Saudis Swap Oil Fields for Soccer Fields
The Crown Prince of Saudi Arabia will never be poor, but he may feel less extravagant. His oil fields are running at a loss, and Western superpowers are threatening to rub salt in the wounds by imposing economic sanctions. His empire is on lockdown to tide the spread of coronavirus as well, so Arab insiders fear he may be down to his last $3 billion.
Bin Salman’s oil company, Saudi Aramco, is asking unnamed investors for 10-billion-dollar loans for the kingdom’s sovereign wealth fund. The fund is used primarily to buy trophy assets, and amid the financial downturn, it appears Bin Salman wants to send a strongman message to his adversaries by splashing out again. It turns out he’s a footy fan!
He’s already broken the world record transfer fee by bringing Brazilian forward Neymar to Paris Saint Germaine, and he’s put his friends in charge of Manchester City as well. It looks like Newcastle United is next. He just needs to pass an ‘integrity test’ first…
The Crown Prince can’t be hoping for an above-market return from his mid-table investment. Football is a terrible business, and experts can’t see any inner Geordie in him. Investors are watching these developments and thinking about negative oil futures and the oversupply crisis, that’s what this is about.
If the prince can afford more jewels in his crown as oil futures go sub-zero, it suggests he has the might of wealth to crank up supply again.
We’re at a unique moment in history. When that incremental barrel can’t fit on that last storage tanker, then what? The economics textbooks have nothing on this. There are no leading indicators!
The Crown Prince is damaging his own industry to kill competitors and capture more market share for Aramco, and he’s assuming the collateral damage to his own empire will be temporary. It may not be.
Other cleaner forms of energy are stepping forward, becoming more economical as crude turns into a loss-making venture. How many nations could experience alternative energy revolutions equivalent to the shale boom, and shrug off the prince’s black gold?
He could end up with a larger share of a smaller pie!