisation of fixed assets and diverse foreign equity participation is ineluctable to effectuate their dream of moving away from overt dependence on oil. Indicative of this realignment are definite moves visible on the horizon.
Kuwait is developing Madinat al-Hareer (City of Silk), a $132 billion project, part of China’s Belt and Road Initiative, spread over 250 sq km in Subiya. Interestingly, a potential landmark, the Burj Mubarak al-Kabir, would stand at 1,001 metres, suggestive of the Arabian folktale collection One Thousand and One Nights, often called the Arabian Nights.
The ambitious Kuwait Island Development costing $160 billion involves developing five major islands located in the northwestern corner of the country with a vision to build canals like in Venice, besides airports, hotels, shopping and business centres.
The Bismayah City project near Baghdad is amongst more than 1,100 stalled projects in Iraq currently in revival mode. Ambitious Iraq Railway projects linking Asia to Europe, and the French oil major TotalEnergies’ partnership with the Iraqi government for a $27 billion energy project could foster foreign equity investments in the country.
Saudi Arabia announced the $500 billion NEOM project in 2017 on the Red Coast in line with a vision for 2030. It is set in the desert and is projected as a unique enterprise unparalleled on Earth. Though the sovereign fund would partly meet the initial cost, much can be gained by going public and allowing broader global financial market participation. Aramco valuations catapulted Saudi Tadawul into the list of top 15 Stock Exchanges, closely trailing behind the NSE and London Stock Exchange. With the NEOM project’s probable listing, Tadawul’s ranking would move up while reducing its ‘heavy weightage’ on oil-based listings.
With a market cap exceeding $2 trillion (over twice the combined market cap of Exxon, Chevron and Shell), Aramco ranks among the world’s top three companies, along with Apple and Microsoft. Posting a $161 billion profit in 2022, the corporate is keen to expand its presence in other countries. Acquisition of a 10% stake in China’s Rongsheng Petrochemical Co. and a joint venture for a greenfield refinery and massive petrochemical complex in Panjin City confirm Aramco’s expansion plans. Beijing’s overtures to Riyadh suggesting oil trade at Shanghai Petroleum and Natural Gas Exchange in local currency could be mutually beneficial. While abating dollar dominance, this could mark Aramco’s subsequent debut at Shanghai Stock Exchange, the third largest after NYSE and Nasdaq. The transfer of a further 4% stake in Aramco to the investment arm of the kingdom’s sovereign wealth fund in April indicates economic diversification plans. Sinopec and TotalEnergies have shown interest in investing in Aramco’s Jafurah development, one of the world’s largest untapped gas fields, heralding a move towards an energy transition.
With a mere 1.73% of Aramco shares currently traded at Tadawul, London Stock Exchange’s premium segment and the Singapore Stock Exchange are rumoured to be on Aramco’s radar for probable entry, while Hong Kong vies for Aramco’s listing. Cognizant of oil price volatility, Saudi Arabia would be keen that the portfolio includes a diversified equity basket. Besides real estate and industry, hospitality and commercial ventures could be the additions.
Riyadh Air, the newly announced airline, will mark Saudi Arabia’s fresh foray into aviation. Announcement of a young fleet of carriers and extensive global connectivity might well be ‘open sesame’ to facilitate flotation and ‘international financial cooperation’. Airlines’ scrips, though cyclical, enjoy dedicated investor patronage.
The recent collapse of SVB brings to memory the weakening of Citibank in 1990 and Saudi Prince Al-Waleed’s infusion of over half a billion dollars in Citicorp shares when almost $200 billion of its market value was wiped out. Such acquisitions could be de rigueur once again. It’s not just the establishment of other sources of revenue but also involvement in the global market scene. The moves manifest a Saudi resolve to be more noticeable on the stock tickers worldwide!
We may eventually have the option of investing in highly profitable, transparent and secure Middle Eastern companies, the blue chips of the future. It may be their chance to share the stage with the big performers of the US, European and Asian bourses.
Ranjan Tandon
Senior markets specialist and author