Be warned! Get the facts first! For half a century the planet’s most powerful company has been dedicated to converting the world to worship its god and to obey Sharia law. Saudi Aramco, dwarfs other multinationals like an elephant before ants. Its value surpasses Germany’s annual output. It rivals the entire Gross Domestic Product of the whole European Union.
Saudi Aramco should be worth modestly around $2.4 trillion, according to the Lex column of the Financial Times on 9 January (Saudi Aramco: family jewels). That values its estimated 300 billion barrels of oil and gas at $8 a barrel. That’s just a little part of it. Sale of oil magnifies assets into huge profits on top of that. Last year oil sold for around $50 a barrel or so.
Free market US shale oil punctured the murky OPEC cartel. By its price-ratcheting operations, oil reached astronomical prices nearly touching $150. Now prices have plummeted. Present low prices are Saudi policy too. Prices are controlled by their dominant supplies. The Saudis have now opened wide the spigots to flood the market in order to annihilate the more costly shale oil. Low prices also destroy alternative energy systems which require expensive investment. Prices fell to below $30 a barrel at the start of 2016. The key priority of a cartel is to retain market share, not prices. They can later crank up the price by long-tested cartel techniques. Europe has long been the victim. It will gain no respite from energy blackmail.
Low oil prices have a devastating effect on Russia, its main rival. In the mid-1980s the engineered collapse of prices destroyed the Soviet economy.
Saudi Arabia is now living off cash reserves in order to continue its luxuriating lifestyle. Hence it is considering putting up for sale its ‘family jewels’, Saudi Aramco for sale. They need just enough cash to get them through the period while legitimate competitors are driven into bankruptcy.
Just a little bit of the jewels, mind. Saudi Aramco could be worth 7 or perhaps 10 trillion dollars. To put that in perspective, the GDP of the entire European Union, the world’s largest economy, is 18 trillion dollars. Such an estimate would put Aramco well ahead of the leading Chinese banks which sometimes rate at 3 or four trillion. The leading US oil ‘giant,’ ExxonMobil, clocks in at around a third of a trillion. Russia’s Rosneft and Mexico's Pemex, faced with higher extraction costs are way behind.
The Saudis and the Gulf states also need to create a sure way to deliver high price oil to effete Europeans and eliminate Russia and other competitors. If the Persian Gulf is blocked by an antagonistic Shia Iran, then a pipeline to the Mediterranean would be essential to sell Europeans high-price energy. Unfortunately the eastern seaboard of the Mediterranean is occupied by Russophile Syria/Lebanon, or Israel. What is the core issue of the Syria conflict? Lucrative Arab gas and oil commerce from the Gulf to Europe would be so much easier if the Syrian regime of Assad with its pro-Shia tendencies were eliminated. Meanwhile Europe, not Saudi Arabia or the Gulf, is obliged to take in millions of the refugees, victims and belligerents.
In its energy imports the EU pays out enough to cover the entire EU budget two or three times over, a billion euros worth per day. That’s the cost of energy blackmail and oil jihad. Europeans apparently are not intelligent enough to produce alternative energy sources or save on consumption. They buy overpriced oil.
In Saudi Arabia it seems that oil just seeps out of the sand almost for free. But it wasn’t always like that. American companies like Standard Oil of California (SoCal). Exxon and Texaco dug round for a few years before they struck oil. When they did, Saudi King Abdulaziz demanded half the profits or else he would take it over completely by nationalization. The US government crumpled under the threat. It created the ‘golden gimmick’, a curious tax-deal, to say the least, where half the US company’s profits were just not taxed.
The Saudis then began to use the company as an overt instrument of Saudi foreign policy. It was deployed against its western Judeo-Christian customers. The oil weapon was used in the 1967 Six-Day war against Britain and USA. Following Yom Kippur 1973 and the alleged US support for Israel when Egyptian and other Islamic forces attacked it without warning, the Saudi government took a 25% stake in US Aramco. The next year they increased their slice to 60%. Finally they nationalized the whole thing in 1980.
What a steal! Nowadays Aramco produces 12.5 million barrels a day. The world’s top oil producer. That’s worth at recent prices a billion dollars every 24 hours!
In 1973 when Muslim forces attacked Israel at Yom Kippur, Saudi Arabia also deployed its ‘Oil Weapon’ against all of Europe. Using Aramco as a battering ram and the Arab States in OPEC (Arab Organization of Petroleum Countries, AOPEC) as the sword of Islam, they attacked all European States in their vitals, their foreign policy. Unless these States changed their policy towards Israel they would get no oil.
Absolute embargo. Zilch. Not a drop. The motorways were bare of traffic. On Sundays drivers required special permission to travel.
Fortunately in the 1970s, although the pro-Arab and anti-Israel policy of de Gaulle, the autocratic French president, had lead to the weakening of the Community system, enough solidarity existed to help. Counties like the Netherlands and Denmark which had no alternative sources were able to use the single market to swap oil supplies from elsewhere. From the start after WW2, European Statesmen like Robert Schuman had warned that Europe needed to have energy independence from blackmail if it were to survive honorably. That was a key purpose of the Coal and Steel Community, the Euratom Community and the Economic Community. During the 1956 Suez Crisis, the closure of Egypt’s canal led to the loss of two thirds of Europe’s oil supplies. Did Europe’s lackadaisical politicians influenced by de Gaulle take this warning serious?
In 1970s the politicians in the ‘democracies,’ who were faced with the threat of changing foreign policy under duress, showed little intestinal fortitude. Less fortunately they reached a compromise with the Islamic blackmailers who had unplugged Europe’s economy. They agreed to allow the massive immigration of unemployed from North Africa to their devastated economies. Across Europe on certain days the motorways were emptied of all vehicles. Factories closed or went bankrupt.
This economic devastation has as its main origin the cartel operation that controls oil and gas. Even so called democratic oil-producers do not offer supplies at cost plus a modest profit of ten percent. They follow the prices set by OPEC. In practice that means the price dictated by Saudi Arabia and the Gulf States who have both a monopolistic and religious motivation.
Is Saudi Arabia now coming to a crunch? Will its estimated 700 billion dollar reserves be wiped out by its high-living style in five years or so? Or has Saudi Arabia other vast reserves of investments whose liquidation would threaten the foundations of Western society? That requires a separate analysis.