In this MED This Week special issue focusing on Saudi Arabia, Dr Carole Nakhle, CEO of Crystol Energy, comments on Saudi Arabia’s recent transfer of a 4% stake in Saudi Aramco to its sovereign wealth fund Sanabil Investments and explains how this fits into the Kingdom’s initiatives to strengthen the national economy by diversifying its resources and expanding investment opportunities under Vision 2030.
According to Dr Nakhle, while the transfer reduces the Saudi Government’s direct ownership in Aramco to 90.18%, it’s really moving the money from one pocket to another. The main difference here is how that money will be invested, in what sectors and where.
One fundamental principle of good revenue management for an oil producer is to place some of the oil money into a sovereign wealth fund which can have a mandate to safeguard the economy from oil price fluctuations and stabilise it and/or to convert the extracted resource into a portfolio of other assets that yield a sustainable flow of income for current and future generations. The Public Investment Fund (PIF) expands the investment strategy of the Saudi government well beyond oil – a key requirement for economic diversification that is at the heart of Vision 2030, the country’s first long-term reform plan launched in 2016 and backed by Crown Prince Mohamed Bin Salman.
Furthermore, while the sale of Aramco’s shares has been offered only to domestic entities, the PIF can strengthen its presence within the global market. The timing of the transfer couldn’t be any better; Aramco achieved record profitability last year, which has increased its value and subsequently boosted the financial position of the PIF.