The Great Petroyuan Temptation

temptation

All this occurs in the context of strong pressure from the Chinese to trade their oil in yuan[1], a gigantic strategic U-turn for the country and the whole region, therefore harming numerous well-established Saudi interests.

In recent days, Saudi oil exports to the US have dramatically declined, a collapse likely to disrupt US interests as well it also corresponding to an old dream of freeing the US from Saudi oil dependence. Except that, finally, it is the Saudis who reduced their oil exports more than the US reduced their Saudi imports. But in fact the US is experiencing the first positive consequences of this reduction: their trade balance with Saudi Arabia, which has always been negative, has just moved into the green thanks also to the increase in arms sales to the kingdom. Everyone seems to agree after all and the Saudis can implement their switch to the Asian markets, now much more interesting than the shale-oil fed US market[2].

Regarding its maturation as a global financial player, Saudi Arabia announced long ago that it would place on the markets up to 5% of its oil state company, Aramco, valued at 2,000 billion dollars, as the biggest IPO in history, ie $100 billion for the 5% shares. This IPO however is not that easy to implement. It is so huge that the Riyadh Stock Exchange, Tadawul, will not be large enough for the transactions. Wall Street and the City, but also Hong Kong, are getting ready to get involved and manage the affair[3]. But the Saudis are afraid to have their assets exposed to the associations of 9/11 victims by placing Aramco on NYSE. Their hesitations have encouraged President Trump to express his interest in the US receiving this IPO[4], a “tweet request” certainly corresponding to a compelling message…

But on October 16, China proposed to Saudi Arabia to bypass all financial centres and sell directly to its two state oil companies (PetroChina and Sinopec) the famous 5% (and even more) based on a negotiated price not imposed by any financial market[5].
Does this proposal come at the right moment ? Read the entire report in the latest GEAB bulletin / No 119, Nov. 2017

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[1] Source: GEAB n°117, 15/09/2017 (see the GEAB archives)
[2] You must read this enlightening article retracing the last stages of the Saudi tilt to the East. Source: Bloomberg, 14/11/2017
[3] Source: Les Echos, 10/11/2017
[4] President Trump’s tweet. Source: Twitter, 04/11/2017[5] Sou
rce: Reuters, 16/10/2017