Aramco will pay US$31 billion in dividends to the Saudi government and other investors despite lower profit, as the kingdom’s economy continues to struggle with a budget deficit.

The world’s biggest crude oil exporter announced the total payout, including a special component, for the first quarter. Aramco has said that the distributions to investors and the Saudi government this year will be higher than in 2023, which will help fund some of the kingdom’s vast spending plans as it looks to diversify the economy away from oil.

Aramco’s generous payouts are becoming increasingly important for the Gulf state as oil prices remain below the levels it needs to balance its budget. Crown Prince Mohammed bin Salman is pursuing expensive ventures such as the futuristic urban area development project of Neom, making a big bet on tourism and seeking stakes in sporting leagues as he tries to transform the economy. Global oil supermajors such as Shell Plc have also kept their focus on returning cash to shareholders.

The kingdom needs oil at around US$108 a barrel to balance the budget, including domestic spending by its sovereign wealth fund, according to Bloomberg Economics. Benchmark crude prices in London were trading below US$84 a barrel on Tuesday (May 7).

Saudi Arabia has already delayed some projects that are part of its economic transformation plan past 2030 and scaled back its ambitions for Neom. Its economy has contracted for three quarters straight while the budget has been in deficit for six consecutive quarters.

Aramco’s massive dividend payouts come even as Saudi Arabia has revived a plan for a follow-on offering of the company’s shares that would help raise billions of dollars. But global investors, some of whom had balked at the kingdom’s valuation expectations and the low yield compared with industry peers during the firm’s 2019 initial public offering, will keep an eye on the Saudi economy and the country’s oil output levels.

Saudi Arabia has been leading efforts by the Organization of Petroleum Exporting Countries and its allies in restricting production in an effort to prevent a supply surplus and shore up prices. The group will gather on June 1 to consider whether to extend current supply curbs into the second half of the year. A majority of traders and analysts surveyed by Bloomberg expect the group to prolong the curbs, perhaps to the end of 2024.

  - Bloomberg