Trump Could Widen Rift With Saudi Arabia

The IPO of Saudi Aramco in 2018 is expected to bring in an all-time high in fees for investment banks that help the oil company go public, a major payday for Wall Street. But the election of Donald Trump as well as a key piece of legislation that has offended Saudi Arabia could result in Aramco taking its IPO somewhere else besides the New York Stock Exchange.

The Wall Street Journal reports that several senior Saudi officials are reassessing not just the Aramco IPO, but broader investments in the U.S. as a result of the shifting political winds. Earlier this year, the U.S. Congress passed legislation that allowed the victims of 9/11 families to sue Saudi Arabia for its supposed role in the terrorist attack. President Obama vetoed the legislation, but Congress overrode his veto, even though shortly afterwards some members of Congress regretted having done so.

Saudi Arabia vehemently opposed the bill. Since its passage, the Saudi sovereign wealth fund has frozen investments in the U.S. until they assess the implications of the legislation.

The IPO of Saudi Aramco will be massive by any measure. Saudi officials believe that Aramco could be worth $2 trillion, so even taking just 5 percent of the company public could bring in as much as $100 billion. It could also hand U.S. investment banks $1 billion in fees, which would set a record. The New York Stock Exchange was the obvious choice for Aramco’s listing, but now Saudi officials are reconsidering other locations as they lose confidence in their political ally in Washington.

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Saudi Arabia is hoping to use the proceeds from the IPO to invest, via its sovereign wealth fund, in non-oil assets that will help the country diversify away from oil as its sole source of revenue. Shifting the IPO, as well as other investments, away from the U.S. is cropping up now not just because Saudi Arabia is losing confidence in the U.S., but also because the 9/11 legislation could expose Saudi assets to legal action.

The Saudis hoped that the Congress would amend the legislation after they overrode President Obama’s veto, and immediately after the vote, a few members of Congress suggested that they should do so, perhaps after the presidential election but before Congress left town for the year.

The latest wrinkle for the Saudis is the election of Donald Trump. They thought that the incoming administration of Hillary Clinton, which would largely resemble that of Obama, would be easy to work with. At a minimum they could probably soften the effects of the 9/11 bill. However, Donald Trump supported the 9/11 bill at the time of the vote and is not expected to work to overturn it.

On top of that, one of Trump’s advisers is Harold Hamm, the CEO of shale driller Continental Resources. Hamm has opposed the foreign ownership of refineries in the U.S., which threatens several assets that Saudi Aramco has along the U.S. Gulf Coast. Hamm said that foreign owners “buy a refinery, and they move in just their oil, nobody else. They don’t buy oil from me. They don’t buy oil from anybody else… I’m sorry. We’re on to that. It shouldn’t be permitted.”

The Trump administration has taken an “America First” approach to a lot of industries, but especially oil and gas, which doesn’t bode well for Aramco’s investments in the U.S.

By Charles Kennedy of Oilprice.com

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