This is the third post in a series about the Arab World. Check out the links below for the first two.
What a difference 90 years can make. In 1933, some Americans worked out a deal with the Saudi Kingdom to go looking for oil in their country.
Last week, Yasir al-Rumayyan was named chairman of PGA/LIV Golf after the potential merger of the two organizations. Yasir al-Rumayyan, a Saudi and close advisor to Crown Prince Mohammed bin Salman (MBS), is also the Governor of Saudia Arabia’s $620 billion sovereign wealth fund, Chairman of Newcastle United Football Club, Board Member of Uber, and Board Member of Softbank, and Chairman of Saudi Aramco.
Saudi Aramco is the third most valuable company in the world with a market cap of $2.1 trillion.
Before it was Saudi Aramco, it was just the Arabian-American Oil company; Aramco. And Aramco was not first to the oil party. The Russians and Azerbaijanis from Baku had dominated the oil business since the mid 1800s. Then the Turks found oil in Iraq in 1927, and the Americans found oil in Bahrain in 1932. Then the same Americans got the Saudi Kingdom to grant them a concession and looked for five years before they found a productive well in 1938.
The biggest reserves were not discovered in Saudi Arabia until the 1950s. Maybe the largeness of Saudi Arabia was working against them by providing too many places to look. Ultimately, the oil reserves were found next to the already discovered fields in Bahrain, Iraq, and Iran. By the time the pumps got rolling, the concession had been divided between the companies that are now called Exxon, Mobil, and Texaco.
Dealing with Kings and Kingdoms over the riches of black gold turns out to be difficult. And by 1976 the ownership of Aramco and its rights to the oil had fully reverted to the Saudis – and is still called Saudi Aramco to this day.
Through our lifetimes, Saudi Arabia’s Aramco has been the dominant state in the OPEC cartel. They have so much easily extracted oil, it falls on them to keep the cartel in line. With ample reserves extractable for under $10 per barrel, Aramco can inflict asymmetric pain on any other OPEC member that cheats on their agreements. A cartel only succeeds in driving up prices if everyone sticks to the reduced production., But each individual state is seduced by its secret desire to be the only one cheating. And there is no sheriff – except the Saudis can immediately pump millions of barrels a day and make the price crash – which sometimes serves as compliance guardrails on the agreement.
The Saudi government had gotten control of its oil back from the western companies, but still wanted other people to invest in the company. So in 2019 it issue bonds for $12 billion, and raised an additional $25 billion through an IPO – of less than 2% of its outstanding shares. Sitting on $37 billion in fresh cash, plus the operating profits from the oil and gas operations, the Saudis set out to do some marketing:
2020: 10 year deal with Formula One for $650 million
2021: Bought Newcastle United Football Club for $408 million
2022: Acquired ESL Gaming for $1 billion
2022: Acquired FACEIT for $500 million
2023: Attempted to take over Formula 1 for $20 billion – but failed
2023: Attempting to take over the PGA for $3 billion – outcome TBD
Saudi Arabia (the nation) and Saudi Aramco (the oil company) and the Public Investment Fund (their sovereign wealth fund) are technically different entities. It is hard to distinguish between them however because 42% of the nation’s GDP and 87% if government receipts, and 90% of export earnings are all generated by Aramco’s oil business. In addition, they are all run by one guy, Yasir al-Rumayyan, who only answers to one guy, MBS.
Links and Resources
Part 1: Arab World
Part 2: Sovereign Wealth Funds
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