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Aramco IPO
China Wants a Stake in Saudi Arabian Oil

Saudi Aramco is Riyadh’s state-owned oil company, and it’s set to go public some time next year. Estimates of its initial valuation range from $400 billion to $800 billion or, if you’re a Saudi official, $2 trillion—which, if those Riyadh optimists are right, would make Saudi Aramco the world’s most valuable company. This IPO is attracting keen interest in China, whose government is putting together a consortium bid to become a “cornerstone investor” in the Saudi firm. Reuters reports:

Half a dozen sources with knowledge of the discussions said China Investment Corporation (CIC), the country’s $800 billion sovereign wealth fund, oil majors Sinopec and PetroChina, and the country’s state-run banks were among the state-backed entities set to participate in the Chinese investment consortium. […]

“The IPO will help decide whom, or which country, can secure the crude supplies from the company and Saudi Arabia going forward,” [one person involved in discussions between Aramco and potential Chinese investors said], adding the size of each company’s stake in the Chinese consortium would depend on its current relationship with Aramco and the Saudi government.

The Saudis are only selling off 5 percent of this oil company, but that could still raise as much as $100 billion (again, assuming their valuation is the correct one). China’s interest is worth noting, however, as it fits into a pattern Beijing has exhibited in recent months. China is buying record amounts of crude from West Africa, and in February it overtook Canada as the top buyer of American crude exports. We’ve also seen China snatching up greater supplies of North Sea oil.

Part of this is motivated by China’s own flagging oil production, itself a product of a global decline in crude prices that has made much of the country’s own operations unprofitable. To meet demand, Beijing is having to look abroad for supplies, and it’s doing what any smart investor does: diversifying.

The Saudi Aramco IPO will be one of the major stories of 2018, and China’s involvement adds an interesting twist.

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  • rheddles

    Sorta reminds me of when the Japanese bought Pebble Beach. China’s only leg up is that the boomers are a lot closer to making the dollar worth its weight in tin.

  • Fat_Man

    They deserve each other. It will also give China an incentive to oppose Iranian adventurism.

    • Isaiah601

      i was thinking the same thing. This is a chance for Saudis to get China as a major ally. I’m all for it. China consumes a lot of oil. Time for them to help a bit with the Middle East.

      • The problem is, does it really benefit the West if the Saudis move closer to China instead of the U.S.?

    • D4x

      Not necessarily. China has been Iran’s #1 oil customer during the sanctions regime. China is more likely looking at Saudi oil as a lever against Russian oil. Still, interesting to see the Sunni-Shi’a conflict dependent on pork-eating, idol-worshipping Asians instead of the Crusaders of the West, still People of the Book.

      “TOKYO, Jan 31 (Reuters) – Imports of crude oil by Iran’s four major buyers in Asia more than doubled in December compared with the same month a year earlier, for the third straight month, with purchases by South Korea up sevenfold and India’s more than three times higher. Iran’s top four Asian buyers – China, India, South Korea and Japan – imported 1.89 million barrels per day (bpd) …”
      http://www.cnbc.com/2017/01/31/reuters-america-asias-dec-imports-of-iranian-oil-more-than-double-from-yr-earlier.html

  • Andrew Allison
    • ——————————

      The article you linked was about China looking elsewhere other than SA because of the unreliability of open-market purchases for them.
      This buy-in of the IPO would guarantee them a certain amount….

      • Andrew Allison

        My bad. I copied the wrong link, now corrected.

        • ——————————

          “China has begun actively looking outside of the Middle East for more stable suppliers.”

          Or I misconstrued your original comment….

  • FriendlyGoat

    Maybe we can fix it so no company here ever pays income tax on earnings from exporting American oil to China.

  • Jacksonian_Libertarian

    China loaned billions to Venezuela as well, this Aramco deal is about as smart.

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