Aramco needs help with trading hub

25 April 2008
A trading hub backed by the oil giant would be welcome. The question for Aramco is whether it will develop it beyond its borders.

Saudi Aramcoís plan to develop a fuel trading hub is another welcome move to use its existing strengths to diversify its economy, and it will have knock-on benefits for the regionís oil sector and the financial industry.

While other trading hubs have been set up in the region, a market backed by Aramco, the worldís largest oil company, would make a far greater impact.

But to really thrive, it is vital to have as many sellers and buyers as possible. In other words, it needs to convince more national oil companies to back the scheme.

This raises one key question that has yet to be answered: where should it be located? Although there is plenty of market experience in Riyadh, which is home to the regionís largest stock market and several banking heavyweights, Aramco would be wise to look beyond Saudi Arabiaís borders.

Such a move would quickly dispel any latent concerns among traders and other national oil companies that the kingdom would dominate the market.

Two potential locations stand out. Dubai is both open to international business and already has a high recognition factor among the international financial community, which any exchange would need to attract. It also already has an active oil trading market ñ the Dubai Mercantile Exchange.

Bahrain is another good option. It has physical ties to Saudi Arabia, is located close to the kingdomís oil-rich Eastern Province and has a well-established banking and financial market. Both have limited oil resources of their own, so could be seen as neutral ground for an oil exchange.

The question for Saudi Aramco is whether it is willing to develop a trading hub beyond its own borders.

To do so would be to acknowledge that, for all its oil wealth, some of its neighbours have a competitive advantage over the kingdom in certain areas.

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