Published: Sat 2nd Dec 2017
Read Time: 2 minutes
Norway's Potential Impact on Saudi Aramco's IPO
The Norway Pension Fund (the world's largest sovereign wealth fund with $1 trillion AUM) recently announced their intention to exit their position in petroleum stocks, to mitigate risk and invest in financial assets abroad. This has parallels with Saudi Arabia's decision to sell off a stake in Saudi Aramco, and to transfer ownership to their Public Investment Fund, to create the world's biggest fund with approximately $2 trillion in assets. As the world moves to clean energy, both funds recognise the risk of their portfolios being too heavily weighted towards fossil fuel-related industries.
About 60% of global oil is used for transport, and this is also the very industry where the most profound changes are happening. It is also important to note that the conversion to alternative energy could displace about 13.5 million barrels of oil by 2040, which is equivalent to twice the amount that could be displaced by electric vehicles alone. Although the announcement by Norway's Pension Fund is still a proposal yet to be approved by the government, a decision is set to be made in the fall of 2018, which is also the planned listing year of Aramco.
Despite the fact that Norway has no stake in Aramco, the sell-off would trigger a downward pressure on oil stocks, which would still have a knock-on effect Aramco. Thus, it would be prudent to consider delaying the IPO of Aramco, to a period after the sell-off once the market has stabilised. Alternatively, Saudi Arabia could potentially increase the 5% stake Aramco plans to initially list, to better absorb any market volatility.