Saudi Aramco Profits at an ATH, but Saudi Arabia Continues to Invest Heavily in the Post-oil Era.

MBS also uses the Saudi fund as a diplomatic tool in the service of his interests.

Saudi Aramco has never made so much profit in its history.

Thanks to the surge in crude prices, the Saudi oil giant made $48.4 billion in profits in the second quarter of 2022!

That's even more than between January and March 2022, an already record quarter with nearly $40 billion in profits. Compared to the same time last year, the jump is 90%.

But the Saudi national company is not stunned by the figures. While displaying confidence in the short term, Saudi Aramco, the Saudi kingdom's main source of revenue, is already starting to prepare for the end of high oil prices.

“While global market volatility and economic uncertainty remain, events in the first half of this year 2022 confirm our view that continued investment in our industry is essential, both to ensure that markets remain well supplied and to facilitate an orderly energy transition,” CEO Amin Nasser said at a press conference Sunday, Aug. 14, 2022.

Massive investments planned to increase its production infrastructure

In 2022, the Saudi champion has already invested massively in its production infrastructure. This is the Achilles heel of the world's largest exporter of black gold, and the reason why Saudi Arabia can only provide a limited response to Western demands for increased oil supply. It currently produces 10.5 million barrels, exports 7.1 million, and is aiming for 13 million barrels by the end of 2023, its maximum production level given its current infrastructure.

However, the Saudi group believes that demand should not decrease in the next ten years. Between March 2021 and March 2022, Saudi exports of crude oil and refined products, mostly provided by Saudi Aramco, increased by 123%. Heat waves and soaring gas prices are prompting countries to switch fuels for power generation.

“We expect oil demand to continue to grow for the rest of the decade, despite downward economic pressure on the near-term global forecast,” said Amin Nasser.

To finance these investments, the company is relying on its huge revenues but also on the financial markets. It is itself listed since December 2019. It then introduced 1.73% of its capital to the Saudi Stock Exchange, which allowed it to raise 29.4 billion dollars and achieve the largest IPO in history. In March 2022, its capitalization even temporarily exceeded that of Apple, before returning to second place.

IPO in preparation

Amin Nasser confirmed that future IPOs were under consideration. “Announcements will be made,” he said, although he rarely reveals his strategy.

All eyes are on the group's trading activities. For several months, rumors have been circulating about a possible merger between its two trading units. Aramco Trading Co (ATC) would absorb Motiva Trading before an IPO.

The IPO, which has been in preparation for several months and is expected in early 2023, could raise more than $30 billion. In Riyadh, there is also talk of a future listing of 2.5% of Aramco's capital. The flagship of the conservative kingdom would this time raise more than 50 billion dollars in the operation.

Saudi Arabia continues to invest in the post-oil era

If Saudi Aramco's results are enough to make you dizzy, Saudi Arabia continues to think about the post-oil era by investing massively on Wall Street, for example via the Saudi sovereign wealth fund, the Public Investment Fund (PIF).

The PIF has taken advantage of Nasdaq's fall in the second quarter of 2022 to strengthen its investments. It has increased its holdings in Meta, Electronic Arts, and PayPal. It launched new investments in Amazon, Alphabet, Starbucks, JPMorgan, and BlackRock. The fund can afford to invest in a challenging environment. It has had recurrent cash (oil windfall, sale of part of its shares in Saudi Aramco), and for several years.

It has invested 7 billion dollars, against the trend of the markets.

According to estimates by the Bloomberg agency, its portfolio of American shares lost 7% in the second quarter of 2022, to $40 billion, or 6.5% of the total assets of the sovereign wealth fund, which were $620 billion in March 2022. They are invested in Saudi Arabia and abroad, in stocks, bonds, infrastructure, private equity ...

The Saudi fund recorded a high return in 2021. Its poker move during the Covid crisis, in March 2020, had also paid off.

The Saudi fund is encouraged at the highest level to take risks. The sovereign wealth fund has been headed since 2015 by Yasir Al Rumayyan, but Mohammed bin Salman (MBS), the crown prince, is the real boss. No significant investment can be made without his approval and especially for the most political of investments.

In 2022, the PIF invested $2 billion in the private equity fund of Jared Kushner, Donald Trump's son-in-law.

As a diplomatic tool in the service of his interests, MBS wants to see the PIF in his image, uninhibited and bold. He has made it one of the key actors of his success and his great challenge: the modernization and diversification of the Saudi economy. Among the priority sectors (renewable energies, infrastructure, aerospace, automotive ...) are also games and e-sports which are developing rapidly in Saudi Arabia.

In Japan, the fund invested $3 billion in Nintendo in May 2022, after its investments in Nexon and Capcom. In Sweden, it is a shareholder in Embracer Group.

This summer, the PIF took a 16.7% stake in Aston Martin, the British car manufacturer which is going through a difficult period. The previous year, the fund had invested in McLaren with another Gulf fund, Mumtalakat, from Bahrain. In three years, Aston Martin will launch electric cars, a sector in which the PIF is already invested through its massive stake (20 billion dollars) in Lucid Motors.

It had also invested in Tesla in the past, but Elon Musk's volatile personality had finally irritated the PIF's leaders and even MBS. The fund, which held 5% of Tesla's capital, has gradually sold its shares to no longer hold any in March 2020. If he had kept his investment, he would have earned up to 50 billion dollars thanks to Tesla's rise in 2020 and 2021.