Aramco Hit as Gulf Tensions Heighten

With the IPO for Aramco due later this year, a drone strike on its second largest facility sets the stage for the unravelling of the Petro Dollar on the International stage. A humanitarian crisis has beset Yemen since the 2015 Saudi-influenced civil war.


Ten drones delivered missiles to the second largest oil processing site in Saudi Arabia. Houthi rebels from Yemen, backed by Iran, took responsibility. Saudi Arabia produces about 1/10th of the world oil supply. However, the ruling family is readying to divest itself of Aramco (Saudi Arabian Oil Co.) with a initial public offering later this year.

The origins of the strife date to 2015 when a Saudi-backed regime was installed in Yemen. Thousands have died in the ensuing political strife triggering a humanitarian crisis of immense proportions. That situation now threatens to get worse as tensions escalate.

Of course 1/10th of the supply of oil is not as significant as it was ten years ago, and its importance will dwindle further over the next 10 years. The adoption of electric cars worldwide is stepping up, although the percentage of the total fleet that is electric must still be measured in thousandths of 1%. One report puts the number of vehicles in the U.S. at 270 million with 6.3 million sold in 2016. Tesla alone is producing between 360,000 and 400,000 cars in 2019. Volkswagen recently announced it will be building electric vehicles in Zwickau, formerly East Germany. Chevrolet and Toyota have been producing hybrids and electric cars for several years. How many renewable fuel cars will be sold in the U.S. in 2019 is still anybody’s guess. Tesla’s plant in Fremont, California, manufactures cars to order. So, it is a safe bet that electric car sales are on the verge of reaching the 10% threshold of all new cars sold. Of course, that still amounts to a fraction of the overall vehicle fleet.

The troubles in the Gulf point to one of the hidden advantages of converting to renewable energy. The Gulf region is a net exporter, delivering about one-third of the world oil supply. The US imports 2% of its oil consumption, China 8%, while Canada and Russia are net exporters. Brazil breaks even, and India consumes 5% of world supply. Japan, South Korea and Germany account for about 10% of world demand. It is realistic to see demand for gasoline dropping precipitously in the U.S., Canada, Germany, Japan and South Korea. Brazil, Russia, India and China are more difficult to predict. However, the stage is set for having the U.S. join Canada as net exporters as their domestic consumption plummets. Western Europe could follow suit.

The fate of the peoples in the Gulf hang in the balance. The valuation of Aramaco’s IPO rest on the converging results of strife in the gulf and falling demand in the west (expect near-sighted global capital to rush in). However, the days of the Petro Dollar appear to be numbered. The final outcome may depend on whether or not the next Trade War is fought over GHG-Zero manufacturing plants. It will take populist pressure in the West to force governments to bet against the oil industries in Canada and the United States.

However, were the west convert both its domestic economies and its off-shore production plants to clean energy, then oil consumption would be pushed to the developing world. There, levels would be low enough to put added political pressure on OPEC countries. That list reads like a who-is-who of social inequity and political corruption: Algeria, Angola, Congo, Equatorial Guinea, Gabon, Nigeria, Ecuador, Venezuela, Iran, Iraq, Kuwait, Libya, Saudi Arabia, and the UAE. It is a safe bet that the political regimes in the OPEC sector will fall once the oil money dries up.

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