Anyone reading the headline to this item by Simon Watkins in oilprice.com might think it was about climate risk, but no, its focus is a pending bill in the Senate “No Oil Producing and Exporting Cartels” (NOPEC) that would not only prohibit US purchases of oil and natural gas from any OPEC member but make Aramco subject to US antitrust legislation. To avoid that vulnerability, Aramco would likely split into its component parts, effectively tanking its stock. The NOPEC bill could well pass the Senate; then the question becomes would President Trump sign or veto the bill? Trump’s relationship with Saudi Arabia has soured a lot since the days of his bromance with Crown Prince Mohammed Bin Salman and his multibillion dollar arms sale to Saudi, largely because the Saudis have cosied up to Russia, adding it to OPEC to give it more clout as OPEC+. The Saudis have threatened that if Trump signs the bill they will have OPEC glut the market, wrecking the US shale industry. The same tactic failed a few years ago, so if Trump decides to sign the NOPEC bill he’ll do it regardless of any threat.
Whether or not NOPEC becomes law, Aramco stock could still fall to zero, only it wouldn’t be in one year but rather somewhere in the 10-20 year range. As the global energy transition begins to bite, it will reduce the demand for all fossil fuels and lower their prices. At the same time politicians finally awakened to the economic and social costs to their nations (and their own political vulnerability) of continued dependence on fossil fuels, will increase the regulations and taxes they impose on the industry. These will raise the cost of production and eat into profits. With lower demand and lower prices, more of the discovered but as yet unexploited reserves they carry on their books will become unprofitable to develop and become stranded, worth little or nothing. When that happens, more than one Big Oil company will fail. Even Saudi Arabia, Aramco’s owner, could go bankrupt. Although Saudi Arabia’s costs of production are the lowest in the industry, the country is highly dependent on its oil revenues to support the national budget. The Crown Prince has a plan to diversify the economy by 2030, but he has been weakened by his apparent role in the murder of the journalist Jamal Kashoggi and faces considerable opposition both at home and abroad. So far he has made scant progress realizing his Vision 2030.
Whether for the short term or a longer one, Aramco is a risky investment.