...in many ways, this IPO is a moment of truth for the Saudis generally.
After years of teasing, the moment has finally arrived: Saudi Arabian Crown Prince Mohammad bin Salman (hereinafter dubbed "MbS" or "the Clown Prince") has announced the Saudi government's intention to float a stake in Saudi Aramco.
As you no doubt already know (because you watch New World Next Week every week, right?), the world's largest oil company is set to go (partially) public in an Initial Public Offering (IPO) that will offer shares of the company on the Tadawul—Saudi Arabia's domestic stock exchange in December.
While this may seem like just another over-hyped economic non-event, the bigger truth is that this isn't an economic event at all, per se; it's a geopolitical event that cuts to the heart of Saudi Arabia and its role in the coming "New Cold War" of the 21st century. It reflects the perilous state of the global monetary order. And, if it doesn't go well, it threatens the stability of Saudi Arabia itself.
So get your pen and paper ready. Here's everything you need to know about the Saudi Aramco IPO but didn't know to ask:
1) Largest IPO in history
So how big is this IPO going to be? Good question! No one knows, exactly. In fact, there's a lot of things we still don't know for certain about this monumental event.
Among the details that were not provided to investors in this highly unorthodox "intention to float" announcement are:
When the sale will actually begin;
How much of the company will be sold; and
What valuation the kingdom is aiming for with the offering.
That last one is obviously the trillion dollar question. Or, more precisely, the two trillion dollar question (if MbS gets his way). Although the Clown Prince has insisted that Saudi Aramco is worth $2 trillion, Bloomberg is citing the old journalistic crutch, "people briefed on the matter," to claim that the Saudis are willing to settle for a valuation of $1.6 trillion to $1.8 trillion.
Until the prospectus is issued this weekend, we'll just have to guess at the actual numbers. And of course, that's what the banksters are doing.
Bankster analysts are rather divided on what the oil giant is really worth. Estimates on Aramco's valuation range from a low of $1.2 trillion to a high of $2.3 trillion.
Regardless of what the final number ends up being, assuming that the Saudis proceed with their initial plan to offer 5% of the company, this IPO will still dwarf any previous offering in history, even Alibaba's record-breaking $21.7 billion floatation in 2014. And, even if the final valuation comes in at the low end of the estimate spectrum, this IPO will also likely solidify Aramco as the world's highest valued company, pole vaulting over Apple and Microsoft to become the reigning member of the trillion dollar club.
2) Turning point for the kingdom?
That the kingdom is even willing to part with 5% of its crown jewel, Saudi Aramco, shows just how drastically things are changing in the region. Oil is, after all, the lifeblood of Saudi Arabia. In exchange for that blood, Saudi Arabia receives a steady flow of blood money (i.e. US Federal Reserve Note toilet paper) to fund their lavish entitlement programs.
The system functions well enough: The unimaginably pampered Saudi royals get to drive their golden cars and hang their $450 million paintings, and the commoners get some of the crumbs from their masters' table in the form of social spending programs like the so-called Citizen's Account program. For those keeping track at home, the Saudi royal family receives a cut of Saudi's oil riches that is orders of magnitude greater than the general public, but so long as Saudi citizens get something from the deal, the system can be maintained.
But therein lies the problem. The Saudi government is being forced to go deeper and deeper into debt to keep the programs going. The kingdom's second quarter budget deficit hit $8.9 billion amid increased spending on government stimulus programs and decreasing non-oil revenue. And things are not getting better; the budget deficit for 2020 is now expected to hit $50 billion, or 6.5% of the country's GDP.
This is not a trivial concern. In fact, one of the reasons for the insane Saudi purge that we saw—with scores of Saudi princes kidnapped and held ransom by none other than Clown Prince Mohammad bin Salman himself—was to shake out some loose change for their pockets to line the Saudi government's war chest. This was all done in the name of "fighting corruption," of course, as if the Saudi royal family's very existence isn't predicated on corruption. But it was a successful enough ploy; MbS cemented his grip on power and got away with $106 billion in the process.
But when the kingdom is running $50 billion annual deficits and the IMF vultures start circling, it quickly becomes apparent that a mere $106 billion isn't going to last very long. From that perspective, the $65 billion or so that this Aramco IPO might net is not enough to save the kingdom, either.
This is precisely why MbS is quietly leading Saudi Purge 2.0 as we speak. But this time instead of locking his cousins up in the Riyadh Ritz-Carlton and shaking them by their ankles for a few billion a different pressure is being applied. As ZeroHedge is reporting, Prince Al-Waleed bin Talal and other members of the Saudi kakistocracy are being pressured to "volunteer" several hundred million each to the IPO. This explains where the funds for 1 to 3% of the company that will be sold on the Saudi domestic exchange is going to come from: The pockets of the Saudi royals themselves.
This may end up being a sham, but it's an important one. This is not just a regular IPO for any old company. It's much more than that.
In fact, as MbS surely knows, this IPO is in many ways the focal point of an existential crisis for the oil kingdom. The Saudis may still in the good books of the Trump Administration for their lavish arms purchases, but the 28 pages—the ultimate 9/11 limited hangout—remains a sword of Damocles that Uncle Sam could drop on the Clown Prince's head at any time. Even Tulsi "ex-CFR" Gabbard is keeping the sue the Saudis for 9/11! meme going. And, of course, there's Human Rights Watch, which will only threaten to tell the self-evident truth about tyranny when it serves the purposes of the US State Department.
So in many ways, this IPO is a moment of truth for the Saudis generally. It is a key moment in the magic act that promises to transform the oil kingdom into a technocracy, and to unshackle itself from the chains of the old Uncle Sam/petrodollar system.
But more importantly for MbS, the future of the Clown Prince's rule hangs in the balance as well . . .
3) Make or break for MbS
Pity poor Mohammad bin Salman, the young, money-doesn't-mean-anything-to-me tyrant-in-waiting of the Saudi royal family. MbS' appointment as Crown Prince by King "I Can't Believe He's Not Dead Yet" Salman back in 2017 Crown Prince at the tender age of 31 left him in the unenviable position of having to prove himself worthy of taking the reigns of one of the richest, rowdiest, back-stabbiest royal families in the region. As the first grandson of Saudi founder Ibn Saud to take over the country whenever his father finally shuffles off this mortal coil, there is enormous pressure on MbS to be the crusading reformer who will lead the aging oil kingdom into the vibrant 21st century.
From the start, MbS has bet—and bet big—on a few bold, decisive moves that, if successful, would herald his arrival on the world stage as a leader to be reckoned with. Those moves have included:
Launching a genocidal military campaign against Yemen;
Announcing a new vision for Saudi Arabia as a tech Mecca, complete with a Neom city of the future (complete with robot dinosaurs, glow-in-the-dark sand and an artificial moon!);
Locking up a bunch of his own family members in a reverse coup to solidify his power and raise money for his schemes; and
Taking the state's crown jewel (Saudi Aramco) public . . . or 5% of that crown jewel, anyway.
What he has actually achieved is to:
Spectacularly fail to win a war against a smaller, less equipped, less well funded enemy;
Pissed off a number of the members of his own large, wealthy, powerful family; and
Racked up an ever-increasing budget deficit with no clear plan for reducing it (see above).
In other words, MbS' bets have so far failed to pay off. So this Aramco sale will either be recorded by future historians as the visionary move that succeeded in funding Saudi Arabia's transition into a leader in cutting edge technology, or a massive debacle that will produce nothing of significance and begin the bleeding of the Saudi royal family.
If the sale does turn out to be a fiasco, it's inconceivable that the Clown Prince will ever take the throne as King. The only question would be whether he continues to maintain his corporeal integrity or if one of his many political rivals/cousins/best frenemies has him disposed of in good old Game of Thrones fashion.
As the linchpin of the petrodollar system, Saudi Arabia has been at the heart of the global monetary order for decades now. And as the linchpin of Saudi Arabia's economic might, Saudi Aramco's precious oil has been the lifeblood pumping through that heart. It's a delicate system that, as I've documented for some time now, is coming to an end. The only questions are: How will that system end, and in whose favor?
Will the Saudis continue inching out from under Uncle Sam's nuclear umbrella and into the welcoming embrace of Uncle Xi? Or will MbS pull off a miracle and successfully transition Saudi away from the oil world order and into the brave new future of robotic citizens and flying cars (oh, and total technocratic surveillance, too)?
One thing is for certain: This Aramco IPO is going to be a key part of that transition, and the future will be clearer once we see how the sale proceeds. So grab onto your popcorn and settle in: the history of the 21st century is being written as we speak.