Saudi Arabia’s Power Pipeline
The oil earnings flowing from the most profitable company in history are helping the Saudi kingdom shake up the global economy— and the old geopolitical order.
The oil earnings flowing from the most profitable company in history are helping the Saudi kingdom shake up the global economy—and the old geopolitical order.
FFOR GENERATIONS, the city of Cannes in the South of France has been famous for its glitzy film festival, where the world’s movie stars strut down the red carpet every spring amid adoring fans and clicking cameras. But in March, another group of A-listers arrived on the red carpet, this time not from Hollywood, but from a country that until recently was shrouded in insular secrecy: Saudi Arabia.
Instead of movies, these visitors came to exhibit massive building whose budgets would make any studio boss salivate. In razzledazzle exhibition spaces erected along the palm-lined Mediterranean, the power players were there to woo investors and suppliers at a sprawling real estate convention. They aired videos of futuristic cities, skyscrapers, resorts, and jagged mountains, images that floated across giant wraparound screens. Alongside them were scale models of projects ranging from practical to fanciful, from a vast expansion of Riyadh, the Saudi capital, to a planned city of 9 million rising from scratch along the Red Sea—at a projected cost of more than $500 billion.
“Almost all the countries in the world are already built,” Saud Alsulaimani, Saudi country head for Chicago-based real estate services company Jones Lang LaSalle, told a group of convention-goers who dropped in to ogle the 3D models. “There is nowhere else on the planet you will find $1.4 trillion worth of construction at the same time.”
Though he wasn’t physically present in Cannes, you didn’t have to look far to catch Saudi Arabia’s Crown Prince Mohammed bin Salman, whose face was projected on the walls of the pavilion of the huge Saudi state-run real estate company. Just 38, MBS, as the prince is commonly known, is seven years into what’s envisioned as his lifetime leadership of Saudi Arabia (his father, King Salman, the official head of state, is 88). Since 2022, MBS has also held the post of prime minister. The largerthan-life image of MBS conveyed a message: The young ruler is the ultiprojects
mate patron behind these ambitious projects.
Not displayed, however, was an equally crucial player: Saudi Aramco, the most profitable company in the world over the past decade. The state-owned energy giant pumps out oil at a rate no other single company can match—at margins that are the envy of every competitor. Its revenues, which reached $440 billion in 2023, make up about 40% of Saudi Arabia’s GDP. Its enormous earnings finance hundreds of billions of dollars’ worth of Saudi investments, both internally—in the kingdom’s mammoth construction and tourism projects and its efforts to diversify its economy—and globally, through the intricate web of stakes that Saudi’s sovereign wealth fund, the Public Investment Fund (or PIF), has amassed in companies, sports franchises, and real estate worldwide.
While a tiny share of Aramco is publicly traded, the company is majority owned by the Saudi state, their agendas inexorably linked. Aramco in return provides the means for the crown prince’s overhaul of the Saudi economy, and his efforts to reshape the global economic order. That gives Saudi Arabia and its leader disproportionate clout beyond the kingdom, in the biggest geopolitical issues of our time—from prospects for peace in the Middle East to the global fight against climate change. And how MBS exerts that influence will hinge in part on how much money Aramco can make.
This rising global role of Saudi Arabia is an outrage to some, a cause for celebration to others. The crown prince rules with laser intent and no tolerance for dissent: A CIA investigation concluded that MBS assented to the 2018 murder of journalist Jamal Khashoggi (though the Saudi government strongly denies it), and since his father picked him to run the country in 2017, Saudi Arabia’s rate of executions has risen, while human-rights activists have been sentenced to long prison terms. At the same time, MBS has pushed through the most radical remake of the country since the Saud dynasty founded its absolute monarchy in the 1930s—including outward liberalization in what had long been
one of the world’s most religiously conservative countries.
One key driver is Saudi demographics. Half the country is younger than 30, and a quarter is under age 15. Some of MBS’s reforms have resonated not only among the youth, but also in the West: He ended a longtime ban on movie theaters and live music—Alicia Keys and Pharrell Williams performed in Jeddah the weekend before Saudi execs arrived in Cannes—and scrapped laws forbidding women from driving cars or working most jobs. The billions the government has spent signing sports icons like soccer’s Cristiano Ronaldo and Neymar Jr. to local teams have brought young Saudis pouring into new stadiums.
“I never thought I’d be sitting in a stadium in Riyadh with women, their heads uncovered, screaming for Ronaldo,” says Helima Croft, head of global commodity strategy at RBC Capital Markets in New York, on her return from a recent trip to Saudi Arabia. “The mood was electric.”
If the absence of democracy is the price to pay for such pleasures, many Saudis appear to have decided it is worth the trade. The same goes for some giants of Western business— including BlackRock, Amazon, and Alphabet—which have welcomed Saudi capital and invested in the country. The kingdom is also a player in the AI race: IBM says it is investing $200 million in an AI software lab in Riyadh. And a $40 billion AI fund is being planned by the PIF and Silicon Valley’s top VC firm, Andreessen Horowitz—a deal that could make the kingdom the world’s biggest investor in AI.
No leader expressed surprise last year when MBS clinched hosting rights for the World Expo 2030—a six-month international extravaganza. “As a female, Saudi Arabia is now the best place to live in,” says Munira Aldayood, who helps organize conferences for Riyadh’s municipal authormachine, ity, explaining why she moved back from Fairfax, Va., in 2020 after 23 years in the U.S. She says she found a thriving job market for women and a less stultifying lifestyle than the one from her youth: “It’s heaven.”
That paradise is largely paid for by Aramco. From fiscal 2016, when the company first made its financial information public, through 2023, Aramco has reported an astonishing $722 billion in profits, more than any other company in the world over that span. (Apple, famously a profit lags far behind, at $558 billion.) Its $159 billion in profits in 2022 was the single most profitable year ever reported by any company.
But the Aramco cash machine is by no means guaranteed to last forever. In a world undergoing a complicated, urgent energy transition, Aramco’s continued health—and Saudi Arabia’s—will depend on how well the energy giant both shapes and adapts to the changes. For now, the billions from Aramco revenues flow to the PIF, which then spends lavishly on the kingdom’s new economy, including its investments in a green transition. “It’s a bit like taking from one pocket and putting it into another,” says Kate Dourian, Saudi oil expert at the Arab Gulf States Institute in Washington. Saudi Arabia’s massive building spree, and its huge investments, depend on Aramco finding top-dollar value for its hydrocarbons. “Without a certain oil price, they cannot do it,” says Dourian. Until the kingdom develops more diverse ways to keep its pockets full, Aramco will need to stay in good health.
“It’s a bit like taking from one pocket and putting it into another. Without a certain oil price, [Saudi Arabia] cannot do it.” KATE DOURIAN,
ARAB GULF STATES INSTITUTE
THE ARAMCO JUGGERNAUT was originally funded with U.S. money. It began in the 1930s, when American wildcatters trekked into the desert with camels, hunting for prospects for Standard Oil, and hit it big, creating a booming industry. Saudi Arabia nationalized oil production in 1980, while keeping an American remnant: the “am” in Aramco. (The company was once known as the Arabian American Oil Co.) While many Western experts still work there, its management is thoroughly Saudi.
Today Saudi Arabia sits atop nearly one-fifth of the planet’s oil reserves. It pumps more than 9 million barrels a day—9% of global consumption— making it the world’s second-biggest producer after the U.S., which has leaped ahead this century. The Saudis can also ramp up output at short notice, to more than 12 million barrels a day, if the world needs it—something no other country can do.
If high volume means revenue, low costs mean mega-profits. Saudi reserves, in shallow sands, are so easily accessible that Aramco spends less than $10 to produce each barrel of oil. That’s a fraction, for example, of what it costs supermajors like Exxon Mobil and BP to drill in the Gulf of Mexico. “Aramco will make a profit at anything more than $10 a barrel,” says James Reeve, a Brit who serves as a senior director of investment strategy for the PIF in Riyadh; such cheap production is great news at a time when the global price exceeds $80 a barrel.
What’s more, Aramco also retains more of its revenues than its publicly traded competitors in the West. The state-owned company pumps oil in the vast Arabian desert, sends it through pipelines in which it has a majority stake, and exports it from state-owned terminals—meaning it controls more of its supply chain.
In March, Aramco reported yearon-year declines in both revenues and profits for 2023, as capital expenditure rose and global oil prices dropped. But it still notched net earnings of $121.3 billion—equal to more than $332 million in profit a day, or more than $13 million an hour.
Aramco’s intensive operations are highly mechanized; it employs only 70,000 people worldwide, including staff at various subsidiaries and joint ventures. It’s not generating nearly enough jobs for young, ambitious Saudis—which makes it all the more urgent that its profits help MBS diversify the Saudi economy.
In 2016, when the Saudi royals unveiled their master plan for the kingdom’s future, dubbed Vision 2030, it laid out one driving purpose: to lessen the country’s heavy dependence on hydrocarbons by opening new sectors like tourism (a key reason to allow women to drive and take jobs) and tech.
For now, though, the massive profits from those hydrocarbons are playing a dual role, laying a foundation for a modernized, multi-industry economy while putting MBS closer to the center of the world’s geopolitical web. MBS has proved skillful at using his immense riches to juggle alliances around the world. After the European Union banned Russian diesel in 2022, in punishment for Vladimir Putin’s war on Ukraine, MBS boosted oil exports to Europe, to make up for some of the shortfall—while at the same time importing Russian fuel to Saudi Arabia, to compensate Putin for his losses under sanctions.
No longer does U.S. President Biden vow to make Saudi Arabia a “pariah,” as he did as a candidate in 2019, or to halt arms sales to the country. U.S. Secretary of State Antony Blinken has flown to Saudi Arabia six times since October, seeking MBS’s help in ending the IsraelHamas war. The U.S. has also been back-channeling to keep alive the possibility of normalizing Saudi relations with Israel—an effort that was making progress before Hamas’s murderous assault on Israel on Oct. 7, and that would uncork massive private investment if it came to fruition.
With the U.S. shale-oil boom this
century, Americans, the biggest gas guzzlers in the world, are now its biggest oil producers, too, no longer in need of Saudi oil. Today, Aramco’s biggest customer is China—and not coincidentally MBS’s ties with China’s Xi Jinping have become quite warm. That also means that Aramco’s influence over global oil prices—and thus, the global economy—hasn’t waned.
As the dominant member of the OPEC group of oil-producing nations, Saudi Arabia has the loudest voice in whether those 13 countries cut or increase oil production—with marked effects on inflation, stock markets, and regular people. After OPEC cut its production quotas last summer, fearing sinking oil prices, the kingdom announced an additional million-barrel reduction, locking in higher profits. “They present themselves as the central bank to the oil world,” says Dourian, the Saudi oil expert. “And in many ways, they are.”
Those decisions are not made inside Aramco, however. Rather than focus purely on financial performance, as most energy companies do, Aramco’s key policies are set in Riyadh by top officials, right up to MBS. (Saudi energy minister Prince Abdulaziz bin Salman is MBS’s halfbrother.) Aramco’s 2019 IPO was the biggest in history, raising nearly $30 billion, but the company floated only 1.7% of its shares.
In fact, it is almost impossible to untangle Aramco from the state. The sovereign wealth fund, the PIF, is run by Yasir Al-Rumayyan, who is chairman of Aramco’s board. The chairman of PIF’s board? That would be the crown prince. “[Aramco] is not always going to be making decisions that are about the bottom line,” says Croft, the RBC commodities strategist. “It’s basically in the national service.”
That service ethos was on full display this March. Aramco reported that revenues for 2023 were down 18% year over year—the kind of result that usually prompts companies to reduce their dividends. But Aramco subsequently transferred nearly $98 billion in dividends, 30% more than in 2022, to the Saudi government, which now owns 82.2% of Aramco. A week later, MBS announced that Aramco had transferred 8% of its total issued shares to the PIF—a stake worth nearly $164 billion.
Indeed, the PIF has become the primary vehicle through which Saudi Arabia and MBS convert Aramco’s earnings into influence and connections far beyond the kingdom. Flush with oil profits, PIF has about $925 billion in assets under management, according to estimates from Global SWF, a research organization tracking sovereign funds. Last year it spent $31.5 billion, and its portfolio includes a head-spinning array of companies, including stakes in Activision Blizzard, Uber, Electronic Arts, and Live Nation. The recently reported Andreessen Horowitz deal extends a long history of global tech investing by the PIF: It was, for a while, a large shareholder in Tesla, and it helped launch SoftBank’s huge (and often star-crossed) Vision Fund in 2017, with a $45 billion stake.
PIF chair Al-Rumayyan is the increasingly widely recognized face of the PIF. While human-rights groups accuse the PIF of being opaque and unaccountable, Al-Rumayyan remains welcome in global board rooms; he’s a director at SoftBank, India’s Reliance Industries, and Uber, among others. A keen golfer, he has pushed a multibillion-dollar deal with the PGA Tour, enraging many U.S. lawmakers. Since 2021, when the PIF purchased a majority stake in the U.K.’s Newcastle United Football Club and made AlRumayyan its chair, the PIF leader has been a regular at its stadium, sometimes appearing on the pitch in stylish team-themed clothing.
DAYS AFTER THE SAUDI exhibitors descended on Cannes in March, Aramco CEO Amin Nasser flew to Houston to deliver a blunt message.
Nasser’s speech at the oil industry’s premier global event, known as CERAWeek, might as well have been titled “Get Real.”
Nasser told the hundreds of oil executives, politicians, and investors in the audience that governments’ climate policies, aimed at phasing out fossil fuels, rested on misconceived ideas dreamed up in rich Western capitals. Environmentalists were ignoring the fact that millions in other regions had no electricity, while others could barely afford to turn the lights on at home, let alone buy electric cars. “We should abandon the fantasy of phasing out oil and gas, and instead invest in them adequately, reflecting realistic demand assumptions,” Nasser said. “The world has been trying to transition in fog, without a compass, on a road to nowhere.”
His words shook the audience, but Saudis have heard similar messages from their government for years; in an interview in his office in Riyadh in 2021, energy minister Prince Abdulaziz told me that those who envisioned the final demise of fossil fuels were “living in a fantasy land.”
And yet it is a fantasy for which Aramco has long been preparing, and for which there is even a national plan in Saudi Arabia.
Climate change is no mystery in the kingdom, where summer temperatures have been soaring to unlivable highs. Vision 2030 mandates that Saudi Arabia move half its grid to renewable sources—a marked change for a country that has long run on plentiful, cheap oil. The country aims to zero out its carbon emissions by 2060, while Aramco’s netzero target date is 2050. (To the chagrin of environmentalists, neither target factors in “Scope 3” emissions, which would measure the impact of the end users of the kingdom’s oil.)
Aramco bases much of its netzero strategy on what it calls the “circular carbon economy.” Its aim is to create new, better uses and processes for the hydrocarbons it produces, rather than cutting its production. That includes developing blue hydrogen, a fuel made from captured gas, and expanding the capture and storage of carbon and methane that is emitted while oil is drilled, rather than simply releasing the particles into the air. Researchers have reported promising progress with both those technologies, though neither is yet costeffective or has much of a market.
Nasser has also made clear that the company intends to invest heavily in liquefied natural gas, seizing on the booming demand in wealthier countries, which regard LNG as a cleaner way than coal or crude oil to generate power and manufacture plastics. Aramco plans to spend $110 billion doubling its domestic LNG production and to begin exporting it within a few years. In 2023, it invested $500 million into MidOcean Energy, a Washington, D.C., company, which is developing LNG projects in Australia. “They understand oil is not exactly the future of the global economy,” says Reeve of the PIF. “So they are hedging their bets by moving into gas.”
Other elements of a greenenergy plan are slowly taking shape. Aramco’s power subsidiary has a 30% stake in a solar plant under construction on the Red Sea coast, which it has said will be the biggest in the world once it opens next year. And last year, Aramco announced it would develop the first test site for green hydrogen—a fuel made by using renewable energy to electrolyze water—in the PIF’s $500 billion futuristic city, Neom.
The strategy has environmental limitations, but in theory, it makes some financial sense: The less oil Saudis need for their own consumption, the more that can be exported on world markets, and sold for far higher prices. “The Saudis have finally started to invest in green energy, after making promise after promise after promise,” says Jim Krane, Gulf energy expert at Rice University in Houston. Until recently, he adds, “the Saudis made a bunch of grandiose goals, and didn’t come close to meeting 10% of them.”
GRANDIOSITY WAS on vivid display in Cannes, at the recent real estate trade show. Laid out on roomsize tables were models of en
“We should abandon the fantasy of phasing out oil and gas … The world has been trying to transition in fog, without a compass, on a road to nowhere.”
ARAMCO CEO AMIN NASSER,
IN A SPEECH MARCH 18
tire new cities being built, including two new areas of Riyadh, whose master plan includes doubling its population by 2030, creating a metropolis of about 15 million people.
The exhibits were a kind of funhouse experiment in envisioning just what fantastical ideas a nearbottomless pit of money might enable. It included a downtown area in Riyadh, called New Murabba, which is being created from scratch. At its center will sit a gargantuan cube measuring a quarter-mile on each side—the biggest single building in the world by volume, “enough to fit 20 Empire State Buildings,” said the assistant offering me a VR headset to view the interior. It is scheduled to open in 2030 as a mix of office, hotel, and residential space. At the core of the building sits a hologram resembling the Sphere in Las Vegas—but about 20 times bigger.
The scale of the projects is hard to fathom. “We’re about to develop 400,000 houses by 2030,” Valentin Toubeau, strategy director for ROSHN, the PIF’s real estate wing, said in Cannes. He listed some of his needs: 4 million doors, and enough steel cable to circumnavigate the globe several times.
In another hall sat a model of PIF’s biggest project of all, Neom—a sci-fi-like outpost on the Red Sea, from which will rise, in theory, a new city of 9 million people. Improbably enough in the world’s biggest petrostate, it will prohibit all fossilfuel transportation, including cars. It will house its residents in a string of connected skyscrapers along a narrow 110-mile strip called The Line, all built on virgin land. And amid the rugged desert landscape will be a full-service luxury ski resort called Trojena. “The main challenge is logistics,” Jean-Philippe Patesson, a Belgian engineer overseeing the ski area, told a group in Cannes. “There is no water, no roads, no transportation,” he said. “When you finish a problem, 10 other problems come.”
In interviews, those overseeing the projects say MBS scrutinizes their plans, demanding regular updates, and has little patience for delays. “He is involved in every detail, he approves every rendering,” says Jerry Inzerillo, chief executive of Diriyah, a $62.2 billion sports, retail, university, and office area being built in old adobe style on a historic royal site on the edge of Riyadh. Inzerillo, who moved to Riyadh from New York in 2018 to develop the project for PIF, said he had come to Cannes after an all-night meeting with MBS, in which the Saudi leader had discussed, sometime around 3 a.m., the placement of a large arch planned for Diriyah’s boulevard, whose dimensions are identical to Paris’s Champs-Elysées Avenue.
The crown prince and AlRumayyan face a more immediate problem than architectural details: how to pay for all these pricey projects. For years the kingdom has needed to sell its oil for $80 a barrel to balance its budget—one reason why MBS opted to cut Saudi oil output last year, rather than sell more barrels to help lower inflation.
In fact, oil analysts believe that fully funding Neom, Diriyah, and other splashy cities will require even higher oil prices—“probably a tripledigit price,” says Croft of RBC. Without the gigaprojects, the kingdom’s budget might show a slight surplus at today’s prices, by some estimations. But $100-per-barrel prices seem unlikely anytime soon, given weak global demand and a surge in oil supplies from the U.S. and Guyana. That leaves Saudi Arabia having to borrow on capital markets to fulfill its ambitions: Government debt has soared about 20-fold, to $253.6 billion, since 2014, according to research firm CEIC Data.
That’s a tradeoff that MBS is happy to accept in the short term. For one thing, the flashy buildings, parks, and entertainment venues help attract millions of visitors. The government says its tourism revenues were about $66 billion last year—a one-year rise of more than 50%, according to a February estimate by Riyadh financial firm Jadwa Investment.
Building the spectacular projects is becoming increasingly expensive, however. There is fierce competition for construction workers, many of whom come from India, where there are plenty of building projects underway. Materials like copper, rebar, and glass are also in high demand, driving up expenses. Says Jadwa: “Cost overruns are inevitable.”
The contractors, architects, and engineers in Cannes are keenly aware of the oil markets—and of Aramco’s year-by-year performance. “All we gigaprojects have a plan,” Inzerillo says. “If we’re at $80 [a barrel] and above, we can proceed. If oil prices drop, it becomes a phased project,” he says. “We all have plans to go to multiple phases.”
It is too early to know whether Inzerillo will be given funding for all Diriyah’s needs, or whether 9 million Saudis will ever zip around Neom on electric trains. But as long as Aramco is pumping oil, the financial and political clout that drives Saudi Arabia’s outsize ideas will be replenished far into the future.
“[Aramco leaders] understand oil is not exactly the future of the global economy. So they are hedging their bets by moving into gas.”
JAMES REEVE, PIF