Saudi Arabia’s Aramco takeover
The Kingdom’s gradual acquisition of the oil company guaranteed its future success
HOW WE REPORTED IT
SUMMARY
Aramco began the 1970s as an American-owned company, but by the end was fully owned by the Kingdom, and was a vital part of its economy and the global energy industry. The transformation — achieved without the upheaval that many other Middle East countries suffered through oil industry nationalization — was the start of the process that culminated in last year’s successful initial public offering as the most valuable company in history. It has proved to be a defining event in Saudi history.
that it was the Kingdom’s ambition to acquire 50 percent of Aramco from its American owners. The number would change as the decade wore on, but the ambition remained the same: To get control of Aramco. As Arab News columnist Ellen Wald wrote in “Saudi Inc.,” her recent history of Aramco: “It was a matter of what was in the best interests of Saudi Arabia and what he (Yamani) could convince the Americans was in their interest as well.”
By the early 1970s, Saudi Arabia was a strong weight in the global energy balance. Demand for oil was booming, and American oilfields were not able to meet it. Saudi Arabia was spoken of for the first time as the “swing” exporter, the most important producer with capacity and reserves to help meet global demand at the turn of a pump wheel.
At a meeting of the Organization of the Petroleum Exporting Countries (OPEC) in Vienna in 1972, Yamani was presented with an offer by the Americans to purchase 20 percent, some way off his initial demand for half of Aramco. But negotiations eventually led to agreement that Saudi Arabia would buy 25 percent, and eventually 51 percent. Control had been ceded — in principle — by the Americans. At the same OPEC venue the following year, the process was accelerated by external events. The 1973 war between Israel and Arab countries broke out just before the oil ministers arrived in Austria, and the meeting was conducted in emergency conditions.
As oil historian Daniel Yergin described in his Pulitzer Prizewinning book “The Prize”:
“The three decade old postwar petroleum order had died its final death.”
Arab countries, led by the largest oil producer Saudi Arabia, hiked the price of oil dramatically — to more than double the $5 per barrel it had been selling at previously. More significantly, it cut production and imposed an embargo on countries, including the US, which were supplying Israel with military equipment to fight the war.
The resulting turmoil in global economies and energy markets changed everything. By 1976, power had moved inexorably away from the independent oil companies to the producers, led by Saudi Arabia.
At a meeting in Panama that year, Yamani was in no mood to delay any longer. The Kingdom wanted a commitment from the Americans to sell all their remaining shares. By mid-March the deal was done, effective 1980, and Saudi Aramco was officially renamed eight years later.
The price that the Kingdom paid for the shares was never revealed, but speculation at the time suggested that around $2 billion passed hands. Last December, publicly listed Aramco was valued on the Tadawul at roughly 1,000 times that.
Wald told Arab News: “The real reason Aramco was able to become the successful company it is today is that once it became a Saudi firm, the oilmen continued to control it and its money, as opposed to government bureaucrats. This was unique among national oil companies.”