Middle East

Aramco Attack Exposes Saudi Vulnerabilities – Analysis

The recent drone attacks by unknown actors of Saudi Arabia’s Aramco Abqaiq oil processing facility on September 15 highlights the company’s extraordinary significance to the world’s energy economy. The attack is expected to lop off 5 percent of the world’s oil capacity in the near term and could further derail a long delayed Saudi Aramco initial public offering that had once been expected in late 2019.

Saudi Aramco is simply the world’s most profitable company, its 2018 profits exceeding $111 billion, more than double the $53 billion of distant second-place competitor Apple. To put this in perspective, the all-time record profits overshadow all other Saudi companies combined and is more than the profits of Google, Facebook, JP Morgan and Exxon combined. Saudi Aramco’s profits are partly due to its low oil production costs, about $3 per barrel, against a world average of nearly $30 a barrel, but high taxes supporting the Saudi economy eat into that profitability.

Saudi Aramco caught the attention of global investors in 2016 by proposing an initial public offering. As described by former Saudi Energy Minister Khalid al-Falih, the IPO would be for an estimated 5 percent equity float of the company and the biggest stock market IPO in history, with an estimated valuation of $2 trillion and expected to raise upwards of $100 billion for Saudi Arabia. Officially, the IPO was postponed, not cancelled, to acquire a 70 percent stake in Saudi petrochemical company SABIC. Postponement was a relief for the many international banks and legal advisers who stood to make up $200 million on the IPO flotation.