Saudi Aramco, the oil-rich kingdom's moneymaking engine, delivered bumper profits through the first months of the Iran war, despite unprecedented disruptions to its operations.
The key to success: skyrocketing oil prices offset the fewer barrels it was able to sell to the world. Also critical: Aramco used a backup pipeline built during the early 1980s Iran-Iraq war to deliver larger-than-expected amounts of oil to the Red Sea, offsetting the impact of the effective closure of the Strait of Hormuz, where most of its oil and other products formerly transited.
While Aramco sold and produced fewer barrels, the spiking price still translated into a one-third jump in profit to around $33 billion. The company said it would maintain its base dividend of around $21.9 billion.
The result is a windfall at a challenging time for the Saudi Arabian government, by far Aramco's biggest shareholder.
Oil revenues to the Saudi government rose 22% in the second quarter, pumping nearly $50 billion into the budget, according to the kingdom's Ministry of Finance. Taken with other tax revenues from its growing non-oil economy, Saudi Arabia had its lowest quarterly budget deficit in nearly two years between April and June, of $9.1 billion.
It marked a welcome turn for a kingdom otherwise straining with the effects of the war. Saudi Arabia's gross domestic product fell 4.8% in the second quarter compared with a year earlier, its biggest drop since the pandemic.
The boost in oil revenue during the Iran war comes after years of struggle for the government's finances, which have been hit by ballooning spending and oil prices that sagged in the $60-a-barrel range.
Before the war, the government had begun to cut back some of its priciest initiatives, scrapping construction for most of its project in Neom, a futuristic planned city that would have cost trillions of dollars to complete.
Over the three months ending in June, Aramco sold its crude oil for an average of around $108 a barrel, a jump of more than 60% compared with $67 a barrel a year ago, according to its quarterly report. Total production of hydrocarbons, including crude, gas and natural-gas liquids such as ethane and propane declined by about a quarter.
When the Strait of Hormuz effectively closed in March, the company sent more oil west across the kingdom's East-West pipeline to the port of Yanbu in the Red Sea, bypassing the maritime chokepoint. From Yanbu, tankers have carried crude south through the Bab al-Mandeb Strait to Asian customers or north through the Suez Canal to European buyers.
As a whole, Saudi Arabia exported 4.6 million barrels a day of crude oil via sea in June, compared with 7.3 million barrels a day in February before the war, according to the latest data from the Paris-based International Energy Agency.
Earnings for Saudi Aramco's upstream production rose thanks to higher prices for crude oil. Meanwhile, its downstream earnings nearly doubled from a year earlier thanks to high margins for refined-oil products such as lubricants.
Chief Executive Amin H. Nasser said the conflict has removed more than 2.6 billion barrels of oil from the global supply, although emergency stock releases and alternative export routes reduced the net loss to about 1.8 billion barrels. Even if the Strait of Hormuz reopened immediately, rebuilding the depleting global oil inventories would take up to 18 months at an average of 2.1 million barrels a day, Nasser said.
Complicating any resumption to a prewar normal are recent threats from Houthi militants to enforce a blockade on Saudi Arabia in the Red Sea and several attacks against Saudi vessels.
Blocking the kingdom from using the Bab al-Mandeb Strait would force more Saudi oil onto a longer, costlier and technically challenging journey through Egypt's Suez Canal and around Africa. The company said on Tuesday that rerouting the Asia-bound cargoes would add roughly 20 to 25 days to the journey.
Aramco can also transport crude oil from Yanbu port in the Red Sea to Ain Sokhna in Egypt, and then send it through the Sumed pipeline, which runs parallel to Suez, to the Egyptian port Sidi Kerir in the Mediterranean. The pipeline, however, has a capacity of 2.5 million barrels a day, compared with the full capacity of 7 million barrels a day of the East-West pipeline. Yanbu port itself has a loading capacity of 5 million barrels a day.
In late July, Iran-backed Houthi militants attacked Aramco facilities in the cities of Jizan and Yanbu, in response to the Royal Saudi Air Force striking military targets in Yemen's coastal province of Hodeida.
On Tuesday, Aramco said some of its facilities and those of its affiliates in Saudi Arabia were targeted during the quarter and subsequently in July, but the incidents had no material effect on its financial position, operations or cash flows. The company said production, domestic fuel supplies and major projects remained intact despite the attacks.
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