The prince first touted the idea of the IPO when the oil price was floundering around the $US30 a barrel level, thanks to OPEC’s failed 2014 attempt to drive the then-fledgling US shale sector out of the market. Loading OPEC’s members, including the Saudis, were experiencing unusual fiscal pressures from the dramatic falls in their revenue bases – the Saudis were forced to run down their massive reserves, increase petrol prices, reduce government spending and introduce value-added taxes. So, in the near term, there was a need for a big infusion of cash while longer term, with the Saudis sitting on proven oil reserves calculated to last at least 75 years, there was a dark cloud over the value of those reserves in a global lower-carbon environment. The prince wanted to diversify the Saudi economy away from its reliance on Aramco, while creating greater transparency for its operations amid concerns about corruption.

Why has the IPO concept been put on a backburner, if not abandoned completely? It’s not the oil price, which was at $US78.07 a barrel overnight. That’s within the $US75 to $US80 a barrel range the Saudis appear to believe maximises Aramco’s value and the value-volume equation for its oil output that best serves their own long-term interests. Or maybe, perversely, it is the oil price. Donald Trump has launched a series of Twitter attacks on "the OPEC monopoly’’, accusing its members of manipulating the oil price (Isn’t that what cartels do?) and complaining about the resulting US petrol prices. He has reminded them that the US defends some of those member states. In one of his tweets the US President said he had spoken to the Saudi king, Salman bin Abdul Aziz Al Saud, asking him to increase oil production "maybe up to 2,000,000 barrels’’ because of turmoil and dysfunction and prices that were too high.

He said the king had agreed, although the Saudis later explained that they had said they had 2 million barrels a day of spare capacity, not that they would produce an extra 2 million barrels a day. In fact the Saudis and the Russians have already increased production recently, in line with the agreement reached by OPEC members and aligned producers at a meeting in Vienna last month. Supply-side under pressure With Venezuela’s oil output collapsing in line with its economy and oil infrastructure, armed conflicts impacting Libya’s production and Trump’s reimposition of harsh sanctions on Iran, the supply side of the oil industry is under pressure. It will be so even if the Saudis and Russians do add a couple of million barrels a day of supply to the market (no one believes the Saudis will supply 2 million barrels of their own, given the need to retain some spare capacity).

US shale could have been a source of increased supply but infrastructure bottlenecks have seen onshore drilling activity reducing, not increasing, because of the inability to get the oil to market. Donald Trump's "jaw-boning’’ and implicit threats has highlighted the extent to which geopolitics could compromise Aramco’s economics. Credit:AP The aggressive nature of the Trump administration’s stance on Iran and the severity of the sanctions it has threatened to apply to anyone that buys oil from Iran threaten more than 2 million barrels a day of Iran’s existing production. That has created a significant risk that prices might actually trend higher, not lower, with the losses of existing supply greater than the capacity of the rest of OPEC and Russia to offset them. Trump’s intervention – his "jaw-boning’’ and implicit threats - has highlighted the extent to which geopolitics could compromise Aramco’s economics.

Prince Mohammad has made it clear that for him a $US2 trillion valuation of Aramco in an IPO was the bottom, unmoveable, line. The market has been sceptical of that number, which various analysts have concluded is anywhere from $US500 billion to $US1 trillion too high. The Saudis have now demonstrated their willingness to pursue production policies that are influenced by geopolitical considerations rather the optimum economic interests of Aramco and their economy. Given that they would still hold 95 per cent of the company after the IPO and still have a strategic relationship with the US to protect, the real issue probably isn’t whether Aramco is worth $US2 trillion but whether it can be floated at all.