Aramco’s Profit Slump Highlights Vulnerability to Oil Market Volatility

The Saudi Arabian Oil Company (Saudi Aramco) reported a SAR 4.73 billion ($1.26 billion) year-over-year drop in Q1 2025 net profit to SAR 97.54 billion ($26.01 billion), underscoring the fragility of its financial model amid falling oil prices. While production increases and strategic pricing adjustments provided some buoyancy, the results reveal the stark reality of an industry facing headwinds from both weak crude prices and rising operational costs.

The Oil Price Drag

The average Brent crude price in Q1 2025 fell to $75 per barrel, an 8% decline from the same period in 2024. By early 2025, prices dipped to a four-year low of ~$60 per barrel, below Aramco’s estimated self-funding breakeven point of $70 per barrel. This threshold is critical: HSBC analysts note that prices below this level force the company to rely on reserves or cutbacks to fund its ambitious capital spending and dividends.

Aramco’s revenue growth—up 0.4% year-over-year to SAR 405.65 billion—was driven by higher crude volumes and traded oil, but this was offset by lower refined product prices and rising operating costs, which rose to SAR 240.25 billion from SAR 234.45 billion in 2024. The net result: margins compressed, with net profit falling despite increased production.

Fiscal Tightrope for Saudi Arabia

Aramco’s struggles mirror broader fiscal pressures in Saudi Arabia. The kingdom’s Q1 2025 budget deficit surged to SAR58.7 billion ($15.65 billion), quadruple the prior year’s figure, as oil revenues dropped 17.65% to SAR149.81 billion. Even as non-oil revenues inched up 2.06%, public debt ballooned to SAR1.33 trillion, a 19% year-over-year jump. This reflects the high cost of funding Vision 2030 initiatives—from infrastructure projects to social programs—amid a less-than-robust non-oil economy.

Diversification Gambles and Downstream Struggles

Aramco is betting on gas production growth to offset oil price volatility. The Jafurah unconventional gas field, slated to begin production in H2 2025, aims to meet domestic demand and reduce reliance on oil exports. However, the downstream sector—refining and petrochemicals—remains a weak spot.

Margins here have been squeezed by rising feedstock costs, with subsidiaries like Luberef reporting a 10% drop in EBITDA. Competitors in Asia, particularly China’s self-sufficient producers, are also eroding profitability. These challenges highlight the risks of overexposure to cyclical commodity markets.

Investment Implications

Investors should monitor two key metrics: oil prices and Aramco’s dividend policy. With Brent prices flirting with $60—a level that strains Aramco’s finances—the company may cut its 2025 dividend below the guided SAR85 billion ($22.7 billion). CEO Amin Nasser has hinted at flexibility, noting Aramco could use undrawn capital budgets to maintain payouts.

Meanwhile, the company’s $52–$58 billion 2025 capital expenditure plan remains intact, reflecting confidence in long-term demand. Yet, with public debt rising and fiscal buffers thinning, Saudi Arabia’s ability to absorb shocks hinges on Aramco’s ability to stabilize cash flows.

Conclusion

Aramco’s Q1 results are a stark reminder of its dependence on oil markets. While the company’s scale and diversified projects like Jafurah provide a cushion, the $70 per barrel breakeven point looms large. With Brent prices still below this threshold and global demand growth uncertain, Aramco—and Saudi Arabia—face a precarious balance. Investors should weigh the risks of prolonged low oil prices against the potential rewards of Aramco’s strategic bets. For now, the numbers tell a clear story: without a sustained oil price rebound, earnings strain will persist.

The path forward is clear: diversification into gas and non-oil sectors is not optional—it’s essential. But with debt rising and fiscal deficits widening, time may be running out for Aramco to prove its resilience in a volatile world.