Saudi Arabian Oil Giant Announces Decline in Profits

Riyadh, the capital city and economic center of Saudi Arabia (Pixabay)

Saudi Arabian oil giant Aramco announced on March 21 that its profit margin was down 44 percent from last year as a result of COVID-19’s impact on global demand for energy. Aramco, short for Saudi Arabian Oil Company, is the world’s largest oil company. However, due to the imposition of severe travel restrictions across the globe over the last year, it has faced many financial challenges. As a consequence, demand for oil plummeted and the price of oil plunged.

Aramco stated that total revenue had fallen from $88.2 billion in 2019 to $49 billion in 2020. Although overall revenues are down, Aramco promised to keep its promise of paying out $18.75 billion in dividends, the vast majority of which will go to the Saudi government. This stands in contrast to other oil companies, which have cut back on dividend payouts.

The dramatic drop in profits also has implications for the region at large. Currently, the Saudi government owns more than 98 percent of Aramco, and oil revenues are thus the principal source of funds for the kingdom. Despite Crown Prince Mohammed bin Salman’s efforts to diversify his country’s economy, Saudi Arabia still remains heavily dependent on oil exports to satisfy government spending. With less revenue coming in from Aramco, observers expect increased cuts to social benefits and public sector salaries for Saudi Arabian citizens, potentially fueling discontent towards the regime.

The Yemeni Civil War continues to cause uncertainty about Aramco’s oil profits. Saudi military involvement in the conflict to support the Yemeni government sparked backlash against the kingdom. Iran-backed Houthi rebels launched repeated attacks against Aramco-owned oil facilities and refineries in recent weeks using both missiles and drone strikes. Nevertheless, company press releases maintain that contingency measures are in place to deal with potential damages and impaired facilities are being quickly returned to service.

While Aramco suffered from severe fiscal strain in the past year, the company nevertheless maintained an optimistic outlook for the future. CEO Amin Nasser stressed that as vaccination rates around the world increase and countries begin to open their borders to travelers, demand for oil will rise. He added that such signs were already present in Asia and elsewhere, saying, “We remain confident that we will emerge on the other side of this pandemic in a position of strength.”