The wider ramifications of a China-Aramco deal – fr

The wider ramifications of a China-Aramco deal – fr

The Saudi government is in fact in advanced talks with several Chinese entities – sovereign wealth funds and oil companies – to sell a 1% stake in its flagship company, Saudi Aramco, can confirm from a number of banking and oil industry sources close to the deal.

The sale of such a strategic stake in such a key company in Saudi Arabia to a Chinese entity would mark a decisive transfer of power in the Middle East to China and away from the United States, further fracturing the deal on China relations. 1945 base already stretched between Washington. and Riyadh. For China, Saudi Arabia has long been a prime target in its comprehensive strategy to replace the United States not only as the world’s largest economy by nominal GDP by 2030 at the latest (that is, already the largest economy in the world in purchasing power parity, the largest manufacturing economy). , and the world’s largest trading nation) but also as a major geopolitical power in many key spheres of influence in the United States. Related: Russia Boosted Oil Production In April

It is essential to understand in this context that the sale of a significant stake in Aramco to China is not a new idea, but rather was seriously considered in 2017/18/19 by the top Saudis when became clear that there was no interest from the major international stock exchange as an international listing destination for Aramco’s Initial Public Offering (IPO), which was analyzed in depth in my latest book on Oil Markets . The New York Stock Exchange (NYSE) had been one of the first two preferred candidates, alongside the London Stock Exchange (LSE), as these two exchanges are considered to be the most liquid, the most traded and the most prestigious exchanges. of the world. At first, however, a number of major issues began to arise for an Aramco listing in the United States, including a growing awareness of Saudi Arabia’s lies about oil reserves, reserve capacities. , tax rates, concessions and non-hydrocarbon related activities. plus Saudi Arabia’s perceived ties to the 9/11 terrorist attacks.

This overwhelmingly negative sentiment was pervasive in the United States even before Arabia continued indiscriminate bombing of Yemen, paved the way for the international ostracization of Qatar, kidnapped then Lebanese President Saad Hariri and forced his resignation (allegedly ) and assassinates journalist Jamal Khashoggi. , which even the CIA said it would never have been done without the personal green light from MbS. Similar concerns weighed on Aramco’s international listing on the LSE and attempts by LSE CEO Xavier Rolet and then British Prime Minister Theresa May to forge some sort of compromise solution for Aramco. in London ultimately failed due to investor concerns over the same issues plus Aramco’s lack of transparency and the likely treatment of minority shareholders.

Given that, and the part of his personal reputation that he had invested so that Aramco could easily offer 5% of his stock for at least US $ 100 million – which would value the whole company in 2000. billion US dollars – Saudi Crown Prince Mohammed bin Salman (MbS) was desperate to save face in any way he could and engaged in talks to make a private placement of the full 5% stake in Aramco in Chinese buyers.

The beauty of this from MbS’s point of view was that all the details of the deal would be kept under wraps, including, especially for its international and domestic credibility, the price per share and, therefore, the overall valuation for Aramco that this price would imply. Almost perfect if this solution would have been (the only downside being that there would have been no truly international element in the IPO, as MbS had promised, although he could have argued that it was due. unfair prejudice on the part of the West against Saudi Arabia’s business practices), an issue arose in that China sought to tie its aid to the idea of ​​Saudi Arabia accepting the renminbi currency (RMB) as payment for crude oil supplies.

It would have infuriated the United States for which relations with Saudi Arabia were already increasingly strained, even if it would have made sense for the Saudis, Mehrdad Emadi, head of the global risk analysis firm, Betamatrix, in London, told exclusively last. week. “The vast majority of Saudi government borrowing in recent years has been denominated in US dollars, so a move away from dollar funding would have allowed Saudi Arabia more flexibility in its overall funding structure,” he said. he declares. Related: Three Things That Will Drive Oil Prices Up In May

Following this, Saudi Deputy Minister of Economy and Planning, Mohammed al-Tuwaijri, told a Saudi-Chinese conference in Jeddah at the end of August 2017 that: “We will be very willing to consider financing in renminbi and other Chinese products. . Even more revealing was when he said that China was “By far one of the main markets” for diversifying Saudi Arabia’s funding base and that: “We will also have access to other markets. techniques in terms of unique financing opportunities, private placements, panda bonds and more. The comments came during a visit by high-ranking Chinese political and financial figures to Saudi Arabia, during a meeting between King Salman and Chinese Deputy Prime Minister Zhang Gaoli in Jeddah. During the visit, Saudi Arabia first seriously mentioned that it was willing to consider partially financing itself in Chinese yuan, raising the possibility of deepening financial ties between the two countries.

Indeed, at these meetings it was also decided that Saudi Arabia and China are planning to set up a US $ 20 billion investment fund on a 50/50 basis. According to comments at the time by then-Saudi energy minister Khalid al-Falih, this fund would invest in sectors such as infrastructure, energy, mining and materials, among others. The Jeddah meetings in August 2017 follow a historic visit to China by King Salman of Saudi Arabia in March of the same year, in which around $ 65 billion in trade deals were signed in sectors such as petroleum refining, petrochemicals, light manufacturing and electronics.

This warning of selling oil to China denominated in RMB and not in US dollars, according to, according to sources familiar with the ongoing talks between Saudi Aramco and China, remains at the heart of the conditionality of Beijing’s acquisition of a 1% stake in Aramco. “The increasing marginalization of the US dollar in favor of strengthening the role of the renminbi is also a central lever through which China seeks to undermine the influence of the United States in the world,” Emadi said.

In fact, as early as the G20 summit in London in April 2010, Zhou Xiaochuan, then governor of the People’s Bank of China (PBOC), signaled that the Chinese wanted a new global reserve currency to replace the US dollar at certain points. The long-anticipated sequence for this to happen was: the inclusion of the renminbi in the composition of the Special Drawing Rights (SDR) reserve asset (which occurred in 2016); by increasing its use as a bargaining chip (which naturally followed this); its use as the key currency of an international energy trading exchange (which took place with the launch of the Shanghai Renminbi-denominated International Energy Exchange in 2018); and growing calls from major oil producers and other major trading nations to use the renminbi (which has occurred frequently since the renminbi was included in the SDR mix).

It was only recently in the latter context, for example, Leonid Mikhelson, CEO of Russian oil company Novatek, said that future renminbi-denominated sales to China were under consideration and that US sanctions were accelerating the process of Russia trying to move away from the United States. dollar-centric oil and gas trade and the damage caused by the potential sanctions that come with it. “This has been discussed for some time with Russia’s biggest trading partners like India and China, and even Arab countries are starting to think about it… If they create difficulties for our Russian banks, it won’t let us all that remains is to replace the dollars. , ” he said. “The trade war between the United States and China will only accelerate the process,” he added.

Additionally, under the auspices of former US President Donald Trump, when a radical change in foreign policy occurred, which meant that US dollar-centric sanctions shifted from being a mere instrument of policy. against countries to politics itself, momentum has grown in many countries. key petro-states for a shift away from reliance on the US dollar, Emadi said. “For a long time there was no real alternative for the big oil producers such as Iran, Venezuela and even Russia who were on one of the American sanctions lists to sell their oil in another currency. than the US dollar, but there will be more and more of them, ”he told “The United States’ point of view is that its dollar is the only game in town but using its currency to punish other countries is very likely to work in favor of the decisive marginalization of the power of the American dollar, and therefore also of the United States, within the next decade, ”he concluded.

By Simon Watkins for OilUSD

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