How does Saudi Aramco make money

Saudi Aramco goes publicMoney for the state budget and the energy transition

The IPO of the Saudi oil company Saudi Aramco is an IPO of superlatives. The demand for the shares was very high. At the start of the stock market, the share was already ten percent above the issue price. So far, Saudi Aramco has belonged 100 percent to the state, the shots at Aramco are held by the royal family and, above all, Crown Prince Bin Salman, who wanted Saudi Aramco to go public four years ago.

Originally five percent of the shares were to be sold, now it will only be 1.5 percent, which will still be enough for a total volume that will break all records. The IPO should increase Saudi Aramco's market value to at least $ 1.7 trillion. Aramco has huge oil reserves and is the most profitable company in the world, with profits totaling $ 111 billion last year alone.

Skepticism from investors in the West

The IPO of Aramco was rather bumpy overall, last year it was even put on hold and had been significantly delayed. Which is mainly due to the skepticism and lack of enthusiasm of investors in the West, geopolitical risks, but also political reservations about human rights violations in Saudi Arabia, not least because of the murder of the journalist Kashoggi.

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There is great interest in Aramco shares, including from Saudi private investors. One of the reasons for this is that they are still a long way from believing that the domestic oil industry will end.

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The initial public offering of the Saudi oil company Aramco could be the largest of all time, with a volume of over 25 billion dollars. With the partial privatization of the state company, the Saudis want to prepare for the post-oil era.

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With the IPO of the state-owned petroleum company Aramco, Saudi Arabia wants to top up the state fund and create jobs, said the Islamic scholar Guido Steinberg in the Dlf.

But the most important reason why the IPO is smaller than originally planned is the persistently low oil price, which will not rise in the foreseeable future. There is an oversupply in the oil market. Even if OPEC recently decided to reduce oil production, this oversupply will not go away for the time being as long as the USA exports a lot of oil through fracking. In addition, Saudi Aramco is an "old economy" company, and in the long term the trend in investments is away from fossil fuels. That, too, was the reason the royal family cited for Saudi Aramco's IPO.

Because Saudi Arabia also wants to become less dependent on oil. In his Vision 2030, the Saudi Crown Prince announced that he wanted to completely replace oil with renewable energies in a few decades. In particular, income from the stock exchange should help.

As a result of the fluctuations in the oil price, huge budget holes have repeatedly emerged. In 2020, Saudi Arabia expects a budget deficit of the equivalent of 45 billion euros. According to calculations by the International Monetary Fund, Saudi Arabia would need an oil price of 85 dollars per barrel for a balanced budget. But that will no longer exist in the foreseeable future.