WHILE YOUWEREWASHING YOUR HANDS
There’s also the problem of state oil-producer Aramco, which in December sold a 1.5% stake for $25.6 billion in what was the world’s biggest IPO. To help get that deal out the door, nearly 5 million Saudis – of a population of 33 million – bought shares in the deal. But with the decline in the oil price, Aramco shares are now trading at 9% under the IPO price... and falling. That’s going to make a lot of dumb-money Saudi investors very unhappy, which is bad news for Saudi leader Crown Prince Mohammed bin Salman. Meanwhile, Russia has an economy that’s addicted to hydrocarbons – where over the past few decades a collapse in the price of oil has crashed the economy. My hedge fund I was running was collateral damage in the 2008 oil-price collapse during the global economic crisis – when the Russian stock market fell 85% and the economy contracted almost 8%. Russians are used to a good crisis... And this one won’t be a surprise. But here in the U.S., most of this happened while you were sleeping. A few days ago, under the cover of the oil-price crash, Vladimir Putin and the Russian parliament endorsed plans to lift or lengthen term limits so he can stay in power as Russia’s president as long as he wants. (“Everyone knew it was coming,” my friend Tigran said to me.) Another big loser of a lower oil price is Nigeria, Africa’s biggest economy. There, oil accounts for around 6% of GDP and 90% of export revenues. Perpetually unstable, Nigeria
– with 190 million people – is the biggest country that no one wants to think about what might happen if it implodes. And now the likelihood that it will is a whole lot higher. Finally, Venezuela is often overlooked as the country with the world’s biggest oil reserves. It’s barely getting by – and the only way it does is thanks to oil revenues. With those in free-fall, pressure for political change in Venezuela (and the flow of migrants into Colombia and elsewhere) is going to increase sharply. However, it’s not all losers in oil... This morning, I rode over to the beach close to where I live here in Singapore. All across the horizon were enormous oil tankers... Over the past few days, the cost of renting a very large crude carrier (“VLCC,” as they say in the industry) has spiked around 30%. That’s because after the collapse in the price of oil, big oil traders want to keep their product off the market – in anticipation of prices rising – rather than sell it. Right now, renting one of those floating Molotov cocktails for a day – with enough space to store 127 Olympic swimming pools-worth of oil – will set you back around $38,000. It was less than half of that a month ago. UNKNOWN UNKNOWNS One of my favorite quotes is from former U.S. defense secretary Donald Rumsfeld... “There are known knowns. These are things we know that we know. There are known
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March 2020
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