Profit and Power: The Rise of Al Saud, Inc.

Other royal families have their crown jewels.

For the ruling al Saud family in Saudi Arabia, the crown jewel is Saudi Aramco.

So, the Saudi government’s plan to take up to 5 percent of Aramco public in an IPO is a huge development, not just in Saudi Arabia, but in the oil and gas industry and in the world.

This isn’t your typical national oil company or normal stock sale, according to Ellen Wald, a Middle East scholar and a consultant on geopolitics and the energy industry.

Wald chronicles the rise of Saudi Arabia and Aramco in her new book “Saudi, Inc.,” published by Pegasus Books in April.

She gave two principal reasons for researching and writing a book about the Saudis and Aramco:

First, “I wanted people to understand that this is a very smart, very savvy and very strategic group of businessmen. And they’ve been that way from the start,” she explained.

“The other thing I wanted people to understand is that this is about profit and power. It’s not about religion, or ideology,” she added.

Wald is a nonresident scholar at the Arabia Foundation, a Washington, D.C., think tank focused on business and geopolitics in the Middle East. She earned a doctorate in history at Boston University and has taught at universities in the United States and England.

While some Westerners might think of Aramco as a somewhat dysfunctional state oil company, Wald said it is anything but that.

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"There’s real change going on in the kingdom … I think that Saudi Arabia will always be in the oil and gas industry, in the energy industry, but it will be a much more diversified energy industry."

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Other royal families have their crown jewels.

For the ruling al Saud family in Saudi Arabia, the crown jewel is Saudi Aramco.

So, the Saudi government’s plan to take up to 5 percent of Aramco public in an IPO is a huge development, not just in Saudi Arabia, but in the oil and gas industry and in the world.

This isn’t your typical national oil company or normal stock sale, according to Ellen Wald, a Middle East scholar and a consultant on geopolitics and the energy industry.

Wald chronicles the rise of Saudi Arabia and Aramco in her new book “Saudi, Inc.,” published by Pegasus Books in April.

She gave two principal reasons for researching and writing a book about the Saudis and Aramco:

First, “I wanted people to understand that this is a very smart, very savvy and very strategic group of businessmen. And they’ve been that way from the start,” she explained.

“The other thing I wanted people to understand is that this is about profit and power. It’s not about religion, or ideology,” she added.

Wald is a nonresident scholar at the Arabia Foundation, a Washington, D.C., think tank focused on business and geopolitics in the Middle East. She earned a doctorate in history at Boston University and has taught at universities in the United States and England.

While some Westerners might think of Aramco as a somewhat dysfunctional state oil company, Wald said it is anything but that.

“In many cases, governments that run national oil companies do not prioritize the needs of the company,” she noted. “In the case of Saudi Arabia, the al Saud family prioritized the long-term profitability of the company. That’s always been the priority for them.”

As a result, Aramco grew into a potent force in global petroleum supply. Saudis have estimated the company’s market value at $2 trillion; some analysts put that number as low as $400 billion. In either case, it’s an enormously valuable operation with vast oil and gas resources.

American Connection

Wald said one key to understanding al Saud is the family’s relationship with the United States. Even the name “Aramco” references the former Arabian-American Oil Co., although the business is now officially the Saudi Arabian Oil Co.

“People should appreciate how much of a relationship this has been between the Americans and the Saudis, but it was a relationship where there was give and take,” with continual negotiations, Wald said

“In terms of the history, American petroleum geologists were very important in getting the Saudi Arabian petroleum industry started. In fact, they were the ones who discovered oil out in the desert,” she noted.

Aramco’s DIY Approach

Another important aspect of Aramco is the company’s hard-won competence in creating its own infrastructure for production, according to Wald. She cited development of the supergiant Shaybah field as an example.

“The Shaybah field is out in the Empty Quarter, near the border with the United Arab Emirates. They actually discovered that oil back in the 1960s,” she said.

Economics delayed field development for 30 years, then horizontal drilling created a path to production. But the remoteness and sand-dune ruggedness of the field area were serious challenges, and contracting bids for buildout work went sky high.

Saudi Arabia’s oil minister decided Aramco would do the work itself at half the quoted prices and pledged to complete the project on schedule.

“He said, ‘You know what? We’re going to do it ourselves, and we’re going to do it better and faster.’ And they did,” Wald said. “It was an incredible feat for the company to do that.”

Aramco also gained a reputation for attracting talented people, recruiting intelligent and capable Saudi students, providing educational opportunities and promoting from within, Wald said.

“They have always prioritized the education of Saudi youth, often sending them to universities overseas to become geologists, engineers, petroleum engineers,” she noted.

After al Saud set an eventual goal of assuming management of Aramco, “the Saudis took their time, learned the company, and rose up through the ranks,” she said.

A Multi-Generational Story

Wald begins “Saudi, Inc.” with the efforts of Abdul Aziz ibn Saud to recapture his family’s ancestral home, Riyadh, from the al Rashid tribe in 1902.

She then explores the development of Saudi Arabia and the company that became Saudi Aramco, through interviews, history and numerous anecdotes:

▸ Abdul Aziz named Riyadh capital of the newly founded Saudi Arabia in 1932. Thanks to Saudi modernization efforts, by 1965 the population of the former mud-walled village had ballooned to 225,000. Today, more than 6 million people live in Riyadh.

▸ When King Saud – son of Abdul Aziz – visited remote settlements in the kingdom, a village daughter would sometimes be offered as a potential bride to strengthen ties to the royal house. Saud, an affable man who disliked social friction and avoided saying “No,” ended up with 41 wives.

▸ Ali al-Naimi, a Bedouin from eastern Saudi Arabia, had no education when he joined Aramco as a 12-year-old office boy in 1947. Taking advantage of company scholarships and internal promotion, he became the company’s first Saudi chief executive officer in 1988.

This multi-generational story provides insight on how Aramco got to where it is, where it might be going, and what events shaped today’s Saudi Arabia.

Why did the Saudis resist internal pressure to nationalize their oil and gas resources? How did terrorism scar the psyche of the al Saud? Why did Aramco gain a role as the world’s swing producer for crude oil, then reject it – and then embrace it again?

Plans to take a part of Saudi Aramco public, the country’s Vision 2030 plan, recent moves toward social liberalization and the influence of Saudi crown prince Mohammed bin Salman mark a new direction for Saudi Arabia, Wald said.

“There’s real change going on in the kingdom,” she observed

At the same time, she thinks it’s unlikely the Saudis will drift far from their traditional economic and political power base.

“I think that Saudi Arabia will always be in the oil and gas industry, in the energy industry, but it will be a much more diversified energy industry,” she said.

For example, Saudi Arabia and venture capital fund Softbank recently announced plans to build the world’s largest solar power installation. That’s not a random new interest, Wald explained. In the 1970s, Aramco was already using advanced solar panels from an Exxon subsidiary to power some of its equipment.

“This (solar energy) has been a vision former Aramco CEO and former minister Naimi has had for a long time,” she noted. “The Saudis see this as part of where the industry is going.”

And she predicted Saudi Aramco will be “playing a bit of catch up” downstream in the future, making improvements to its refining operations and branching out more into petrochemicals.

Overall, Wald expressed admiration for the Saudis and especially Aramco – while also reserving respect for those American men and women who traveled almost halfway around the planet decades ago, to a remote company enclave in Dhahran, Saudi Arabia, to begin building a world-scale energy colossus.

“It definitely took a certain spirit to go out there and do that,” she said.

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