Saudi Aramco IPO could drown in sea of Iranian and U.S. oil

President Donald Trump’s softening stance on Iran is creating big problems for Saudi Arabia. Not only are the Saudis and the Iranians enemies, but the reduction in tension between the U.S. and Iran could also allow Iranian oil back into the marketplace and thwart the Saudi’s planned IPO of Saudi Aramco.

Continue Reading Below

As Fox Business Network’s Charlie Gasparino reported this week, JPMorgan Chase and Goldman Sachs are in the running to lead the IPO of the world’s biggest oil company, with a $2 trillion valuation. Yet to achieve that lofty number, the oil market is going to have to do a lot better at price per barrel.

Saudi Arabia over the weekend appointed a new energy minister, Prince Abdulaziz bin Salman, for the express purpose of lifting oil prices ahead of the IPO. That job is now looking a lot harder than it did just a few days ago.

Oil prices crashed Tuesday after National Security Adviser John Bolton left the White House. The known Iran hawk’s departure increases the chances that oil sanctions on Iran could be lifted.

That would be a sea change, as the oil market assumed that President Trump would apply maximum pressure on Iran until they relented and came back to the negotiating table. Crude oil sold off even harder after it was reported that Bolton was let go because of his deep disagreement with the president to engage the Iranians.

When asked Wednesday about whether the lifting of oil sanctions on Iran is now on the table, President Trump said: “We will see what happens.”

A phone call between Iranian President Hassan Rouhani and French President Emmanuel Macron led to further speculation. President Macron has been acting as a go-between for Iran and the U.S., and while President Rouhani reportedly said that Iran would not negotiate as long as there were sanctions in place, it appears that Trump is willing to consider changing that.

While it will take some time for Iran to ramp up exports, there are at least 12-14 million barrels of Iranian oil in bonded storage in China. There are reports that Iran has more than 5 times that amount in storage, floating and otherwise. Oil traders know that the lifting of sanctions on Iran would cause oil to selloff, possibly driving prices well below an area that would make sense for the Saudi IPO to go off.

To make things tougher, Saudi Arabia is struggling to get OPEC and Russia in line when it comes to compliance on production cuts. Saudi Arabia has carried the bulk of the load on cuts and now needs to convince Iraq, Nigeria and Russia to do their part.

While those countries are saying they will get their production cuts back in line, the temptation to cheat on quotas is larger because the U.S. and their oil producers are stepping up and grabbing OPEC and Russia’s market share. The International Energy Agency reported that competition for market share is getting tougher and comes from preliminary data showing that in June the U.S. momentarily overtook Saudi Arabia and Russia as the "world’s number one gross oil exporter.”

The Saudis want at least $70 a barrel for its IPO. And they really prefer $80 a barrel. If President Trump decides to lift sanctions on Iran, then it looks like the Saudis will be forced to delay its IPO yet again.