Investors Are On Edge After Drone Attack Hits Saudi-Owned Aramco
NOEL KING, HOST:
Saudi Arabia has been planning to sell shares in its state-owned oil company, Aramco. Aramco is reportedly the most profitable company in the world, so there's been a lot of excitement around this. Earlier this month, bankers got together at the Ritz-Carlton in Dubai to work on Aramco's initial public offering - or IPO.
And then over the weekend, Aramco oil facilities were attacked, and that hit oil production hard. So what does all of this mean for the company and for its IPO? Ellen Wald wrote the book "Saudi, Inc." about Aramco and the history of the Saudi energy industry. She's in our New York studios. Good morning, Ellen.
ELLEN WALD: Good morning.
KING: So Aramco - said to be the most profitable company in the world - tell us, how important is this company to Saudi Arabia as a country?
WALD: This company is really the lifeblood of Saudi Arabia. It runs almost its entire energy industry. And it's responsible for over 9 million barrels a day of oil production and can produce at least 12 million barrels a day if needed. And that's really more spare capacity than any other oil company or country in the entire world.
KING: Responsible, too, for a lot of Saudi's very famous wealth, yeah?
WALD: Oh, exactly. And it's an incredibly profitable company because it's able to make and produce oil at such low cost - at a lower cost than any other company in the world. So it makes more off of every barrel of oil than any other company in the entire world.
KING: How big a player is Aramco in the international oil market? Because we saw prices surging after this attack, yeah?
WALD: Well, one of - Saudi Arabia right now is the third-largest oil producer, but it can produce more oil than any other country. So right now, Russia and the United States produce more. But Saudi Arabia has the ability to produce the most. So it really is the most important player in the market. And this attack really took out about 5.7 million barrels per day of its oil production, which is a significant amount. Total global oil production is about 100 million barrels a day. So this is a significant part of that oil production.
KING: Why we saw that spike in prices. Now, let me ask you about the IPO because taking a company public is not a small deal. It involves lots of bankers poking around into records, a lot of transparency, which Saudi Arabia is not necessarily famous for. Why does Saudi Arabia want to take Aramco public?
WALD: Well, this is the big question. And it does seem that Saudi Arabia's goal in taking Aramco public is to sell off part of the company and then to use that money for its sovereign wealth fund to make investments in different types of industries that aren't necessarily energy-related - tech companies, for example, the entertainment sector is another one - and that, in doing so, this will help diversify Saudi Arabia's economy, also diversify the sources of income for the Saudi government. And hopefully, they intend to create jobs for Saudi people.
KING: Something that Crown Prince Mohammed bin Salman has really been pushing, to make this country more than a one-commodity player. What does this attack mean for the initial public offering? Are investors nervous?
WALD: Well, this is a big question that everyone's asking. And investors are absolutely nervous. The attack shows - or could show, depending on how Aramco responds to it - the incredible resiliency of a company. This was a very severe attack. But Aramco is able to recover fairly quickly. And if it shows that it can recover quickly, that could be a good sign to investors.
But on the other hand, the fact that this attack was able to take out so much of production for at least a pretty good period of time that affects the Saudi economy, it also raises a lot of questions of whether this IPO is really a good idea, in particular the way that the Saudis want to do this. They want to do this IPO - at least first - on the Saudi economy - on the Saudi Stock Exchange. And that exchange is very small.
And so if an attack like this were to happen with shares of Aramco listed on the Saudi Stock Exchange, it could have a very, very detrimental effect on the Saudi economy, potentially even crashing the exchange. And so the attack really provides an opportunity, I would say, for the Saudis, perhaps, to rethink the way that they're conducting this IPO. And we have heard signs that they are considering at least delaying the IPO.
KING: Oh, that's really interesting. Let me ask you about motive here. Houthi rebels in Yemen have claimed responsibility for the attack. The United States and Saudi Arabia are both looking at Iran. Is it possible that someone attacked Aramco because they wanted to get in the way of the initial public offering? - which, of course, has been discussed for years. But these real concrete steps have only been taken in last few weeks.
WALD: Well, that would not be surprising. There are also other reasons to do this at this particular point in time related more to what's going on with Iran and Iran's oil industry. So I wouldn't say it for sure was in reaction to this IPO, but that had to have been a calculation.
KING: Those sanctions that have prevented Iran from selling oil itself. Last question for you, just quickly - what happens now to Aramco?
WALD: Well, what happens now is that Aramco is working to restore production from its damaged facilities. They have the ability to restore quite a bit of it. And so we have to wait and see exactly how fast they get production back online.
KING: Ellen Wald is author of the book "Saudi, Inc." Ellen, thanks so much for coming in. We really appreciate it.
WALD: Thank you. Transcript provided by NPR, Copyright NPR.