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Comment by m23khan | Hacker News Reader

question - what do Saudis gain from inflating their production capacity and oil reserves? Do they want to come across as some sort of superpower / critical country based on their reserves -- to continue getting preferential treatment from rich countries?

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When OPEC sets production targets they all haggle with each other over what they'll each produce. This is based on things like percentages of reserves, percentages of capacity, percentages of historical rates, percentages of historical revenues, etc. Over the course of decades and dozens of iterations of negotiations the underlying numbers have become, lets just say, very very loosely coupled with reality. They are mostly produced by literal monarchies (I'll never get over this) or military dictatorships with no third party verification. So in addition to being part of an economic/revenue negotiation, they are also part of a regime-stability bluff.

That is why, as a general rule, every year they "discover" approximately the same amount of oil they produced/delivered that year.

Their Aramco IPO valuation will, at least partially, be a function of their reserves. Aramco IPO is critical to Saudi financial circumstances.

Isn't that practically cancelled?

No, they're forging ahead with it. WSJ Today says that MBS wants to float not just 5%, but eventually up to 10%.

What MBS tells the press he wants to do and what actually ends up happening isn't always very well correlated.

Hmm, okay, last time I read anything about it it was a big hoohaa over how they want 800B but it's likely doesn't worth that much, and how much transparency they would need to provide, which they are unlikely to truly commit to, so getting the funds together is so an uphill battle, that they are likely abandoning it.

But maybe they'll "settle" for less. After all there is money to be made, the haggling is just about the price.

Large reserves and production capacity means market control, i. e. they can control, or at least set an upper limit, on price. This allows them, among other things, to scare potential competitors away from trying to compete. It also strengthens their position in OPEC. And, IIRC, there may even be some provisions in international agreements that tie quotas to reserves.

Counterintuitively, a high price may actually be scarier for SA than a low price. It may cause competitors to invest in exploration. And where fixed, initial cost make up a large part of costs, some competitors may continue to produce even if prices fall, and even if the investment was based on wrong estimates and may never actually reach break-even.

SA running out of oil would also hasten efforts to replace oil with renewables.

Aramco IPO

That is the most obvious gain of inflating their reserve numbers. It should ring a warning bell, if a relative old company is going to the stock market. That means, the owners want to cash in at the current value and they don't believe in huge value gains.

The typical reason for an IPO is a company in its early life phase which needs money to grow. There is no lack of cash in SA, so why would they sell off Aramco, if it had a great future?

Just like all these tech IPOs.

Specially when oil prices are relatively low. If you're playing poker and can't see who the chump is, that means you are the chump.

Showing weakness internally and abroad welcomes threats and change. Perhaps their external investments (and IPO of aramco) are being driven by more immediate needs than they admit.

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