Saudi Aramco Reports Profit Decline, Impacts on National Budget Unfold
Saudi Aramco, the world’s leading oil producer, has announced a significant decline in its first-quarter profits, prompting a $10 billion reduction in dividends. This outcome raises concerns over the financial stability of Saudi Arabia’s budget amid fluctuating oil prices.
Profit and Dividend Overview
The company’s net income decreased by 5% year-on-year, amounting to $26 billion. The average realized oil price fell to $76.30 per barrel, a notable drop from $83 per barrel recorded during the same period last year.
Despite this downturn, Aramco’s performance remained comparatively better than that of its competitors, BP and Shell, whose profits plummeted by 50% and 28%, respectively. However, Aramco still reduced its total dividend from $31 billion in the previous quarter to $21.4 billion.
Impact on Saudi Arabia’s Economy
The decline in dividend payouts will exert additional pressure on Saudi Arabia’s national budget, which has been increasingly reliant on oil revenues. The Ministry of Finance reported a widened deficit of $15.6 billion in the first quarter, a substantial increase from $3.3 billion during the same period in 2024 due to an 18% drop in oil revenues.
Future Projections and Economic Diversification
Crown Prince Mohammed bin Salman’s economic diversification initiatives aim to reduce reliance on oil through ambitious projects, including the development of Neom, a futuristic city on the country’s northwestern coast.
Amin Nasser, President and CEO of Aramco, indicated that global trade fluctuations have cast uncertainty over energy markets, affecting oil pricing landscapes.
Current Oil Market Dynamics
Since the concluding quarter, oil prices have further declined by 15%, reaching approximately $64 per barrel. This drop is attributed to recent U.S. trade tariffs and concerns regarding a possible oversupply as OPEC+, led by Saudi Arabia, increased production levels significantly.
While lower oil prices may alleviate costs for consumers, as emphasized by U.S. President Donald Trump, they also threaten the fiscal health of oil-dependent economies, like that of Saudi Arabia.
Strategic Adjustments in Spending
As a response to the changing market conditions, Riyadh is adjusting its spending strategies, postponing or scaling down various projects while extending timelines for completion. This recalibration comes as the nation prepares to host high-profile events, including Expo 2030 and the FIFA World Cup in 2034.
OPEC+ Production Increases
Despite the challenges posed by slumping oil prices, Saudi Arabia and other OPEC+ members are proceeding with production increases. In June, several nations, including Russia, announced an output hike of 411,000 barrels per day, marking the second consecutive month of production escalation.
Jorge León from Rystad Energy emphasized that this decision signals a strategic shift within OPEC+, bringing new dynamics to the industry.