Saudi Aramco’s quarterly profit tumbled 38% in Q2, results released on Monday showed.
Net income for the period was $30.1 billion, down dramatically from Q2 of 2022, when the surge in oil prices that accompanied Russia’s military misadventures drove a bumper haul approaching $50 billion.
Allow me to put these numbers in context. After falling by more than a third, Aramco’s Q2 haul was still 50% higher than Exxon’s most profitable quarter in 152 years of corporate history.
Late last year, Elon Musk suggested Tesla could one day be more valuable that Apple and Aramco combined. Aramco made more in profits during its worst quarter in two years than Tesla made in revenue last quarter, when sales rose 47%.
I mention this mostly for comedic value, but not entirely. Aramco also said Monday it’ll increase payouts to investors. Mohammed Bin Salman is obviously the largest owner, and his grandiose vision for the Kingdom depends heavily on oil revenues, ironic given that part of that vision entails diversifying the economy away from oil. That’s another manifestation of the dynamic whereby the energy transition paradoxically requires more “dirty” energy and extraction in the near-term.
Recall that Saudi oil exports dropped to a 20-month low in May.
The Saudis are cutting supplies to the global oil market in a bid to support prices. As I put it late last month, that’s a gamble. If it works, great. If not, you look like an idiot: You’re wittingly undercutting your fiscal position with nothing to show for it. Prices have rebounded, but a lot depends on the demand outlook in China and, of course, global growth more generally.
In addition to a $19.5 billion base dividend, Aramco is going ahead with plans to distribute performance-linked payouts. The first distribution will be around $9.9 billion. That’s based on last year’s results and the first half of 2023. As a reminder, Aramco hauled in $161 billion in net income for 2022. That was almost triple Exxon’s adjusted full-year total. Total payments to the monarchy in Q2 dropped by almost a third.
In their latest global forecasts, the IMF downgraded Saudi Arabia’s outlook. The Kingdom’s economy is seen expanding just 1.9% this year, down from a projected 3.1% in April.
Riyadh is blowing through money on what Bloomberg euphemistically described as “social benefits” — they’re actually payments to ensure a captive populace stays pacified and doesn’t become restive with the monarchy. Between those outlays, spending on the Crown Prince’s various “projects” and lower oil revenue, the deficit ballooned this year, a stark turnaround from 2022’s surplus.
Lower output aimed at bolstering prices and the new performance dividends from Aramco suggest the government is keen to shore up its fiscal position or, at the least, put a floor under revenues so Bin Salman doesn’t have to cap outlays.
