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Brazil’s Locomotive Breath

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The process of growth and modernization in Brazil has been always described as an example to be followed by other developing countries. Nevertheless, the Brazilian ‘locomotive’ has stopped.

The country is going through a period of dramatic political and economic instability. Although the Olympics Games should have been an international show of Brazilian power, they revealed the structural weakness of a country full of ambiguities and contradictions instead. Petrobras’ inquiry, combined with negative effects of the economic crisis, seem to have temporarily buried the China of South America. Oil wealth becoming yet another time not a blessing but a curse.

“In a broader sense, the hydrocarbons and its scarcity phychologization, its monetization (and related weaponization) is serving rather a coercive and restrictive status quo than a developmental incentive” – diagnoses prof. Anis H. Bajrektarevic, and concludes: “That essentially calls not for an engagement but compliance.“

To describe the history of the nation we need to focus our attention on oil, because the black gold is the embodiment of the success -and fall- of the Brazilian economy.

Oil – how black is gold

One the central drivers of Brazilian economic growth has been the production and the export of natural resources and their products. Looking at Brazil’s GDP between 1982 and 2015, three main trends can be observed. (i) A stable growth pattern from 1982 to 2002. (ii) The GDP rocketing up between 2003 and 2012, with a light slowdown during 2009-2010 caused by the financial crisis. (iii) A fall of GDP’s values between 2012 and 2015. Analyzing the evolution of the percentage of annual GDP growth’s, it is not possible to identify a specific trend. The most significant point that can be made is the constant growth of the GDP between 2004 and 2008, which was around 5% per year. The economic growth does not just imply a dramatic increase of GDP but also the improvement in social-economic status of millions of poor brasilians. Starting from 2001 the level of absolute poverty – defined as the percentage living with less than two dollars per day – decreased 12%. The levels of relative poverty – defined as the percentange of people with less than 50% of the average income – fell by 25% between 2002 and 2013.

Graph 1: Trend of Brazilian GDP 1982 e il 2014

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Graph 2: Percentage of GDP Grotwh 1982-2014

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Graph 3: Trends of poverty levels 1995-2013

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The value of export and of the satellite activities of natural resources for Brazilian is represented by their proportion on the total GDP. As clearly shown in Graph 4, one of the engines of the Brazilian boom in the 2000s has been oil. Its incidence on GDP increased remarkably from 1999, a stable growth that reached its peak during 2000s. Between 2003 and 2006 oil rents produced around 3% of total GDP. Graph 5 shows the cost of oil per barrel from 1980 to 2015. To clarify, the most important oil reserve in Brazil is Pré-Sal, which needs to compete in a market in which the price is of at least 70 dollars per barrel in order to be profitable. The fall of the international price of oil, then, has been penalizing the Brazilian economy that was already damaged by the crisis of Chinese demand and the slowdown of FDI.

Graph 4: Percentage of oil and natural resources on Brazilian GDP 1982-2012 

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Graph 5: Trends of oil barrel 1980-2014

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Eike Batista, imagine of Brazilian fable

The story of Erike Batista is bond with the growth and the fall of Brazilian economy. Batista has been one of the richest man in the world, 8th in the Forbes rank of worldwide billionaires and owner of 30 billion dollars in 2012. However, this changed in 2014 when he admitted to the loss of his wealth and his debt of one billion dollars. How is it possible that this self-made billionaire lost his wealth totalling a whopping 30 billion dollars? The success and the fall of Batista’s business is connected to oil. In the 80s, after completing his metallurgic studies, he went to Amazon forest to implement machines in the research and the extraction of gold. In the 1983 he bought a small society in the Canadian stock exchange, of extraction and trade of natural resources., that gained the value of 1.7 billion dollars in a few years. In 2002 he sold his company for 875 million. The devaluation of the asset was due to wrong investment done by the society in Greece, Russia and Czech Republic, which cost million of loss.

Batista exploited new opportunities that arose during the Brazilian economic boom. Between 2001 and 2002 he created and subsequently sold two companies to the Brazilian state; a thermodynamics and an iron production company. The holding that would make a Batista billionaire was OGX (Petròleo e Gàs Participacoes), specialized in the research and refinement of oil and gas. The market strategy of OGX was aggressive from the beginning. In 2007 he arranged the rights of exploration for 21 areas for OGX doubling the amount offered by its competitors. The next year OGX was able to produce barrels at the cost of 145 dollars per barrel and it announced their structures would be able to produce 1 million barrel per day in 2019. Batista’s ambitions and his confidence in Brazilian economy encouraged him to invest a large amount of money to build up an harbour at Acu, 400 km away from Rio de Janeiro. The project was supposed to create a centre for the refinement and the trade of oil products, thereby radically increasing OGX’ productivity.

From 2008 onwards, the Brazilian magistrate started to investigate bribes that Batista allegedly gave to the Governator of Amapà, Waldex Gòez, concessions of privileges for his companies. Even though the media caught wind of the investigation, the judiciary case was closed without any charges. The slowdown of Brazilian economy and the fall of the oil barrel started to strain foreign investors and foreign shareholders and lead them to reduce investments into Batista’s companies. The final blow was caused by the Abu Dhabi fund, Mudabala Development, which retired from EBX – one of Batista’s holdings – and asked for the liquidation of all their stock options which totaled 1.5 billion dollars. The financial pressure then cut the liquidity of Batista’s companies, which, having invested a lot of money, survived using financial leverage. Like a balloon, EBX snapped under the weight of financial debts that made Batista lose all of his assets.

Petrobas investigation

In March 2014, a group of Brazilian judges started to investigate the relationship between the Worker’s Party and the public oil company Petrobras. The charge was that executive directors of Petrobras and of the main building societies (Btp) developed a corrupt system in which Btp would receive contracts for the construction of oil platforms increasing the building costs between 1% and 3%. In exchange, governmental parties would obtain illegal funds to sponsor political campaigns. The companies involved were Camargo Corrêa, Oas, Utc-Constram, Odebrecht, Mendes Júnior, Engevix, Queiroz Galvão, Iesa Óleo & Gás e Galvão Engenharia and members of the Workers’ Party, the Brazilian Democratic Movement Party (Pmdb) and the Progressive Party. (Pp).

The main consequence of the inquiry was the delegitimization of the Workers’ Party that led Brazil from 2002 onwards. The President, Dilma Rouseleff was forced to leave office despite the fact she was not personally involved in the investigation. The successor of former President Lula endured immediate pressure to resign for her knowledge of systematic corruption as Chairman of Petrobras and Minister of Energy (2003-2005). Nevertheless, the impeachment of Rouseleff regarded the charge of having transferred public funds from national banks to finance social expenses that went beyond the fixed amount allocated for public expenses. However, the charges that led to her dismissal did not include the Petrobas scandal. Eduardo Cunha was the political leader leading the group that called for Dilma’s dismissal. Paradoxically, he was not only found with a secret million dollar bank account in Switzerland, but was also barred from assuming any public position for eight years due to an investigation for his involvement in corruption and bribes. Some representatives of worldwide left-wing parties talk about a conspiracy to dismiss the Workers’ Party. The Brazilian and international elite allegedly exploited the economic crisis to destroy the consensus of Lula and Rouseleff’s party, which had always had significant popular support. Lula won the election in 2002 with 46.4% of the votes against just 23.3% of his opposing candidate José Serra. In 2006, Lula was confirmed President with 48.6% in the next election. His successor, Dilma Rouseleff, won in 2010 with 46.9% of the votes. Even though she experienced a small decline, Rouseleff won the election in 2014 with 41.6% of the votes. These Brazilian governments made enemies in the international market due to their politics of nationalization and semi-nationalization of natural resources. For example, Petrobras, founded in 1953, was partially privatized during the 90s. However, Lula started a propagandist campaign in 2007 to return company under state control. In addition, to prevent the private exploitation of the Pré-Sal oil reserve, Lula’s government passed a law to give to Petrobras the monopoly to explore the area and extract oil from Pré-Sal.

Some influential voices, such as independent Brazilian experts and academics raised concerns about the nature of the process. Pedro Fassoni Arruda argues that there were secret powers behind the impeachment that were also involved in the coup d’etat in 1964. In a similar vein, Pablo Ortellado criticised the framing of Rouseleff in the media. Sapelli contends that the modern political history of Brazil is characterized by a deep fragmentation of parties, which means every President has to deal with many small personalist parties. The external support that every government needs to administrate generated the construction of a system of corruption intrinsic to Brazilian society. Many experts believe that judge’s actions could enforce the trust of markets and investors in Brazilian institutions. Cutting the ambiguous bonds that exist between parties and companies should help to make the legal framework more stable and safe, strengthening the power of the Law. This could be a message from Brazil to all the world, that whoever is corrupted, no matter what status, will be punished.

Recently, the news reported the Brazilian parliament approved a law with 292 in 393 to abolish the monopoly of Petrobras on the reserve of Pré-Sal. This law seems to be just the first step of a greater project of privatization pursued by President Michel Temer. With strong politics of liberalization for Brazilian natural resources, Brazil seems to offer intriguing opportunities for business and investments for many multinationals. If Petrobras’ inquiry is just conspiracy or smart intuition is hard to understand. Surely, the destiny of Brazil will be, another time, defined by black gold. For better or worse.

Energy

Energy and Poverty

Todd Royal

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Energy and poverty are intertwined. In the last ten years India according to the United Nations (UN) 2019 Multidimensional Poverty Index, lifted over 270 million Indian citizens out of extreme poverty; since they acquired growing electrification and access to energy. But many nations believe chaotic, intermittent renewables – mainly wind and solar – will achieve these results. Meanwhile, the world watches passively while the weaponization of energyled by China, Russia and Iran (CRI) is teetering Asia towards memories of 1939 and the emergence of World War III.

Europe and the U.S. wholeheartedly believe renewables will power billions in China, India, Africa, and Asia hungry for energy and electricity. Europe even welcomes with open arms, Iranian terrorist-monies for their dispirited economies. What the U.S. should do is “drown the world in oil.”Build power plants, and watch the planet flourish with affordable electricity. Nations need energy now.

Whoever controls energy – mainly oil, natural gas, coal and increasingly nuclear power – rules with either an iron fist or a benevolent one? But the world is in a stage of chaotic order with CRI challenging the US-led liberal order in place since the end of World War II (WWII). Energy is the new superpower.

Never before has energy and electricity played the leading role in alleviating poverty. Social order, religion, and family structure are still important – though all three are under attack over environmental extremism – but nothing has done more for human achievement, increased life expectancies, and ameliorating hunger like access to oil, natural gas, and coal that brings scalable, reliable affordable, abundant and flexible energy and electricity.

Allowing the Guardian newspaper, and green clergy parading as environmentalists such as Bill McKibben, Paul Ehrlich and John Holden to determine energy policies that lead to poverty is evil and shameful. These men then attack human reproduction, productivity, longevity, and technological progress through delaying or crushingenhanced infrastructure projects.

Renewables and believing an existential crisis exists via climate change when there are serious doubts (research the Oregon Petition and Marc Moreno for starters) won’t stop CRI from becoming the new hegemonic powers. Even NASA has admitted it is the sun that affects the earth more than burning fossil fuels. Then the last seventy five years of fighting poverty will be overturn over dubious, global warming claims, and relying on the sun and wind for electricity backed up by fossil fuels onto electrical grids.

We have entered the era of allowing Al Gore-types (whose predictions and science are generally wrong) to set national security, foreign policy, and realist balancing based on inaccurate predictions of the weather. But the former U.S. Vice President isn’t the only doomsayer whose global warming/climate change prognostications are deceptively incorrect. This has profound implications for energy, poverty, and global peace.

Renewables, and setting energy polices based on global warming/climate change only leads to poverty and geopolitical chaos. Poverty is now in the form of:

“Trillions in subsidies, rocketing power prices, pristine landscapes turned into industrial wastelands, wrecked rural communities and bird and bat carnage.”

The U.S. and European led “Green New Deals” will destroy humanity, and lead to backbreaking poverty. It’s why India has chosen reliable, affordable coal-fired power plants over solar and wind farms for electricity. China is following India’s lead, and slashing renewables, clean energy and technology subsidies by 39 percent; and building coal-fired power plants at a record pace.

Chinese has even used “green finance” monies for coal investments.Overall “global renewable growth (and investment) has stalled,” particularly in Europe.Why are global subsidies, production credits and tax incentives for renewables are being cut by governments and private investors?

Solar and wind have led to electrical grid blackouts in Australia, Britain, New York City, and grid instability in U.S. state, Texas, and substantially higher electricity costs. Additionally, renewables cannot replace the approximately6,000 products that came from a barrel crude oil.

Renewables (solar and wind) will never be enough for decades ahead to power modern, growing economies, or countries, and continents such as China, India and Africa, which are emerging from the energy and electrical dark ages. A city, county, state, nation, or continent needs reliable electricity 24/7/365, and renewables are chaotically intermittent. U.S. energy firm Duke Energy now believes solar farms are increasing pollution; Michael Shellenberger, Time Magazine environmental hero recipient echoes the same sentiments. Mr. Shellenberger also includes wind power with solar increasing emissions.

Moreover, renewable investments are plummeting, because unless electricity markets are skewed towards favoring renewables, the entire market for solar and wind produced electricity breakdowns. Then the entire renewable to electricity model relies on energy storage systems that do not have enough capacity or technological progress currently available to provide uninterrupted, on-demand electricity to all ratepayers and recipients from the grid.

It energy-nihilism to think, or believe storage from wind and solar will generate affordable, reliable, scalable, and flexible electricity. If fossil fuels are replaced on a large-scale basis it will lead to increased pollution, higher than average levelized cost of electricity, grid instability, environmental destruction, and poverty. This why most people don’t want renewables near them; meaning, there isn’t a green transition-taking place.

But geopolitics is where energy and poverty collide, and renewables replacing fossil fuels based on the overarching belief of anthropogenic global warming (whose climate models consistently fail) is how the global instability could deepen and grow.

According to the Bloomberg Economic gauge, China’s economy is dramatically slowing, “due to its vast self-made problems.” Which means as long as President Trump is in office the U.S.-China trade war will continue. The U.S. is winning, and Iran is still in Trump’s and the U.S.’ “crosshairs.” Both strategies receive negative media attention, but are causing geopolitical consternation. China and Iran will forcefully respond.

Nations and governments better have policies in place for energy and electrical stability to counter renewables instability, and the nation-state rivalry occurring between the U.S., NATO, and Asian allies against CRI. Either reliable energy will be chosen, or geopolitical wars over blackouts leading to lower military preparedness will happen. Either way energy and poverty are intertwined, or poverty can be defined as lower per-capita-GDP leading to conflicts that destroys countries. Choosing renewables and global warming-based energy policies will likely lead to poverty and possibly wartime catastrophes.

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Rethinking Energy Sector Reforms in a Power Hungry World

MD Staff

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Every country aspires to provide reliable, affordable, and sustainable electricity to its citizens. Yet during the past 25 years, some countries made huge strides, while others saw little progress. What accounts for this difference?

A new World Bank report—Rethinking Power Sector Reform in the Developing World—looks at the evidence on the ways in which developing countries have attempted to improve power sector performance and on what the outcomes have been.

Since 1990, many countries embarked on market-oriented power sector reforms that ranged from establishing independent regulators and privatizing parts of the power industry, to restructuring utilities and introducing competition. Each of these reforms has a story to tell.

Regulation: Regulation proved to be the most popular of the reforms, with about 70 percent of developing countries creating quasi-independent regulatory entities to oversee the task of setting prices and monitoring the quality of service. Although many countries enacted solid legal frameworks, the practice of regulation continues to lag far behind. For example, while almost all countries give the regulators legal authority on the critical issue of determining tariffs, this authority is routinely overruled by the governments in one out of three countries. While three out of four countries have adopted suitable regulations for quality-of-service, these regulations are only enforced in half of the cases.

Privatization: Thanks to the widespread adoption of Independent Power Projects, the private sector has—remarkably—contributed as much as 40 percent of new generation capacity in the developing world since 1990, even in low-income countries. However, the privatization of distribution utilities has proved much more challenging. Latin American markets drove an initial surge in the late 1990s, but there has been relatively little impetus to continue subsequently. Where distribution utilities were privatized, countries were much more likely to adhere to cost-recovery tariffs. Many privatized utilities also operate at high levels of efficiency; and their performance is matched by the better half of the public utilities. Irrespective of ownership, more efficient utilities have adopted better governance and management practices, including: transparent financial reporting, meritocratic staff selection, and modern IT systems.

Restructuring: Most developing countries continue to operate with vertically integrated national power utilities that operate as monopolies. Only one in five countries implemented both vertical and horizontal unbundling of utilities, separating out generation from transmission and transmission from distribution and creating multiple generation and distribution utilities. Restructuring is intended primarily as a stepping stone to deeper reforms, and countries that went no further tended not to see significant impacts. Indeed, restructuring of power systems that are very small and/or poorly governed—as in the case of many Sub-Saharan African countries—can actually be counter-productive by reducing the scale of operation and increasing its complexity.

Competition: Only one in five developing countries has been able to introduce a wholesale power market during the past 25 years, in which generators are free to sell power directly to a wide range of consumers. Most of these power markets are in Latin America and Eastern Europe. Such countries have reaped the benefits of more efficient allocation of generation resources, but they have typically needed to introduce more incentives to ensure adequate investment in new capacity. A demanding list of structural, financial, and regulatory preconditions for power markets prevents most other developing countries from following suit. Such a transition is rarely possible until power systems reach a size of around 3GW and a wholesale power turnover of around US$1 billion. For countries that are not yet ready, participating in a regional power market can bring many of the benefits of trade.

Reflecting on these experiences leads to conclusions that can inform future efforts to improve power sector performance. The main takeaways from the study are as follows.

Power is political: The implementation of market-oriented power sector reforms raises political challenges. Many countries announced reforms that did not subsequently go through, and some countries enacted reforms that later had to be reversed. In practice, electricity reforms proved to be most feasible in countries that already espoused a broader market ideology and in political systems based on the decentralization of power. Reform champions often played a crucial role in driving the change process, but broader stakeholder alignment proved to be equally important for reforms to be sustained in the longer term. For example, in the Dominican Republic, a far-reaching market-oriented reform was enacted in an unsupportive political environment and a turbulent macro-economic context that eventually led to the renationalization of the power utilities.

Starting conditions matter: Market-oriented reforms are complex and presuppose a power system that is already largely developed, adequately governed, and financially secured. Countries starting from this vantage point generally saw quite positive outcomes from power sector reform. But those that embarked on the process before these basic conditions were in place faced a much more difficult trajectory, with outcomes that often fell short of expectations. Thus, market-oriented power sector reform led to much better outcomes in relatively developed middle-income countries like Colombia, Peru, or the Philippines, than in more challenging environments such as Pakistan or the Indian State of Odisha. For example, in Peru, the power sector was fully restructured by 1994; private sector investment substantially increased in generation, transmission, and metropolitan area distribution networks, amounting to about $16 billion over 20 years. The creation of an effective sector regulator and wholesale power market institutions has driven the efficiency of the Peruvian power sector to best-practice levels and led to a significant reduction in the cost of energy.

One size does not fit all: Power sector reform is a means to an end. What ultimately matters are good power sector outcomes, and there may be different ways of getting there. Among the best-performing power sec­tors in the developing world are some that fully implemented market-oriented reforms, as well as others that retained a domi­nant and competent state-owned utility guided by strong policy mandates, combined with a more gradualist and targeted role for the private sector. This reality makes a case for greater plural­ism of approaches going forward. In Vietnam, for instance, the central policy focus was on achieving universal access to electricity and rapid expansion of generation capacity to achieve energy security in a fast-growing economy. These objectives were achieved through strong leadership of state-owned entities, complemented by gradual and selective adoption of market reforms and targeted private sector investment.

Goal posts have moved: It used to be enough to achieve energy security and fiscal sustainability, but countries now have more ambitious 21st century policy objectives, notably, reaching universal access plus decarbonizing electricity supply. Market reforms can be helpful in improving the overall efficiency and financial viability of the power sector, and in creating a better climate for investment. However, they cannot—in and of themselves—deliver on these social and environmental aspirations. Complementary policy measures are needed to direct and incentivize the specific investments that are needed. For example, in Morocco, an ambitious scale-up of renewable energy was achieved through the creation of a new institution parallel to the traditional utility, with a specific policy mandate to direct private investment toward the achievement of government policy goals.

Technology disrupts: Rapid innovation is transforming the institutional landscape through the combined effect of renewable energy, battery storage, and digitalized networks. What used to be a highly centralized network industry is increasingly contested by decentralized actors. These include new entrants and consumers who may have the ability to generate their own electricity and/or adjust their demand in response to market signals. How this ultimately reshapes power sector organization will depend on the extent to which regulators open up markets to new players and reconfigure incentives for incumbent utilities to adopt innovative technologies.

In sum, a nuanced picture emerges from the experiences of developing countries that have aimed to turnaround power sector performance in the past 25 years. Drawing on this wealth of historical evidence, and informed by emerging technological trends, this report offers a new frame of reference for power sector reform that is shaped by context, driven by outcomes, and informed by alternatives.

The complete report can also be accessed at http://www.esmap.org/rethinking_power_sector_reform

World Bank

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Energy

Aramco’s IPO: A bell weather of Saudi balancing between East and West

Dr. James M. Dorsey

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Saudi Arabia’s planned awarding of mandates for the management of an initial public offering (IPO) by its national oil company Aramco is likely to serve as a bell weather for how Riyadh balances its relations with the United States and China.

In an early indication that Western financial institutions like Goldman Sachs may be losing their near monopoly, Saudi Arabia this week invited China’s biggest state-owned banks, Industrial & Commercial Bank of China Ltd (ICBC) and Bank of China Ltd to pitch alongside major US, European and other Asian underwriters for the mandate of what is expected to be the largest listing ever.

Analysts took the invitation to Chinese institutions as a sign that Saudi Arabia was considering Hong Kong in addition to London, New York and Tokyo as possible exchanges on which to list the five percent stake in Aramco that would be on offer.

ICBC, the world’s largest lender by assets, is the only major Chinese state-owned bank to have a commercial banking presence in the kingdom. Bank of China’s London branch was a co-manager on Aramco’s US$12 billion bond sale in April.

The invitation to the two Chinese banks came as US investment bank and financial services giant Goldman Sachs was believed to have significantly enhanced its chances as the result of a sustained high-level lobbying effort.

Goldman had failed to secure a prominent role in 2017 when Aramco initially nominated major Western firms to manage the IPO. The offering was ultimately postponed after Crown Prince Mohammed bin Salman failed to persuade the market to adopt his US$2 trillion valuation of Aramco.

The success of the bond sale, months after the killing of journalist Jamal Khashoggi, that attracted more than $100 billion of investor orders persuaded Prince Mohammed that he might be able to pull off the Aramco offering. Goldman Sachs was the bond’s bookrunner.

Chinese state-owned oil companies PetroChina and Sinopec offered to buy the stake when the kingdom first announced that it wanted to sell five percent of Aramco in the hope of raising US$100 billion.

The sovereign funds of Russia, Japan and South Korea also signalled an interest in becoming cornerstone investors.

Granting a Chinese bank a leading role in the IPO would further cement the kingdom’s pivot towards Asia.

It would underline Saudi Arabia’s ever greater economic interdependence with Asia that it needs to balance with its increasingly uncertain security relationship with the United States and Europe and reliance on Washington in its struggle against Iran.

The kingdom’s relations with its onetime main ally have changed as the United States becomes less dependent on energy imports on the back of shale oil and renewables.

On the flip side, Saudi Arabia last year accounted for some 12 percent of Chinese oil imports and its share has since almost doubled. The US-China trade war has prompted Chinese buyers to reduce oil purchases from the United States and look elsewhere.

China and Saudi Arabia earlier this year inked deals worth US$28 billion, including a Saudi commitment to build a $10 billion petrochemical complex in China that will refine and process Saudi oil. Saudi Arabia has also invested in energy assets in the United States.

Talk of Saudi energy investments in China first emerged two years ago at the time that a possible direct Chinese investment in Aramco was being touted.

Meanwhile, Saudi relations with the US are troubled by a growing sense that the United States will over time reduce its security commitment to the Gulf and mounting questioning in the US Congress of the alliance with the kingdom as a result of its disastrous four-year-long war in Yemen and the killing of Mr. Khashoggi.

Some analysts suggest that the kingdom’s revival of the prospects of an Aramco IPO is a political ploy rather than a serious effort to sell a stake in an asset that generates the bulk of the state’s revenue. The revival coincided with Saudi plans to accelerate privatization of other state assets.

The IPO “is wheeled out to investors the same way an ailing, elderly Arab ruler is put on display — to remind subjects of the immense power of patronage, and the threat of retribution for disloyalty. But it is also sad and tiresome, a farce that everyone knows is a representation of the past and not where things are headed. The Aramco IPO has become a regular reminder to those in the finance world who depend on the Saudi government for fees, for access to deals and for that slim possibility that the offering goes through. The message is clear — stay loyal, just in case,” said Gulf scholar Karen Young, writing in Al-Monitor.

Ms. Young argued that Aramco’s ambition to diversify into refining, gas and petrochemicals neatly aligns itself with Prince Mohammed’s effort to diversify and streamline the Saudi economy. She notes that expanding the company’s shareholder base could complicate the oil company’s ability to execute its plans.

Said Ms. Young: “Any discussion of the Aramco IPO always ends on the same note. It is a political decision, which the company will have to be prepared to accept. Oil prices are not helping, as they continue to be depressed, despite rising political tensions in the Persian Gulf. If the government wants to keep its Aramco prize and be able to use its energy resources to wield political influence, it is better off making a deal with China to buy a small stake in the company.”

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