Saudi Arabia bets on European oil companies

Time of crisis, time of opportunity. Saudi Arabia's international investment strategy seems to have been guided by this principle in recent days. The Wahhabi Kingdom's sovereign wealth fund (known as PIF) has invested a billion dollars in the purchase of shares in various European companies in the oil sector. 

Among the companies selected by the PIF, the Wall Street Journal confirmed that they include giants such as the Dutch Royal Dutch Shell, the French Total, the Italian Eni and the Norwegian Equinor. Furthermore, the Financial Times has reported recently that Repsol, the leading Spanish oil company, is also among the companies involved in the operation. However, the operation has not been reported to the National Stock Market Commission (CNMV), since the purchase does not reach 3% of the shareholders, according to the newspaper Expansion.

The move by Saudi authorities comes at a time when the hydrocarbon market is particularly depressed. Oil prices, which are already suffering from the lack of demand due to the world's paralysis caused by the coronavirus, have not yet recovered from the price war between Russia and Saudi Arabia between mid-March and mid-April. 

During those weeks, the two countries, among the most important partners of OPEC (Organization of Petroleum Exporting Countries) decided to increase their production in a kind of resistance race. Although an agreement has recently been reached to cut the number of barrels in order to stabilise the drop in their value, the concrete cutting measures will only start to be implemented next May, so for the time being we will have to wait for them to take effect.

Since the beginning of the year, the Brent barrel, one of the most accepted benchmarks in the global oil market, has lost more than half its value. Throughout April, it has remained at around a mere $30 a barrel, albeit with sharp ups and downs.

One of the most immediate consequences has, of course, been the fall in share value of mining companies. Since January, Royal Dutch Shell's shares have fallen in price by more than 40%, a similar trajectory to that experienced by Repsol. It is true, however, that since they bottomed out in mid-March, the companies have been experiencing a slight improvement.

Although it is not clear that this trend will continue in the coming weeks, Riyadh seems to have clearly seen that it is a good time to buy: very low prices and with forecasts that they may gradually improve. With the investment of a billion in European oil companies, the regime is trying to take advantage of an economic downturn that, to some extent, helped to drive the oil market deeper, at least as far as the oil market is concerned.

Foreign investment is a cornerstone of the economic project of Saudi Crown Prince Mohamed bin Salman. It is part of the so-called Vision 2030, which aims to boost an economic network overly dependent on oil exports.

Sectors such as electronics and tourism have recently been promoted by Riyadh, in an attempt to expand its production system abroad. The sovereign fund from which investment in the large European oil companies has been made is serving to channel Saudi resources and direct them to different fields. In total, the PIF manages assets valued, altogether, at some 300 billion dollars. One of its most recent movements is related to the cruise company Carnival, where it holds more than 8% of the shares.