Four takeaways as oil giant Saudi Aramco reports a huge $161 billion profit

The world's biggest oil company Saudi Aramco has announced it made $161 billion in profits last year, a whopping figure for the corporation and its main shareholder, the Saudi government.

High oil prices and a production pact with Russia helped push Aramco's earnings up, particularly after global energy markets were rocked by the Russian invasion of Ukraine.

Here's a closer look at what's behind Aramco's earnings and what it indicates.

Breaking down Aramco's record profits

Aramco, which produces all of Saudi Arabia's oil and gas, saw its earnings jump by nearly 47% in 2022 from the previous year's profits of $110 billion.

That's in part because as COVID-19 vaccines became increasingly available around the world, countries began shaking off coronavirus restrictions and resuming business as usual. That helped push up demand for oil as people started commuting to work again, traveling more and spending more.

Aramco's CEO Amin Nasser said in the company's full-year earnings statement that the eye-popping $161.1 billion in profits recorded in 2022 were a result of stronger crude oil prices, higher volumes sold and improved margins for refined products.

The company said it produced on average about 13.6 million barrels of oil per day in 2022. Its biggest customer is China, where demand for Saudi oil is expected to keep growing in the coming years, though sluggish demand by the end of last year helped bring down high oil prices somewhat. Among the big deals Aramco embarked on last year was an investment in the development of a major integrated refinery and petrochemical complex in northeast China.

Aramco, which only trades a sliver of its shares on the Saudi stock exchange, said it would increase the dividend it pays out to its shareholders by 4%, to $19.5 billion. The company's biggest shareholder is the Saudi government.

Saudi Arabia's ambitious projects are powered by oil revenue

Saudi Arabia is trying to move away from reliance on oil exports by building up new sources of revenue from sectors such as mining and tourism. Despite these diversification efforts, oil exports continue to underpin the kingdom's economic growth.

What that means for Saudi Crown Prince Mohammed is that when oil prices are high, Aramco earnings are too. And that means more money can be funneled into the Public Investment Fund (PIF), Saudi Arabia's sovereign wealth fund spearheaded by the crown prince.

The PIF oversees projects that include a futuristic metropolis in the kingdom's northwest called NEOM, a Maldives-like tourism destination along the Red Sea where major hotel chains are building resorts and a new downtown for the capital, Riyadh, with massive cube-shaped structure as its centerpiece.

When oil prices are high, the PIF can also more easily increase its stake in companies around the world, which in turn gives Saudi Arabia greater influence and sway. The PIF has already bought significant stakes in companies like Nintendo, electric vehicle manufacturer Lucid Motors, concert operator Live Nation and the company that operates Carnival Cruise lines. The PIF has also helped brandish Saudi Arabia's reputation with big spending in sports, including through LIV Golf, a rival to the PGA Tour, and the purchase of Premier League soccer club, Newcastle United, in the U.K.

These investments and Prince Mohammed's mega projects are intended to generate new sources of revenue for the kingdom and ultimately create millions of jobs for young Saudis entering the workforce.

Global instability fueling high prices

Russia's invasion of Ukraine in February of last year sent commodity prices skyrocketing, particularly oil, which jumped on the back of the uncertainty the war created. The price of benchmark Brent crude currently trades at more than $80 a barrel, but it peaked to more than $130 at its highest point last year.

Saudi Arabia also profits from an oil pact with Russia. Saudi Arabia is the OPEC oil cartel's biggest producer and has maintained an alliance with non-OPEC oil producers led by Russia. The so-called OPEC+ agreement has curbed oil production since 2019 to keep energy prices buoyed.

The OPEC+ agreement has helped support Russia's bottom line. It's also offset some of the economic consequences that Western sanctions on Russia are meant to inflict in response to its invasion of Ukraine. The Biden administration last year tried to press the Saudis to increase production and global energy supplies.

Climate change efforts impacted by demand for oil

As the world increasingly looks toward cleaner forms of energy, major fossil fuel producers like Saudi Arabia and the United Arab Emirates are increasing their investments in new lower-carbon technologies while calling for continued investments in oil and gas. That position is at odds with environmentalists and U.N. scientists, who that say the world must rapidly phase out fossil fuels to avert catastrophic global warming levels.

Aramco's CEO Amin said the company is focused "not only on expanding oil, gas and chemicals production, but also investing in with potential to achieve additional emission reductions."

He argued in the company's earnings report that oil and gas will remain essential to powering economies for the foreseeable future. He said the risks of underinvestment in this sector "are real" could lead to higher energy prices for consumers worldwide.

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