Energy

Liam Denning is a Bloomberg Gadfly columnist covering energy, mining and commodities. He previously was the editor of the Wall Street Journal's "Heard on the Street" column. Before that, he wrote for the Financial Times' Lex column. He has also worked as an investment banker and consultant.

Watching stuff slow down but somehow feeling like things are speeding up sounds like something that might happen in hyperspace -- or, you know, Saudi Arabia in 2017.

It appears the government's ambitious reform plan, sprung upon the world with great fanfare last year, was perhaps a tad too ambitious. Reports emerged this week that it will get a do-over to make it "more focused". Given some of the problems experienced so far in giving Saudi Arabians a taste of reform, plus the sheer magnitude of the proposed overhaul, the correct response to this news is something along the lines of "like, duh."

Anyone with an eye on the oil market or the proposed IPO of Saudi Arabian Oil Co., or Saudi Aramco, should consider the timing, however.

Speculation has been building that the man spearheading reform, Prince Mohammed bin Salman, may crown his ascent quite literally by becoming king after his father steps down from the throne, possibly as soon as this month.

This is what you call a fast-track career. In less than three years, the prince has become the defense minister, launched the country into an intense war in Yemen, emerged as the point man on the wide-ranging "Vision 2030" reform program, become Crown Prince -- in part via a classic bit of late-night palace intrigue sidelining the old one -- and put the squeeze on Qatar.

Now he appears poised to become king if the incumbent, King Salman bin Abdulaziz Al Saud, abdicates (which would be a first for the kingdom). Oh, and "MBS" is 31 years old, a half-century younger than the man he would replace.

This may all be mere rumor. After all, the White House just announced that King Salman is due to visit President Donald Trump early next year. On the other hand, Trump and MBS seem to get on famously, so a switch in who actually shows up in Washington would hardly present a problem.

"Uneasy lies the head that wears a crown" wasn't written about a millennial king trying to overhaul his oil-dependent country in the midst of an oil crash and several wars, but it seems apt enough.

Reigning
If MBS becomes king of Saudi Arabia, he faces years of slow growth and fiscal deficits
Source: International Monetary Fund
Note: Data from 2017 onward are estimates.

As Helima Croft, global head of commodity strategy at RBC Capital Markets, with a background at both the Council on Foreign Relations and the CIA, put it in a report on Thursday:

It is hard to overstate how much personal capital MBS has invested in the success of Vision 2030 and his political fortunes could ultimately hinge on the outcome of his ambitious economic agenda ... The pressure on MBS to deliver results will only increase if he soon finds himself sitting on the Saudi throne. He would need to quickly consolidate public support and silence dissenting voices within the royal family.

This is the central issue: If the whole point of making MBS king with unseemly haste is to give him the clout he needs to overhaul Saudi Arabia, then he'll need to show something for it.

In that light, scaling back some of the more blue-sky elements of the prince's vision would be tactically useful. It might help to puncture criticism about him being impetuous. Axiomatically, it is also easier to deliver on reform milestones if you make them less demanding.

Still, some quick wins could be needed. And I'm speculating here, but the obvious quick win is ... the IPO of Saudi Aramco.

Selling a stake in the national oil champion for tens of billions of dollars and seeding a giant investment fund is perhaps the highest-profile of the prince's initiatives. It is also relatively less controversial than cutting people's salaries, jobs or subsidies. Yes, there is domestic concern about selling Saudi Arabia's corporate crown jewel. But a stock-market valuation is a lot more abstract than money disappearing from your wallet or being fired.

Even so, the prince is also identified with the more fantastical Saudi Aramco valuations, in the neighborhood of $2 trillion, that have been thrown around. If he becomes king, he may feel less pressure to deliver on that exact number, but he will still be loath to countenance anything much lower.

Like the tide, though, even a king can't command the world's investors and algorithms. Lining up strategic investors -- an old standby for this sort of debut -- may not help much, either: China knows Saudi Arabia must send ever more of its barrels east, so why pay a premium merely to confirm the obvious?

Still, the prince could continue trying to prop up oil prices ahead of selling shares.

As I wrote here, the supply cuts agreed with Russia and some other oil exporters, haven't touched off a sustained rally yet and may actually be counterproductive for Saudi Arabia in the long term.

"Long term" is, of course, the operative phrase there; things are moving far too fast to focus on that sort of thing now. If Saudi Arabia really is about to get a new king, then the Aramco IPO put in the oil market looks set to stay.

The price you ultimately pay for your share of the Saudi Arabian dream, however, should also depend on exactly how invigorated you feel by this change of pace.     

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Liam Denning in New York at ldenning1@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net