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Almost two and a half years ago, Mohammed bin Salman, then deputy crown prince of Saudi Arabia, now heir apparent to the throne, casually mentioned that Saudi Aramco was headed to the stock market. The news came as a shock. Outside investors would be given a chance to own shares in the world’s biggest oil company and the greatest source of wealth for both Saudi Arabia and the yacht-loving royal family,

Then, nothing. The IPO, which Aramco’s owners thought would value the company at US$2-trillion, the equivalent of six Exxons, remained stuck in the sand as various analyses suggested the lofty price was a fantasy. There was talk that the international portion of the IPO might not even happen.

Soaring prices seemed to have put the no-IPO rumour to rest. Oil prices at first shot up thanks to the 2016 Saudi deal with Russia to cut production. They received another boost this week when U.S. President Donald Trump gutted the Iran nuclear deal and hit the country with sanctions that could cripple its oil exports. When Prince Salman revealed the IPO plan, the price was under US$40 a barrel; today, Brent crude, the international benchmark, is going for US$77 – a gain of more than 50 per cent in the past year alone.

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Aramco is certainly worth a lot more than it was in 2016. But that doesn’t mean the IPO, which will probably happen in 2019 – only 5 per cent of the company is to be sold – will achieve anywhere near a US$2-trillion valuation. That’s partly because oil is the most political of commodities and partly because potential investors still have no idea what sort of deal Aramco’s owners will cut them. Investors want hefty dividends; they may not be on offer.

Let’s start with the politics. High oil prices translate into high prices at the pumps, which terrify politicians who are campaigning for re-election. According to the U.S. Energy Information Agency, the average price for a gallon of gas (all grades) was US$2.87 last month, up from US$2.53 a year earlier. The AAA reports that the price in California – which is usually the highest in the country – is now US$3.67. Prices could keep going up as long as the latest round of Iran sanctions continues and if Saudi Arabia achieves its aim of tightening supplies so it can fill the hole in its budget and pump up the Aramco IPO price.

But will Mr. Trump allow that to happen when the U.S. midterm elections are only six months away? Olivier Jakob of Swiss oil market analysts PetroMatrix doesn’t think so. He believes an average U.S. gas price of US$3 is a red-line figure for Mr. Trump. “President Trump was elected in period of low gasoline prices and it would be a significant risk for him to go into the midterm elections with prices that were only seen in 2008 or in the Obama years,” he wrote in a Friday report

He notes that Mr. Trump has told the Gulf Cooperation Council (GCC), which includes Saudi Arabia and the Arab states of the Persian Gulf, that they owe the United States for the protection it gives them. At the same time, the sanctions against Iran, presumably aimed at regime change in Tehran, were welcomed by the GCC.

Mr. Trump has already attacked OPEC for oil prices that are “artificially Very High!” He may encourage Saudi Arabia to jack up production to replace any loss in Iranian exports triggered by the sanctions. Oil prices might fall under that scenario, and high prices have a self-correcting mechanism in the form of U.S. shale oil. When prices rise, the shale oil tap can be cranked open quickly.

The upshot is that the Saudis cannot count on higher prices to keep flattering the Aramco IPO valuation. Prices seem just as likely to go down as rise.

Would-be Aramco investors are also in the dark about what’s in store for them. They don’t know if London or New York will land the international listing, though Mr. Trump will certainly put pressure on Saudi Arabia to pick the latter, because he did the Saudis a big favour by relaunching the sanctions against Iran.

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They do not know who is really in charge at Aramco. Is it the Aramco chief executive and the board, the oil ministry, the finance ministry or Prince Salman himself? If Aramco effectively loses its independence, it may find itself pumping more cash into the state treasury by way of high taxes and royalties at the expense of dividends. Investors would want as much access to Aramco’s free cash flow – the cash left over after capital expenditure – as possible, all the better to pay out.

Investors will also want to see full disclosure on Aramco’s reserves. Aramco has reported the same number of reserves, roughly 261 billion barrels, for almost three decades, according to BP’s statistical review. Its production, however, now at about 10 million barrels a day, has been enormous.

Aramco’s overlords were smart to delay the company’s IPO. The sharp rise in oil prices since 2016 has probably added hundreds of billions of dollars to Aramco’s worth. But it’s still wildly premature to say that Aramco will reach its coveted US$2-trillion valuation, or that outside investors will rush to buy its minority shares. Aramco is still a black box buried in the sand.

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