Aramco’s 2024 Profits: A Glimpse into Saudi Arabia’s Economic Ambitions
Saudi Arabia’s state-owned oil giant, Aramco, reported a profit of $106.25 billion in 2024, marking a 12% decline from the previous year. This decrease is attributed to lower energy prices, which are exerting pressure on the kingdom’s grand development plans. Crown Prince Mohammed bin Salman’s vision for a futuristic city, NEOM, and preparations for the 2034 FIFA World Cup are just the tip of the iceberg. These ambitious projects require substantial funding, and with oil prices dropping, the question looms: how will Saudi Arabia sustain its economic momentum?
Earnings Stung by Lower Oil Prices
Aramco’s 2024 revenues stood at $436 billion, slightly down from $440.88 billion in 2023. The company’s annual profit dropped to $106.25 billion from $121 billion, reflecting the impact of lower energy prices. The filing on Riyadh’s Tadawul stock exchange revealed that this decline was driven by reduced revenue and higher operating costs. Aramco’s stock price has also felt the pinch, trading at just over $7 a share, down from a high of $8.71 in the past year. As benchmark Brent crude hovers around $70 a barrel, the company’s market value remains robust at $1.74 trillion, yet uncertainties linger.
Dividends and Cash Flow: A Tightening Grip
Aramco announced dividends of $21.36 billion for the fourth quarter, with a performance dividend of $220 million. However, the company expects to pay $85.4 billion in dividends this year, a significant decrease from previous years. This reduction will inevitably affect Saudi Arabia’s public finances. CEO Amin H. Nasser highlighted Aramco’s capacity to increase production, suggesting that geopolitical instability could lead to rising oil prices. Yet, with global oil inventories at five-year lows, the potential for volatility is ever-present.
Geopolitical Headwinds Squeeze Kingdom’s Coffers
The recent OPEC+ decision to increase oil production starting in April signals a strategic shift. This move, the first since 2022, is expected to further depress oil prices, adding pressure on Saudi Arabia’s budget. Analysts predict oil prices may dip into the $60 range, tightening the fiscal screws. The production increase, though gradual, reflects a balancing act between appeasing global consumers and supporting producers. Meanwhile, Saudi Arabia’s vast oil reserves and low production costs offer a buffer, but the kingdom’s financial flexibility is being tested.
The Bigger Picture: Saudi Arabia’s Strategic Gambit
Beyond Aramco’s financials, Saudi Arabia is navigating a complex geopolitical landscape. Crown Prince Mohammed bin Salman is wooing international investments, including a potential $600 billion pledge in the U.S., while contemplating a high-stakes meeting between Trump and Putin. The kingdom’s Hosting of the 2034 FIFA World Cup and the NEOM project underscores its desire to diversify economically and assert its global influence. However, these ambitions require sustained oil revenues and external investments, making the current economic climate particularly challenging.
Navigating the Future: Economic Strategies and Adaptations
As Saudi Arabia grapples with lower oil prices and increased production, the kingdom must adapt its economic strategies. The government’s reliance on Aramco’s profitability necessitates a delicate balance between investing in mega-projects and maintaining fiscal prudence. While Saudi Arabia’s oil resources remain a formidable asset, the volatility of global energy markets and shifting geopolitical dynamics demand a forward-thinking approach. The coming years will reveal whether the kingdom can sustain its ambitious visions amidst economic headwinds.
