Opinion: Man of the moment

A reshuffle in Riyadh puts the Aramco IPO front and centre again, and raises questions for future energy policy

Riyadh is accelerating its drive to list a stake in state-owned Saudi Aramco, the world's largest oil company and most profitable firm. And new leadership in the process raises questions for energy policy direction and investment that will inevitably have wider implications for the global oil industry.

The appointment of Yasir al-Rumayyan, governor of Saudi Arabia's PIF sovereign wealth fund, as chairman of Saudi Aramco signals renewed impetus towards an IPO long touted as a financial cornerstone of crown prince and de facto ruler Mohammad bin Salman's Vision 2030 economic diversification drive. Al-Rumayyan replaces energy minister Khalid al-Falih in the chairman role.

Al-Falih has also seen his role a minister of a super-ministry of energy, minerals and industry curtailed with the separation of a new industry and minerals ministry under businessman Bandar al-Khorayef. This may partly reflect the growing burden of an energy portfolio increasingly focused on sustaining the grand diplomacy of the Opec/non-Opec production deal.

But while the separation of the energy ministry from Aramco was expected ahead of the IPO for governance purposes, the appointment of al-Rumayyan as chairman marks a step-change for the firm. Some senior figures at Aramco remain sceptical over the need for an IPO and the wider challenges that an international listing will present. The world-leading cash flows confirmed by the revelation of Aramco financial data this year — and the huge oversubscription of the firm's first-ever, $12bn, bond issue in April — reinforce this line of thought.

Ensuring separation between management and ministry is supposed to ease potential conflict of interest between the needs of a more commercially minded Aramco and Riyadh's oil policy — most critically its willingness to invest in spare crude capacity. But for some, the dual role of al-Rumayyan heading the PIF and chairing Aramco's board may present a bigger conflict.

Show me the money!

As head of Aramco and then as minister, al-Falih has been seen as the consummate technocrat and safe pair of hands. Al-Rumayyan's reputation at the PIF is built on his risk-taking. He has redefined the formerly staid role of Saudi Arabia's sovereign wealth fund, with edgier bets on start-ups such as Uber. And his financial manoeuvring has already had an impact on Aramco. Al-Rumayyan oversaw the firm's $69bn acquisition of state-run Sabic, seen by some as overvalued, for the benefit of funding the PIF.

The timing of the leadership change may reflect a more pressing need by Riyadh to secure a windfall from the Aramco IPO. The Saudi budget for 2019 is its largest ever at $295bn, but was set when oil prices were over $80/bl. With prices now around 25pc lower, Riyadh needs Aramco to fill the gap. The firm's latest financial results show its entire net income for the first half of 2019 was siphoned off in dividends to the government. But beyond short-term necessity, Riyadh may see a more existential urgency in pushing the IPO. Growing investor fears over the long-term future of oil amid climate change appear to be eroding the stock of capital that the industry can draw upon. The man of the moment may decide that Aramco's best valuation depends upon seizing the day.