Saudi Aramco, the state-owned oil giant of Saudi Arabia, has reported a $106.25 billion profit (£83 billion) for 2024, marking a 12% decline from the previous year. The drop in profit is attributed to lower energy prices, which are now creating financial pressures on the kingdom’s ambitious multi-trillion-dollar development projects. Despite the decrease, Aramco remains one of the most profitable companies globally, highlighting its resilience amid fluctuating oil markets. In this article, we explore Aramco’s financial performance, the implications for Saudi Arabia’s economic plans, and the challenges that lie ahead.
Financial Performance in 2024
Aramco’s filing on Riyadh’s Tadawul stock exchange revealed that the company generated $436 billion (£343 billion) in revenue for 2024, slightly down from $440.88 billion (£347.06 billion) in 2023. The company’s net profit for 2023 stood at $121 billion (£95.2 billion), also reflecting a decline from its record-breaking profits in 2022.
The company attributed the lower profit to several factors:
- Decreased oil prices: Benchmark Brent crude was priced at $73 per barrel, down 10% this year, significantly impacting revenue.
- Increased operating costs: Higher expenditures related to production and logistics further squeezed profit margins.
- Lower finance and other income: Reduced gains from investments and financial activities also contributed to the overall decline.
Despite the lower figures, Amin H. Nasser, Aramco’s CEO and president, emphasized the company’s strength, stating, “Our strong net income and increased base dividend illustrate Aramco’s exceptional resilience.”
Dividend Payments and Stock Performance
Aramco announced dividends of $21.36 billion (£16.81 billion) for the fourth quarter of 2024, which includes a relatively modest performance dividend of $220 million (£173 million). For the entire year, the company expects to pay out $85.4 billion (£67.2 billion) in dividends, a substantial reduction compared to previous years.
The stock price of Aramco traded around $7.33 per share on Tuesday, down from a 12-month high of $8.71 per share. The decline in share value mirrors the drop in oil prices and reflects investor concerns about the profitability of oil companies in the current economic environment.
Despite these challenges, Aramco maintains a market capitalization of $1.74 trillion (£1.37 trillion), making it the sixth-most valuable company globally, behind Apple, Microsoft, Nvidia, Amazon, and Alphabet (Google’s parent company).
Impact on Saudi Arabia’s Economic Plans
The drop in Aramco’s profits has significant implications for Saudi Arabia’s Vision 2030—an ambitious plan spearheaded by Crown Prince Mohammed bin Salman to diversify the kingdom’s economy away from oil dependency. The plan includes massive infrastructure projects, such as:
- NEOM: A $500 billion (£394 billion) smart city being built in Saudi Arabia’s western desert, featuring a linear city design powered entirely by renewable energy.
- 2034 FIFA World Cup: Billions of dollars are needed to build new stadiums and enhance infrastructure as the kingdom prepares to host the event.
- US Investments: Reports suggest that the Crown Prince has pledged up to $600 billion (£472 billion) in investments to attract foreign interests and strengthen diplomatic ties.
The lower dividends from Aramco are likely to reduce the cash flow available for these projects, potentially forcing the kingdom to incur additional debt or seek alternative sources of revenue.
OPEC+ and Oil Production Challenges
Saudi Arabia, as a leading member of OPEC+, has been navigating the challenges of balancing oil production to stabilize prices. However, with OPEC+ moving towards increasing production, oil prices could face further downward pressure, impacting Aramco’s profitability.
Russia’s ongoing war in Ukraine and potential geopolitical developments, such as a meeting between Donald Trump and Vladimir Putin in Saudi Arabia, add layers of complexity to the oil market’s outlook. The kingdom’s ability to manage these challenges will be crucial in sustaining its economic momentum.
Diversification Efforts and Investments
In response to declining oil revenues, Saudi Arabia has been accelerating efforts to diversify its economy. Key initiatives include:
- Renewable Energy Projects: Aramco is investing in hydrogen and solar energy to reduce its carbon footprint and align with global sustainability goals.
- Tourism and Entertainment: The kingdom is investing billions into tourism, including luxury resorts along the Red Sea and entertainment hubs.
- Technology and Finance: Strategic investments in tech companies and financial services are part of the broader goal to transform Riyadh into a financial hub.
These diversification strategies are designed to reduce reliance on oil revenues, but the transition will require substantial funding, which lower dividends from Aramco could complicate.
Financial Outlook for Aramco
Analysts remain cautiously optimistic about Aramco’s financial outlook. While the current drop in oil prices poses a risk, the company’s low production costs and access to vast reserves provide a buffer against prolonged downturns. Additionally, potential upturns in global demand and strategic investments in renewable energy could enhance profitability.
The key to Aramco’s sustained success will be its ability to adapt to the evolving energy landscape while continuing to generate significant cash flows to support Saudi Arabia’s broader economic ambitions.
Conclusion
Aramco’s $106.25 billion profit in 2024, despite being a 12% drop from the previous year, underscores the company’s resilience amid declining oil prices. However, the reduced dividends and lower revenues pose significant challenges for Saudi Arabia’s Vision 2030 and its ambitious infrastructure and diversification projects.
With geopolitical uncertainties, OPEC+ production decisions, and the global shift towards renewable energy, Aramco and Saudi Arabia face a critical juncture. The coming years will test the effectiveness of the kingdom’s economic strategies and Aramco’s ability to navigate an increasingly complex energy market.
As Saudi Arabia pushes forward with its grand vision, the role of Aramco as a financial pillar will remain indispensable. Whether through debt financing, increased production, or diversification efforts, the path forward will require strategic decision-making and financial prudence.
