In the first quarter of 2025, Saudi Aramco reported net income of 97.54 billion riyals (US $26.01 billion), a 4.6% decline from the same period a year earlier. Although this result modestly beat the median analyst forecast of US $25.36 billion, it highlights growing headwinds in the oil sector—from ebbing crude prices and rising costs to trade tensions and shifting demand patterns. Below, we explore the key factors behind Aramco’s profit drop, its implications for Saudi Arabia’s fiscal health and Vision 2030 agenda, and what might lie ahead for the world’s largest oil exporter.

Challenged by lower crude prices

Brent crude, the global benchmark, began the year near US $82 per barrel but slid into the mid-$60s by April as fears of a global slowdown intensified. This price retreat cut directly into Aramco’s upstream revenues, even as the company maintained production volumes through coordinated OPEC+ output cuts. The International Energy Agency (IEA) trimmed its 2025 oil-demand growth forecast by roughly 300,000 bpd to 730,000 bpd, citing escalating trade tensions and weaker industrial activity—an adjustment that underscores a calmer market amid economic uncertaintyArab Gulf States Institute in Washington.

Free cash flow—a key determinant of dividends—fell 15.8% year-on-year to US $19.2 billion. As a result, Aramco’s performance-linked dividend plunged by about 98%, from US $43.1 billion in 2024 to just US $219 million this quarter. Nonetheless, management upheld a base dividend of US $21.14 billion, signaling commitment to steady returns despite cyclical headwinds Reuters.

Rising costs and capex investments

While oil prices weakened, Aramco faced higher operating expenses. Increased maintenance work across maturing fields, along with surging shipping and insurance premiums, nudged lifting costs upward. In parallel, capital expenditure rose 15.9% to US $12.5 billion as the company advanced growth projects and strategic expansions. The board reaffirmed guidance for full-year capex and external investments totalling US $52–58 billion, up from US $50.4 billion in 2024 Reuters.

Global trade frictions take a toll

The U.S.-China trade conflict, reignited by fresh tariffs in early April, has unsettled markets worldwide. Although these measures had limited direct impact on Q1 results, their broader chilling effect on manufacturing and shipping weighed on crude demand forecasts. The IEA’s April report highlighted that nearly half of its demand downgrade stems from the United States and China, with the remainder concentrated in trade-oriented Asian economies IEA.

Analysts at Bloomberg note that weaker global trade flows and slowing retail sales in major markets exacerbate the risk of further price softness, especially if tariffs remain in place or escalate Bloomberg.

OPEC+ output adjustments

Since mid-2022, OPEC+ has implemented voluntary production cuts to prop up prices amid growing non-OPEC supply. In late April, the alliance agreed to boost output by 411,000 bpd in both May and June. That increase raises Saudi Arabia’s marketed production to approximately 9.37 million bpd from about 9 million bpd, a move intended to balance a near-term market that is tight on inventories yet wary of future oversupply Reuters.

Despite higher quotas, spare capacity in Saudi Arabia—estimated at 2.5–3 million bpd—offers the kingdom swift flexibility to manage abrupt price swings. Aramco’s CEO Amin Nasser emphasized that this strategic optionality, combined with low lifting costs, underpins the company’s resilience in volatile times.

Implications for Saudi fiscal stability

Oil and gas revenues accounted for 62% of Saudi government receipts in 2024. The International Monetary Fund (IMF) estimates that Riyadh needs crude at around US $92.3 per barrel in 2025 to achieve a balanced budget. At mid-$60 levels, the kingdom’s fiscal deficit widens significantly; in the first quarter alone, the shortfall reached an estimated US $15.6 billion Reuters.

To bridge this gap, authorities have tapped international bond markets and accelerated non-oil revenue measures, including higher VAT rates and energy price reforms. Yet these steps, combined with softer Aramco dividends, intensify pressure on the Vision 2030 reform agenda—particularly large-scale projects aimed at diversifying the economy away from oil.

Vision 2030 and strategic pivots

Crown Prince Mohammed bin Salman’s Vision 2030 blueprint encompasses ambitious ventures in tourism, entertainment, technology and new urban developments such as NEOM. Lower oil receipts and dividend cuts have prompted the government to reprioritize and, in some cases, scale back non-essential projects—focusing instead on infrastructure critical for major upcoming events, including Expo 2030 Dubai and the 2034 World Cup Reuters.

On the corporate side, Aramco is investing in upstream gas expansions, carbon capture and storage, and green-hydrogen initiatives, partnering with global energy firms to build renewable hubs. Meanwhile, the Public Investment Fund (PIF) has doubled down on sectors ranging from semiconductors to sports and entertainment, seeking new revenue streams that can offset oil volatility.

Market trends beyond Q1

In the United States, the shale revolution is hitting a plateau. Bloomberg analysts report that break-even costs in the Permian basin have climbed near US $62 per barrel, curbing the headlong growth of previous years. U.S. output growth is forecast to taper sharply in 2025, offering some reprieve to global balances despite robust OPEC+ quotas Bloomberg.

Refining margins remain surprisingly strong amid lower feedstock costs. In Asia, Singapore’s kerosene and gasoil crack spread rose to around US $7 per barrel in early May, while European refining margins widened thanks to healthy petrochemical off-take. These dynamics have cushioned integrated players against upstream revenue declines.

However, structural headwinds loom. The IEA predicts that global oil-demand growth will slow further to 690,000 bpd in 2026 as electric vehicle adoption accelerates and energy efficiency measures deepen The Guardian. OECD consumption is already projected to contract, placing the onus of growth on emerging markets like India and Brazil.

Navigating volatility and securing the future

Aramco’s Q1 profit drop reflects a complex interplay of near-term pressures and longer-term shifts in the energy landscape. Its low upstream costs and ample spare capacity give it a strong hand to weather current storms. Yet, with oil prices likely to remain under pressure, the company and the Saudi government must intensify efforts to develop sustainable, non-oil revenue sources.

For investors, the Q1 results serve as both a caution and an affirmation. While cyclical dips can erode earnings, Aramco’s scale and operational efficiency have so far shielded its dividend policy. For Riyadh, the challenge is more profound: to translate Vision 2030 aspirations into tangible economic transformation, even as budgetary buffers are tested.

As the world grapples with trade wars, economic slowdowns and the shift to cleaner energy, Saudi Aramco’s performance this quarter offers a microcosm of the oil sector’s broader crossroads. Balancing present volatility with long-term diversification will define not just Aramco’s trajectory, but the future of an oil-dependent kingdom striving for a new era of prosperity.

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By: Montel Kamau

Serrari Financial Analyst

12th May, 2025