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AssessmentsMar 18, 2020 | 10:00 GMT
A photo of a pump jack extracting crude oil from a snow-covered well located near Surgut, Russia.
As Oil Prices Plummet, Russia and Saudi Arabia Dig in for a Long Fight
Despite mounting fears of coronavirus-related drops in global oil demand, Saudi Arabia recently signaled its intent to flood the market with even more discounted exports following Russia's rejection of proposed OPEC+ production cuts. In doing so, Riyadh is hoping to force Moscow back to the negotiating table, though such a gamble is almost sure to backfire -- and badly. For one, Russia has long been wary of shrinking its oil output for fear of also shrinking its market share, and is thus unlikely to quickly cave to Saudi Arabia's demands. And compared with Riyadh, Moscow also has more cash reserves to ride out a period of low prices. Saudi Arabia's oil-dependent economy, on the other hand, will be among those hardest hit from the very price cuts to it's now willingly helping to exacerbate
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SnapshotsMar 10, 2020 | 13:49 GMT
Why Saudi Arabia's Oil Price War May Backfire
Saudi Arabia is offering aggressive discounting on its oil exports and planning to sharply increase volumes in April in the wake of its failure to agree with Russia on a path forward for OPEC+ production restraint. This move will damage the finances of oil exporters lacking diversified economies, but it is not likely that either the Saudis or the Russians will capitulate in the next few months. The result will be rapidly rising oil inventories and weak prices.
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SnapshotsFeb 25, 2020 | 22:07 GMT
Saudi Arabia Arms Its Vision 2030 With an Investment Ministry
On Feb. 25, Saudi Arabia's King Salman issued eight royal orders designed to jump-start the country's Vision 2030 program after nearly four years of mixed results. The most notable of these orders included converting the General Investment Authority into a full Ministry of Investment and creating tourism and sports ministries. The former energy minister and Saudi Aramco CEO, Khalid al-Falih, will serve as the first investment minister. Al-Falih's appointment may indicate that Crown Prince Mohammed bin Salman realizes the greater pitfalls of chasing such big, high-profile announcements. It will thus be important to track whether Saudi Arabia starts winding down its pursuit of megaprojects at home and abroad, including the country's large investments into companies such as Uber and Tesla, which have been criticized as having more to do with prestige than profit.
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SnapshotsFeb 7, 2020 | 21:37 GMT
The IMF Foresees Trouble for the GCC's Oil-Heavy Economies
The International Monetary Fund on Feb. 6 released the results of its study of the fiscal sustainability of the countries of the Gulf Cooperation Council (GCC), which do not bode well for the region in the 2030s. The study concluded that at their current fiscal stance, the GCC as a region would see its fiscal wealth turn negative in 2034 under a baseline real oil price scenario of $55 per barrel. Bahrain, Oman and Saudi Arabia are the three countries with the most exposure to oil price difficulties. In the study's baseline oil scenario, the debts of Bahrain's government would outstrip its assets in roughly the next five years, Oman would reach roughly the same point within a decade and Saudi Arabia would turn negative in roughly the next 15 years. With the GCC's strongest financial position, Kuwait would meanwhile not hit the negative wealth threshold until the 2050s under the same study
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AssessmentsDec 4, 2019 | 11:00 GMT
This photo shows a sign for Saudi Aramco's initial public offering during a news conference in Dhahran, Saudi Arabia, on Nov. 3, 2019.
The Saudi Aramco IPO Will Hit Its Valuation Goal but Fail to Fund Vision 2030
As the Saudi Aramco initial public offering (IPO) culminates this week with the final pricing announcement on Dec. 5, some observers will tout it as a success for having reached the notional valuation range of $1.6 trillion to $1.7 trillion for the company set on Nov. 17 in the prospectus. In domestic Saudi political terms, the IPO will be seen as a major achievement for Crown Prince Mohammed bin Salman and his Vision 2030 campaign. In reality, though, it will fail on two more important metrics. It will not bring in a substantial amount of foreign money to invest in the economic diversification projects envisioned under Vision 2030, other than $1.5 billion from Abu Dhabi. It also has not played out in accordance with the expectations of transparency and sound management laid out when the crown prince announced the idea more than three years ago in his landmark interview with
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AssessmentsDec 3, 2019 | 21:23 GMT
This illustration shows the OPEC logo and an oil pipeline.
OPEC+ Will Maintain Course Headed Into 2020
When they meet Dec. 5-6, the members of the OPEC+ coalition are likely to agree to extend current oil production quotas until at least the end of June 2020 and possibly longer, despite renewed media chatter on Dec. 2 suggesting the Saudis are considering supporting a deeper cut in support of the Saudi Aramco initial public offering. This outcome is at least mildly bearish relative to current market positioning, given the probability of a return to global oversupply in the first half of 2020. Despite being relative price hawks since 2016, Saudi Arabia seems to have accepted that it is not in a position to push others to do more, even as the final IPO price of Saudi Aramco will be determined Dec. 5.
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AssessmentsNov 11, 2019 | 11:00 GMT
Saudi Crown Prince Mohammed bin Salman (bottom image) and King Salman (left) look out from a billboard promoting Vision 2030 in Jizan, Saudi Arabia, on Dec. 16, 2018.
Saudi Arabia's Vision 2030 Remains a Hard Sell
Saudi Arabia's "Davos in the Desert" has come and gone, producing $20 billion in newly signed deals. And while the Future Investment Initiative -- as the event is officially known -- also reduced the threat of U.S. sanctions over Saudi Arabia's human rights record, investors are nevertheless weighing the pros and cons of pouring money into a kingdom where returns are far from guaranteed. Investors remain wary of major geopolitical risks, like a war with Iran and another human rights outrage that could reignite an international push to isolate Saudi Arabia, as well as domestic considerations, like the consistency of Saudi Arabia's policies amid lower oil prices and the personality politics of Crown Prince Mohammed bin Salman. Such factors will ultimately weigh down the Saudi investment strategy -- and make the 10-year drive toward Vision 2030 all the more difficult to achieve.
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AssessmentsNov 4, 2019 | 09:30 GMT
An Iranian cleric walks past a mural painting of the Iranian flag in Tehran on Aug. 27, 2019.
Iran May Up Its Aggression as the U.S. Expands Sanctions
Although Iran has not been clearly behind or involved in a major attack on Persian Gulf oil and gas infrastructure (or on a non-oil target) since the Sept 14 drone and missile attacks on Saudi Arabia's Abqaiq and Khurais oil production facilities, the risk of further escalation remains as the United States maintains its "maximum pressure" sanctions campaign against Iran and the status quo continues. In fact, there will be ample opportunity over the next six weeks for matters to get worse, starting with Iran's expected announcement on Nov. 7 that it is taking additional steps away from its commitments under the 2015 Joint Comprehensive Plan of Action nuclear deal.
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