Saudi Arabia’s oil company, the state-owned Saudi Arabian Oil Company (SAOC), will help to plug the Gulf nation’s growing budget deficit by increasing its dividend payouts despite falling revenue.
Saudi Aramco announced on Monday that it will increase its payouts to investors by 56pc, to $29.4bn.
MBS (Crown Prince Mohammed bin Salman) will receive a direct boost of nearly $29bn, a huge sum for a man who is battling an ever-growing budget deficit.
Last week, the Saudi government reported that its quarter deficit had risen by 80pc (to 5.3bn Riyals)(£1.1bn), due to huge investments in efforts to divert the economy away fossil fuels.
MBS has spent $500bn on the development of Neom City, an futuristic project designed to boost tourism.
The continued dependence of Riyadh on oil revenue shows that MBS’s goal to make Saudi Arabia less reliant on fossil fuels is a pipedream.
Aramco increased the payout to the government despite its profits falling from record highs last year, due to a combination lower oil prices and significant production cuts.
The net income for the three-month period ending June was $30.1bn. This is down by 38pc compared to $48.4bn in the same period last year, when the energy crises sent oil price soaring.
Saudi Aramco announced that it would pay a quarterly dividend of $19.5bn as well as an incentive-linked payout worth $9.9bn.
Capital Economics’ Middle East economist, Jason Turvey, said that Aramco’s higher dividends show “the government has tried its best to ensure the slump in oil revenues does not impact on its fiscal plan”.
Saudi Arabia is trying to support state spending by boosting the oil price.
Last week, the country that leads the Organisation for Petroleum Exporting Countries bloc announced it would continue this reduction through September.
Russia, a member of Opec, announced that it would also extend its export cuts until September.
Brent crude has risen from $75 per barrel at the end June to $85 today. Prices are still far below last year’s high of $127 a barrel, which was after Russia invaded Ukraine.
Amin Nasser, Aramco’s CEO, said that the second quarter of 2023 will be marked by global economic volatility and continued uncertainty.
This obviously affected energy costs, but Aramco still delivered strong earnings due to our low-cost production, high reliability of supply and strong demand for Aramco’s products.
Saudi Aramco announced plans to invest in China and diversify its business activities as part of its largest capital expenditure program in history.
In the six-month period ending in June, investment rose 13pc. Aramco stated that this spending was to “capture unique growth opportunities”.
Saudi Aramco bought a 10% stake in Rongsheng Petrochemical (a Chinese chemical firm) in July for RMB 24.61bn (£2.7bn), and signed a long-term agreement with the company to expand its presence significantly in China.
In April 2019, the Saudi government sold approximately 1.5pc of Saudi Aramco shares to investors in an initial public offering.