After 60 years of managing the kingdom’s oil assets, the Saudi government-owned Aramco has paved the way for other Gulf oil companies to transform into public joint stock companies. This financial — and corporate strategy — shift will have significant consequences due to the dominant role played by oil in the Gulf.

On the one hand, Aramco’s move will set off several positive effects. This will be a boost to its performance, as has been said by Prince Mohammad Bin Salman. Second, it will reflect positively on a reduction in capital outflows and attract foreign investments, which will develop Saudi Arabia’s bourse.

Furthermore, listing Aramco shares will raise the bourse’s market capitalisation by a third, which will be a monumental step forward and more so in comparison with other emerging market bourses.

Third, multiple sources of funding will be provided to the government that can be used for new projects, diversify sources of national income and create new job opportunities, at a time when there is a sharp decline in oil prices.

Fourth, Aramco will be able to work on a commercial basis apart from other considerations that oblige it to take on a non-commercial role as well.

Finally, Saudi Arabia’s private sector can look to participate even more effectively in the economy, especially in oil-related operations. It will encourage private businesses to engage in contracts with the government and in a way that can contribute to an enhancement of its performance.

Hefty amount

On the other hand, if Aramco lists 5 per cent of its assets or that of its subsidiary companies through the initial public offering, the impact of both would be almost the same. But considering the current economic circumstances within the region as whole and even beyond, the subsidiary companies would be faster in coping with these circumstances.

If Aramco goes ahead with that, it could collect $181.5 billion (680 billion riyals, Dh665.9 billion), which is a hefty amount that it may find difficult to collect, especially in the light of universal investor fears stemming from the decline in oil companies’ profits.

But if some subsidiary companies float their assets within a bundle of units, they can collect the funds relatively easily, and help the government identify the primary channels to recapitalise the IPO-sourced funds. Thus, they can make optimum use of the partial privatisation and retain the status quo of the government on administrating the world’s biggest oil firm with assets worth $3.63 trillion.

This does not justify the fears of possible negative outcomes from adopting this approach.

Considering the anticipated positive impact, Gulf countries are likely to follow the same approach in coming years and marking a qualitative leap for the oil industry in these economies.

Norway is a good example for that. The private sector joined the government in administrating the oil sector and provided substantial funds form taxes, good governance and technological development.

Obviously, the Saudi move is deliberate as evidenced by the gradual listing of Aramco assets for the IPO. The move lays the foundation for fast-tracking the maturity of the oil sector and marks an epoch-making change for the Saudi, Gulf and Arab oil industry.