I lived there for four years (at KAUST), I am deeply familiar with the country and its people. The Saudis are nice and well-intended, but a few bad apples spoil the bunch.
I left after my 4yo daughter was kidnapped(!) when I refused to sign some papers regarding my work situation. I am not making this up. The kidnapping was carried away by an Australian professor and a couple American guys working there, but when I tried to look for help I was horrified that this seemed to be business as usual and no one even batted an eye, no jurisdiction. Fortunately, we are safe now and doing better than ever, but, what a story.
Until they fix many of these things it will be very hard for them to establish a thriving economy.
“Donors in Saudi Arabia constitute the most significant source of funding to Sunni terrorist groups worldwide,”
“More needs to be done since Saudi Arabia remains a critical financial support base for al-Qaeda, the Taliban, LeT, and other terrorist groups, including Hamas, which probably raise millions of dollars annually from Saudi sources.”
It's fertile ground for raising money to support terrorism not because a few bad apples support but because it enjoys broad support. Although data is somewhat scarce a survey in 2003 found that 53% supported Bin Laden for example.
Oh, I want to clarify something as that's a delicate thing. With "business as usual", I did not meant stuff like child trafficking was going on, far from it.
I meant to allude to the abusive work/life relationships that develop in a place like that, where people are isolated and there's no real supervision from competent authorities.
It was like living in a big replica of a Stanford prison experiment, I plan to write about it sometime as it showed me plenty of things about how humans could behave when certain circumstances are met.
TLDR: Its basically an efficient market in some countries, most people have kidnap insurance even though they dont know it (as their employer isnt allowed to diclose this insurance), the insurers know the criminals going rate, and can cut off their entire business if they break the "rules"
Saudi Arabia has 60,000 slaves [0]. Their society is about 150 years behind the developed world. Once the world moves past fossil fuels, I expect Saudi Arabia to degenerate back into poverty. Their leaders are too ignorant or selfish to invest the country's wealth for long-term prosperity.
Saudi Arabia could become a well-functioning oligarchy like Singapore. Unfortunately, the Saudi government has only offered investment and cheap office space and done little else.
They should invest in:
1. Education for Saudi people: scholarships to study abroad, funding to open branches of foreign universities in Saudi Arabia, funding for many new international primary & secondary schools.
2. Brain drain: Education & scholarships for foreigners, good immigration processes with paths to citizenship, and equal rights for immigrants.
3. Healthy environment for business: Effective & fair legal system, good work visa processes, and effective worker protections.
USA (my country) protects and supports the corrupt Saudi government. Therefore, USA bears some of the blame for the squandering of Saudi Arabia's natural resources. Many Saudi people, including the late Osama bin Laden, hate USA for this.
Called my embassy (even though they told me not to, LOL).
When things started to blow out, they realized it was not worth the trouble and they sent us back home. I have to say that we were never injured or anything like that, but still, ... wtf.
Moral of the story: ALWAYS call your embassy first.
This seems to fit American-citizens holding your daughter, with threat to continue doing so, in order to compel you to do something (like sign a contract).
KAUST was pushed hard as an option while I was at MIT, very curious as to how well the instruments were maintained for research, since it seemed like they bought anything asked for (if you have any stories :)).
Straight from the most trusted source of news & opinion in the investment world – oilprice.com.
Aramco's dividend basically entirely goes to the Saudi government, which owns 98.5% of the company. It is still comfortably the largest oil company in the world, and is investing hundreds of billions in operations over the next few years. Here's a much more objective status report on the company – https://www.bloomberg.com/news/articles/2021-07-07/saudi-ara....
Somehow the writing style was bothering me and I couldn't quite put my finger on it. It was reading like a long-form Reddit rant more so than an actual article.
Bloomberg one seems more based in facts on the ground.
-------
That being said: the opinionated writing style of "oilprice.com" is still helpful at possibly explaining why these assets are being sold. But facts matter and should come first: the news event (Armaco deciding to sell more assets) should be presented objectively at some point before introducing an opinion about it.
> This took the total capital spending down from around US$40 billion to around US$25 billion. Further reports stated that even this US$25 billion figure was reduced by another US$5 billion, taking the total capital spending in the year from US$25 billion to US$20 billion. However, every second of every day of every month of every year - whatever Aramco does, whatever it sells, whatever it cancels, whatever it cuts back, however many people it sacks – the meter keeps on running, adding US$205 million every day
Notice the convenient change of units between billions and millions there which makes this seem much worse than it actually is. I also didn't realize Oilprice's bias, but seeing that change of units certainly warned me.
Yeah, and they were implying Saudi Aramco was in trouble because they only place they could place debt was in the Islamic Finance market. (I felt this implied they get terrible price for their debt there, or there's very limited liquidity) but then a couple sentences later, it's say their debt offerings were over-subscribed by a factor of 10. So why is that so bad?
Good catch too on your point that Saudi themselves are receiving the bulk of the dividends....
I did look at aramco share price the other day and it's been very flat after recovering from last march. Strange considering in the meantime oil has double/tripled in price and equity markets have roofed.
What is the separation between the Saudi government and MbS. Is it essentially the same and is it the case of MbS monetizing Aramco at the expense of the investors?
Surely the stakeholders that are paid this dividend remain overwhelmingly Saudi (government) interests. So they made up this dividend to loot the place. I'm sure they had other ways of looting prior. What's the big difference?
From the article at least - the pre-agreed dividend (a thing I had no idea existed) is so onerous on the company that it can't keep up with payments. So the company is being forced to sell off long term investments and assets for a quick buck just to cover the dividend it's agreed to pay.
It's like saying: "Hey, I've got an ice cream stand that I make 50$ of a week and has capital assets worth 200$. I wonder if I contractually agreed to donate 75$ worth of value every week - would that work well for me?"
I wonder if there is something else going on, as this sounds like an awfully good way to cover up a sinking ship, yet still take money out for the stakeholders.
In 5 years time when the company is bankrupt they can just come out and say the IPO was a bad idea, while the main stakeholders are sitting nicely in their gold plated Lamborghini's [0].
I think generally the looting is done at the top and then drip fed down: a Prince loots 100m and keeps 20 and passed 80 down to lessor and lessor people. That maintains their loyalty to that Prince. In roughly the same people get a dividend direct from SA, they don't have to keep coming and asking their particular prince or supporting his other efforts etc.
This seems like it cuts out a lot of the middle men and just leaves MBS and the recipient...
Also, as in understand it, a lot of people were basically forced to buy shares whether they wanted to or not (or lose favour). A big dividend semi reverses that. It's like forcing someone to pay a big fine then, majestically giving half back to show you're a beneficent and merciful king.
I found the dividend situation confusing too. On Google finance the dividend yield is 4%. Afaik, only 10% of the stock is not being held by the saudi government. Assuming 2T market cap, the dividend obligation is 8B$ to shareholders. But the article indicates an order of magnitude higher dividend obligation. Are there dividend obligations above and beyond what's visible in Google finance?
People are like "oh, they're just paying it to themselves".
Well, sure, they don't have to write down the dividend they pay to themselves, but that doesn't change the spending that presumably is allocated from the dividend.
One motivation for formalizing things that you don't have to is that then you have better excuses for not doing certain things.
While they made up the dividend, it wouldn't make "looting the place" more sustainable to get rid of it.
Formalizing the "looting" does highlight its unsustainability and seems like a reasonable reason to write an article to me.
With electric cars an inevitability, and natural gas outperforming oil; seems MBS is squeezing every cent out of Aramco while it is still worth something.
I'm curious if the house of Saud could survive Aramco collapsing though. For everything terrible you feel about them - they are constantly shoveling a whole boatload of value into a decent chunk of their population. If Aramco falls I think Saudi Arabia might find a lot of people that were happy to look the other way while they were being paid suddenly asking a lot of questions about national policies.
It's not Saudi Arabia, but the quote from another Arab state,
> My grandfather rode a camel, my father rode a camel, I drive a Mercedes, my son drives a Land Rover, his son will drive a Land Rover, but his son will ride a camel
It would definitely be challenging. This situation is not unique to Saudi and has actually been defined in political theory as the situation of being a “Rentier state”:
Electric cars or not, the Saudi wells are likely running lower than advertised. They have been pumping sea water into well to force oil out of others for decades. This is what you do to extend the life of an oilfield. SA has a long history of keeping exact reserve sizes muddled to appear more powerful. Also Russian gas has only accelerated in recent years, their prime competitor.
> Also Russian gas has only accelerated in recent years, their prime competitor.
Russia also achieved its major goal in Syria - maintaining Assad [Shia] regime (part of the Shia belt from Lebanon to Iran) thus preventing [Sunni] SA from building pipeline toward Europe which would have been a significant hit for Russian interests. Without such pipeline - if i remember correctly SA was recently trying to bring some stuff to Poland by sea at cheap prices, yet with no big success so far while Russia is nearing the completion of the Baltic sea floor pipeline directly to Germany. And at the same time US - SA's large market - is running a large fracking of its own and even explores the options of exporting that natural gas, and thus SA seems to start feeling a bit of squeeze, at least when it comes to natural gas. With "greenification" and electrification of economy the natural gas is the near- and mid-term future of our civilization when it comes to fossil fuels, and SA hasn't yet been as successful as they would like in securing the desired top spot in that future.
How is natural gas a competitor to oil? I know of nothing that can be powered by both. Natural gas is way more competitive in electric generation, but oil is not commonly used for that if there are other alternatives. These are two very different markets.
The US and fracking have been the major competitor to the Saudis lately.
It’s but a matter of positioning, IIRC BP has this slogan “beyond petroleum” and my guess is that MBS is not the most sensitive human, but rather one of those “impose your will at any cost” golden children who think they actually earned their status, etc, so I’m gonna chalk this up to incompetence meets ostentatious for 100 points, Alex
> Saudi Arabia now has no alternative but to continue to sell off assets (the equivalent of selling the family silver, and this can only be done once), sell more bonds (taking on more debt and the interest on this form of Saudi debt is going up with every such sale), and cancel projects (which are crucial to the long-term success of Aramco)
The article starts off with an especially history-ignorant premise. Of course Saudi Arabia has an alternative. The Middle East has a long history of nationalization as it pertains to oil resources.
This is the House of Saud we're talking about. MBS is unwilling to nationalize the small private ownership of Aramco? Ha I say. I say, ha ha. Double ha. Ha ha ha ha. It's almost guaranteed that at some point in the future Saudi Arabia will re-nationalize Aramco in one manner or another.
You see, Saudi Arabia is in a demographic death spiral. Not due to de-population as in some countries, rather, the exact opposite problem. Their population is exploding higher, without an economy to match. The single most important number as it pertains to Saudi Arabia, is barrels of oil produced per capita (however you want to formulate that, whether daily or annually). That overwhelmingly determines the standard of living of the people of Saudi Arabia, and ultimately dictates the stability of the House of Saud. So how is that number looking? In 1980 Saudi oil production was up near 10m barrels per day, with a population of 9.7 million - so almost one person per barrel of oil per day. A remarkable ratio for sure. Circa year 2000 oil production was 9.x million barrels per day, with a population then up to 20.7 million, so by that point it's down to less than half a barrel of oil per day per person; a halving in 20 years. During the pandemic time frame (ie another 20 years later)? 8 to 9 million barrels per day, and now their population is up to 35 million, so now it's down to ~1/4 of a barrel of oil produced per day per person, another halving in roughly 20 years. (Even if you pop that up to 10m barrels per day again in the next few years, their population is heading to 40m regardless, so 1/4 one way or another.)
Implosion. It's very obvious what's going to happen to Saudi Arabia.
They're adding 500k-700k people per year, with no economy to support any of those people. For the average citizen of Saudi Arabia, every person added to the population tally reduces the standard of living of the rest. At this point every ten years they're adding a population equal to 2/3 of where they were at in 1980, with zero additional oil production to match.
Chaos and violent instability is coming for Saudi Arabia, you can bet Aramco is eventually getting nationalized again, whatever the reputation consequences.
> The single most important number as it pertains to Saudi Arabia, is barrels of oil produced per capita
Wouldn't the important number be the barrels of oil exported per capita rather than produced?
Which actually makes things even worse, because the exploding population means an increasing amount of the oil production is consumed internally - this page suggests less than 60% of production is now exported (2016 data):
and the graph here (when switched to max date range) shows the dramatic increase in consumption over time, albeit with some slight falloff more recently:
I am curious about that as well since the article mentions
> The most desperate of these was the pledge to guarantee a dividend payment to shareholders in Aramco of US$18.75 billion every single quarter of every single year – a total of US$75 billion every single year.
I've never heard of a contractually binding agreement to drive yourself into bankruptcy via an overly generous dividend. From this FT article[1] it does sound like it's pretty voluntary though
> Mr Nasser told reporters that “our intention is to pay $75bn, subject to board approval and depending on market conditions”. Minority shareholders, who own 1.5 per cent of the company, will be “protected” for the next five years and given priority payments, he said.
> What would stop Saudi Aramco from stopping all dividends and unilaterally write off its own debt?
Nothing. Argentina defaults on its debt every Christmas, and its bonds still get bought. Aramco’s are a non-sovereign corporate’s equity dividends, where most of the shares are owned by the Saudi government and royal family.
Readit News
I lived there for four years (at KAUST), I am deeply familiar with the country and its people. The Saudis are nice and well-intended, but a few bad apples spoil the bunch.
I left after my 4yo daughter was kidnapped(!) when I refused to sign some papers regarding my work situation. I am not making this up. The kidnapping was carried away by an Australian professor and a couple American guys working there, but when I tried to look for help I was horrified that this seemed to be business as usual and no one even batted an eye, no jurisdiction. Fortunately, we are safe now and doing better than ever, but, what a story.
Until they fix many of these things it will be very hard for them to establish a thriving economy.
“Donors in Saudi Arabia constitute the most significant source of funding to Sunni terrorist groups worldwide,”
“More needs to be done since Saudi Arabia remains a critical financial support base for al-Qaeda, the Taliban, LeT, and other terrorist groups, including Hamas, which probably raise millions of dollars annually from Saudi sources.”
It's fertile ground for raising money to support terrorism not because a few bad apples support but because it enjoys broad support. Although data is somewhat scarce a survey in 2003 found that 53% supported Bin Laden for example.
https://icct.nl/app/uploads/2017/02/ICCT-Schmid-Muslim-Opini... Page 18
Which is probably why for example US made weapons have found their way via Saudi Arabia to al-Qaeda and ISIS linked groups.
https://www.aljazeera.com/news/2019/2/5/saudi-arabia-uae-gav...
Basically the bad apples are in fact somewhere between a majority and a near majority and they control the country.
To be fair. The US does a whole lot of that itself. The US even helped to transport al-Qaeda troupes from Lybia to Syria.
The DoD and CIA both had massive programs to push weapons into Syria, much of them ended up in Al Nusra and ISIS hands.
This is also not new, the US used extremist groups in the 90s under Clinton in the balkan and to support the Chechens.
I meant to allude to the abusive work/life relationships that develop in a place like that, where people are isolated and there's no real supervision from competent authorities.
It was like living in a big replica of a Stanford prison experiment, I plan to write about it sometime as it showed me plenty of things about how humans could behave when certain circumstances are met.
https://www.amazon.com/Kidnap-Inside-Business-Anja-Shortland...
TLDR: Its basically an efficient market in some countries, most people have kidnap insurance even though they dont know it (as their employer isnt allowed to diclose this insurance), the insurers know the criminals going rate, and can cut off their entire business if they break the "rules"
Saudi Arabia could become a well-functioning oligarchy like Singapore. Unfortunately, the Saudi government has only offered investment and cheap office space and done little else.
They should invest in:
1. Education for Saudi people: scholarships to study abroad, funding to open branches of foreign universities in Saudi Arabia, funding for many new international primary & secondary schools.
2. Brain drain: Education & scholarships for foreigners, good immigration processes with paths to citizenship, and equal rights for immigrants.
3. Healthy environment for business: Effective & fair legal system, good work visa processes, and effective worker protections.
USA (my country) protects and supports the corrupt Saudi government. Therefore, USA bears some of the blame for the squandering of Saudi Arabia's natural resources. Many Saudi people, including the late Osama bin Laden, hate USA for this.
[0] https://www.globalslaveryindex.org/2018/data/country-data/sa...
How did you recover your daughter if the state doesn't care?
When things started to blow out, they realized it was not worth the trouble and they sent us back home. I have to say that we were never injured or anything like that, but still, ... wtf.
Moral of the story: ALWAYS call your embassy first.
Dead Comment
Did charges ever get filed against the kidnappers? Like back in the US?
And was the professor reported to their university?
* https://www.law.cornell.edu/uscode/text/18/1203
* https://www.justice.gov/archives/jm/criminal-resource-manual...
This seems to fit American-citizens holding your daughter, with threat to continue doing so, in order to compel you to do something (like sign a contract).
Send me an email (check profile) and we can chat for sure.
Dead Comment
Aramco's dividend basically entirely goes to the Saudi government, which owns 98.5% of the company. It is still comfortably the largest oil company in the world, and is investing hundreds of billions in operations over the next few years. Here's a much more objective status report on the company – https://www.bloomberg.com/news/articles/2021-07-07/saudi-ara....
Bloomberg one seems more based in facts on the ground.
-------
That being said: the opinionated writing style of "oilprice.com" is still helpful at possibly explaining why these assets are being sold. But facts matter and should come first: the news event (Armaco deciding to sell more assets) should be presented objectively at some point before introducing an opinion about it.
Notice the convenient change of units between billions and millions there which makes this seem much worse than it actually is. I also didn't realize Oilprice's bias, but seeing that change of units certainly warned me.
Good catch too on your point that Saudi themselves are receiving the bulk of the dividends....
I did look at aramco share price the other day and it's been very flat after recovering from last march. Strange considering in the meantime oil has double/tripled in price and equity markets have roofed.
Nothing. The KSA is an absolute monarchy. L’etat, c’est il.
Always best to have both sides presented…thanks for the link.
It's like saying: "Hey, I've got an ice cream stand that I make 50$ of a week and has capital assets worth 200$. I wonder if I contractually agreed to donate 75$ worth of value every week - would that work well for me?"
In 5 years time when the company is bankrupt they can just come out and say the IPO was a bad idea, while the main stakeholders are sitting nicely in their gold plated Lamborghini's [0].
[0] I made that up, but turns out it is actually a thing: https://m.economictimes.com/nation-world/strange-things-saud...
Deleted Comment
This seems like it cuts out a lot of the middle men and just leaves MBS and the recipient...
Also, as in understand it, a lot of people were basically forced to buy shares whether they wanted to or not (or lose favour). A big dividend semi reverses that. It's like forcing someone to pay a big fine then, majestically giving half back to show you're a beneficent and merciful king.
Well, sure, they don't have to write down the dividend they pay to themselves, but that doesn't change the spending that presumably is allocated from the dividend.
One motivation for formalizing things that you don't have to is that then you have better excuses for not doing certain things.
While they made up the dividend, it wouldn't make "looting the place" more sustainable to get rid of it.
Formalizing the "looting" does highlight its unsustainability and seems like a reasonable reason to write an article to me.
"Saudi Aramco profit of $49 billion in 2020 is down from $88.2 billion in 2019 and $111.1 billion in 2018."
https://apnews.com/article/dubai-saudi-arabia-united-arab-em...
...so if 2020 was an off year due to the pandemic, then the $75 billion/yr dividend probably isn't going to bankrupt them in the short term.
> My grandfather rode a camel, my father rode a camel, I drive a Mercedes, my son drives a Land Rover, his son will drive a Land Rover, but his son will ride a camel
https://en.m.wikipedia.org/wiki/Rentier_state
You're right about the latter part though. An Aramco failure is going to be a significant dent on MBS' domestic perception.
Russia also achieved its major goal in Syria - maintaining Assad [Shia] regime (part of the Shia belt from Lebanon to Iran) thus preventing [Sunni] SA from building pipeline toward Europe which would have been a significant hit for Russian interests. Without such pipeline - if i remember correctly SA was recently trying to bring some stuff to Poland by sea at cheap prices, yet with no big success so far while Russia is nearing the completion of the Baltic sea floor pipeline directly to Germany. And at the same time US - SA's large market - is running a large fracking of its own and even explores the options of exporting that natural gas, and thus SA seems to start feeling a bit of squeeze, at least when it comes to natural gas. With "greenification" and electrification of economy the natural gas is the near- and mid-term future of our civilization when it comes to fossil fuels, and SA hasn't yet been as successful as they would like in securing the desired top spot in that future.
The US and fracking have been the major competitor to the Saudis lately.
His objective achievements in that area are more than most people could claim. You think it's easy winning a power struggle?
The article starts off with an especially history-ignorant premise. Of course Saudi Arabia has an alternative. The Middle East has a long history of nationalization as it pertains to oil resources.
This is the House of Saud we're talking about. MBS is unwilling to nationalize the small private ownership of Aramco? Ha I say. I say, ha ha. Double ha. Ha ha ha ha. It's almost guaranteed that at some point in the future Saudi Arabia will re-nationalize Aramco in one manner or another.
You see, Saudi Arabia is in a demographic death spiral. Not due to de-population as in some countries, rather, the exact opposite problem. Their population is exploding higher, without an economy to match. The single most important number as it pertains to Saudi Arabia, is barrels of oil produced per capita (however you want to formulate that, whether daily or annually). That overwhelmingly determines the standard of living of the people of Saudi Arabia, and ultimately dictates the stability of the House of Saud. So how is that number looking? In 1980 Saudi oil production was up near 10m barrels per day, with a population of 9.7 million - so almost one person per barrel of oil per day. A remarkable ratio for sure. Circa year 2000 oil production was 9.x million barrels per day, with a population then up to 20.7 million, so by that point it's down to less than half a barrel of oil per day per person; a halving in 20 years. During the pandemic time frame (ie another 20 years later)? 8 to 9 million barrels per day, and now their population is up to 35 million, so now it's down to ~1/4 of a barrel of oil produced per day per person, another halving in roughly 20 years. (Even if you pop that up to 10m barrels per day again in the next few years, their population is heading to 40m regardless, so 1/4 one way or another.)
Implosion. It's very obvious what's going to happen to Saudi Arabia.
They're adding 500k-700k people per year, with no economy to support any of those people. For the average citizen of Saudi Arabia, every person added to the population tally reduces the standard of living of the rest. At this point every ten years they're adding a population equal to 2/3 of where they were at in 1980, with zero additional oil production to match.
Chaos and violent instability is coming for Saudi Arabia, you can bet Aramco is eventually getting nationalized again, whatever the reputation consequences.
Wouldn't the important number be the barrels of oil exported per capita rather than produced?
Which actually makes things even worse, because the exploding population means an increasing amount of the oil production is consumed internally - this page suggests less than 60% of production is now exported (2016 data):
https://www.worldometers.info/oil/saudi-arabia-oil/
and the graph here (when switched to max date range) shows the dramatic increase in consumption over time, albeit with some slight falloff more recently:
https://www.ceicdata.com/en/indicator/saudi-arabia/oil-consu...
It's interesting that they keep finding™ more® oil* but have never increased their output.
> The most desperate of these was the pledge to guarantee a dividend payment to shareholders in Aramco of US$18.75 billion every single quarter of every single year – a total of US$75 billion every single year.
I've never heard of a contractually binding agreement to drive yourself into bankruptcy via an overly generous dividend. From this FT article[1] it does sound like it's pretty voluntary though
> Mr Nasser told reporters that “our intention is to pay $75bn, subject to board approval and depending on market conditions”. Minority shareholders, who own 1.5 per cent of the company, will be “protected” for the next five years and given priority payments, he said.
1. https://www.ft.com/content/3c2c576c-51c6-4ced-b1c2-586c4b2f4...
Nothing. Argentina defaults on its debt every Christmas, and its bonds still get bought. Aramco’s are a non-sovereign corporate’s equity dividends, where most of the shares are owned by the Saudi government and royal family.
wtf? Every christmas every year?