Swinging in Saudi Arabia
ARAMCO officially listed yesterday. The Saudi owned company is the world’s largest oil producer, world’s largest company … the world’s largest many things. It has played a political role, a diplomatic role and a world economic role for many years as the ‘Swing Producer’ in the oil markets. Swing producers have the capacity and substance to stabilise oil markets should there be short term fluctuations in supply. Swing producers can also act as policeman to a price-fixing cartel such as OPEC. Swing producers, it is fair to say, may not necessarily act to maximise profits, especially when it belongs to a Sovereign entity with many competing objectives…
…but now that ARAMCO is a listed entity does this change? The starting point for a public company is to maximise profit and it is not clear that ARAMCO’s activities to date have had that objective. Cartels, such as OPEC, aim to control the supply of a commodity in order to fix a price that will benefit all members in terms of higher revenue. That price is typically way higher than the marginal cost of producing the commodity so there are clear incentives for one or more members of the cartel to chisel away at their production quotas, selling more oil than they are permitted for profits at the expense of other members. Cartels are inherently unstable, therefore, and it is the role of the Swing Producer to bring discipline to its members. In this way, the Swinger is not acting to maximise their own profit per se, rather they are bearing the cost of policing other members sly activities.
Public companies are not meant to engage in price-fixing arrangements, collusive anti-competitive behaviour nor any supply manipulation. On the face of it, however, ARAMCO’s raison d’etre has been all these things. Owing to its ‘strategic global importance’ ARAMCO will get away with all these activities as the global regulators turn a blind-eye to it all. ARAMCO’s shareholders, however, may think differently. While the non-government shareholder register represents only 1.5% of the stock, they will want their rewards – as either higher dividends or higher stock prices. This may force ARAMCO to abandon their Swing activities and, quite possibly, become a source of instability themselves.
UK Election special: Money v Mischief in the UK Brexit Poll
Speaking of cartels, the UK is going to an election om December 12 to break the impasse caused by the UK parliament’s inability to follow a simple instruction. In 2016, the UK’s electorate decided to leave the European Union, a particularly vicious cartel that favoured members such as France, Italy and Germany over others such as the UK. Breaking the cartel seemed, on the face of it, the right thing to do. But the UK’s government has had difficulties letting go of the security blanket and their Whitehall bureaucrats got busy negotiating a ‘Claytons Brexit’ – an expression for the Brexit you have when you are not having a Brexit.
Frequent readers will be aware of my ‘Money v Mischief’ theory of voter behaviour. Basically, the ‘thoughtful swinging voter’ make their mind up only when they reach the polling booth and they do so based on (i) how much money they expect to make from each party and (ii) how much mischief they can cause within their own parliament. On this basis, the Labour Party in the UK might well surprise with their pork-barrelling of promises such as free fibre internet for everyone. The mischief vote goes squarely to Boris Johnson who, despite being a career politician, candidly expresses his impatience with the talk-but-no-action that is modern democracy. Sadly for the Liberal-Democrats, they offer neither money nor anything other than ‘good policy’ which, irrespective of its content, is pure boredom.
So on this basis, my prediction for the UK elections are
(i) The Liberal Democrats get decimated to the point of extinction
(ii) The Conservatives easily obtain a majority as the electorate send a message to the parliament to just get Brexit done
(iii) The Labour party pick up the Lib-Dems losses
…and finally, check out the Christmas Album from DJ Dr Fish
The latest release does NOT have any of the songs that your DONT want to hear at Christmas. Just 63 minutes of relaxing, progressive trance.
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