If you invest in Saudi Aramco, you’re a…

I got a new hoodie recently: bright blue, with orange details and a massive “Gulf Oil” logo printed on the back and breast (I say “I” got it: my girlfriend is credited with the procurement).

As we’ve detailed in previous letters, with politicos, central banks and sovereign wealth funds all shunning it, somebody, especially an Aberdonian like myself, should be flying the flag for good old oil and gas. “There is more power in that good gulf gasoline”, after all.

And hey – if the Extinction Rebellion crowd shut down my commute on the Tube, photos of me nearby the protest will suggest they had sponsorship from “Big Oil” and discredit the movement…

All joking aside, I’m mostly just a fan of the paint job that Gulf Oil gave cars it sponsored for Le Mans back in the 1960s:

Ford GT40 from 1967
Source: WikiCommons

But on the topic of good gulf gasoline, after three years of waiting, Saudi Aramco is set to IPO next month. Providing it doesn’t delay it once again, the trillion-dollar beast and most profitable company on the planet is heading to market.

Now there’s a contrarian trade and a half.

The IPO market this year has been incredibly lacklustre, with Uber, Lyft, Slack, and Pinterest all bombing following the issuance. The dumpster fire that is the WeWork debacle really got alight when the company failed to IPO in the first place.

And those were darlings of Silicon Valley. They weren’t being decried as satanic blights upon the face of the Earth…

“Why are we being herded into buying part of the world’s biggest polluter? Pension funds will be stuffed with Saudi Aramco shares after the oil giant’s floatation this weekend” the Guardian cried out on Saturday.

(The claim the flotation is occurring “this weekend” is incorrect. The journalist also doesn’t seem to have decided whether an IPO is a “floatation” or a “flotation” of shares either, but I’m getting ahead of myself.)

It’s a monster. It is easily the world’s worst polluter, topping the Guardian’s list of the 20 biggest companies responsible for a third of all the planet’s carbon emissions since 1965. Aramco is head and shoulders above the rest, and is behind nearly 5% of all global emissions over the last half century.

You don’t have to sign up to Extinction Rebellion to know that if we burn all the oil in Saudi Arabia’s vast reserves, we’re never going to tackle the climate emergency. Yet Aramco just recently agreed to spend $18bn to massively expand production at two of its oilfields…

The era of oil is coming to an end. The Saudi Arabians are cute, flogging it off now, because although it may be the world’s most profitable company at present, it could be worthless within 50 years.

You’ve gotta love that last statement. I’ve never heard a more die-hard interpretation of “past performance is not a guide to future results” in my life.

I suppose anybody who has ever taken, or ever will take, a company public would be described as “cute” by this journalist. After all, regardless of profitability, their company could be worthless in 50 years. How dare they sell shares to those who wish to buy them?

And I was under the impression that Aramco just pulled the oil out of the ground, and that it was everybody else who burned it and caused the pollution – or are oil companies viewed the same way as drug and arms dealers now?

The thrust of the article is that those with workplace pensions may end up unwittingly owning a stake in Aramco, even if they despise the company:

Many people will regard it as hypocritical to divest from fossil fuels when so many of us drive cars and fly off on holidays. Maybe they also think corporate pay packets are just the going rate for the job. But for those who think otherwise, there’s a need to have bolder, simpler and more accessible ways to opt out of investing in the likes of Aramco if they wish. It is their money, after all.

There is a very bold, simple and accessible way to opt out of investing in the likes of Aramco: it’s called opting out of a workplace pension.

From there, those that want to can invest through a self-invested pension plan in whatever he or she likes.

But you won’t find any of that in the article. Encouraging readers to take individual responsibility for their retirement, including what assets they build their retirement pot with, is apparently beyond the scope of the piece despite it being written by the “money editor of the Guardian and the newspaper’s personal finance editor”, one Patrick Collinson.

Those that opt out of workplace pensions would miss out on their employer’s contributions to their pension, but those contributions would only be buying shares issued by “cute” corporate types, which could be worthless in 50 years anyway…

Despite his claim that “the era of oil is coming to an end”, he fears that Aramco might actually be a good investment, closing with:

One final word of caution. Back in 2000, tobacco companies looked like history as cigarette bans took hold in western countries. Yet in the following decade, British American Tobacco was the very best performer on the London Stock Exchange, with its shares soaring and dividends gushing. It was morally and ethically right to divest from tobacco, but not (at first) financially. The same may well be said about Aramco.

Gotta cover all the bases, right?

I won’t beat around the bush. If the Aramco IPO finally goes public, I’m bullish. All being well, the company will distribute $75 billion in ordinary dividends in 2020 alone, and those are just ordinary dividends, with space for further distributions.

Such fat payouts, in our current market regime of ever lower yields and ever lower interest rates will bring investors slavering to the market like dogs to a bone – even if they enjoy gluing their foreheads to public transport to save the planet in their free time.

The IPO of Aramco – if it happens – is a good thing for pensions, not a bad one, providing our defined benefit and defined contribution schemes with a strongly profitable asset that can provide relief to the massively underfunded affliction of both.

Green boondoggles (groondoggles?) may make you feel fuzzy inside, but when it comes to meeting existing retirement liabilities and growing in value to help patch over the lack of pension contributions… “there is more power in that good gulf gasoline”.

Collinson should look on the bright side. Perhaps I should send him one of these hoodies…

All the best,

Boaz Shoshan
Editor, Capital & Conflict

Category: Market updates

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