Aramco’s Planning To Lower Dividend Payments And Save Itself A Chunk Of Change

What’s going on here?

Aramco said it’ll reduce its dividend payments – the world’s biggest – from last year’s $124 billion to $85 billion, in a move that could force Saudi Arabia to search the sofa for a lot of lost change.

What does this mean?

Brent crude, a key benchmark oil price, is trading for under $77 a barrel – well below the $90 that Aramco would likely need to keep dividends stable. Layer on the fact that the oil titan’s production is hovering near a three-year low, and Aramco simply can’t finance bumper payouts. The firm even dipped into cash reserves to make up the difference last year, but that left it owing more money than it had easily available. It’s a serious fall from grace: just a year ago, Aramco had $27 billion to spare.

Why should I care?

The bigger picture: Never get too comfortable.

Aramco’s cutback is a headache for Saudi Arabia. As the firm’s majority owner, the government relies on those dividends – not least to fund its “Vision 2030” project. The $1 trillion rebrand is designed to position the country as a global business hub – mainly by building futuristic cities and investing in AI, entertainment, and tourism. But if the government can’t count on Aramco to pay the bills, it’ll be forced to borrow even more money (and Saudi Arabia’s already issued more bonds than any other emerging market this year). That, or dig deeper into its sovereign wealth fund.

For markets: Your credit rating could be worse.Saudi Arabia isn’t the only country resorting to borrowing cash: government debt is higher than ever around the world. The US is sitting on a $1.7 trillion deficit, Europe’s stretching budgets to finance green subsidies and defense, and emerging markets are issuing debt just to stay afloat. No wonder investors are flocking to safe-haven assets like gold, worried about the potential fallout if government debt spirals out of control.