Middle Eastern tycoons also "tighten their belts"? Saudi Aramco cuts the world's largest dividend, Saudi Arabia's finances "showing red flags"

In order to ease its financial pressure, Saudi Aramco has cut the world's largest dividends, dealing a blow to Saudi Arabia's expanding budget deficit. Saudi Aramco said in a statement on Tuesday that total dividends for 2025 are expected to reach around $85 billion, down from $124 billion last year. The dividends have been a focus of investors and economists, as the amount may determine how much the Saudi government needs to borrow to cover the budget deficit. As Saudi Crown Prince Mohammed bin Salman continues to push forward with his trillion-dollar economic transformation plan, these dividends are becoming increasingly important to Riyadh. But massive spending has started to distort Saudi Aramco's balance sheet, leading it into a recent net debt position, a sharp reversal from over $27 billion in net cash a year ago. Last year, Saudi Aramco had the highest total dividends globally, consisting of two parts: base dividends and performance-linked dividends. The company previously stated that it plans to start paying special dividends as part of its free cash flow after paying base dividends and any investments starting in 2025. Saudi Aramco confirmed on Tuesday that it will stick to this policy. The company stated that base dividends for the fourth quarter of last year were $21.1 billion, a 4.2% increase from the same period last year. At this rate, almost all of the dividends in 2025 will be made up of base dividends. Oil prices fall, putting pressure on Saudi Aramco's profits Weak profits were announced by Saudi Aramco due to low oil prices and oil production near the lowest levels in over three years. Weakened global economic growth prospects and weak demand have pushed London oil prices to near three-month lows. Brent crude's average price this year is less than $77 per barrel, far below the over $90 requirement for Saudi Arabia's balanced budget. Saudi Aramco's net profit in 2024 was 393.89 billion riyals ($105 billion), slightly lower than analyst expectations. Free cash flow was around $85 billion, lower than the total dividend payout. Saudi Aramco's stock performance this year has been below that of other oil giants. Riyadh has forecasted a deficit of around $27 billion in 2025, with national income expected to be lower than expenditure in the coming years. Last year, Saudi Arabia and government entities sold around $50 billion in bonds, along with Saudi Aramco's dividends, helping to narrow the deficit gap. The Saudi government also issued over $14 billion in bonds this year, becoming the largest borrower in emerging markets. Saudi Aramco's CFO Ziad Al-Murshed said in November last year that following the issuance of $9 billion in bonds and Islamic bonds last year, the company plans to issue more bonds.