The world’s largest listed oil company, Saudi Aramco, is once again in the spotlight. The company’s results, released on November 3, clearly offer an uncomfortable lesson in war economics. Yes, an oil company can post higher profits even if its physical operating situation deteriorates. Higher prices can compensate for lost production; accounting windfalls can increase overall profits. Yet none of this proves that the underlying activity is secure.
Aramco reported third-quarter net profit of $36.25 billion, up 34.5% year-on-year. However, adjusted net income increased about 9% to $31.20 billion, while decreasing 6.6% from the second quarter. While the headline suggests acceleration, the adjusted figures only show a company benefiting from high oil prices while facing substantial constraints.
The question is not whether Aramco is profitable, but whether those profits can sustainably finance shareholder distributions, domestic investments, access to international markets and a more resilient export system. These facts are important as Saudi Arabia’s budgetary demands continue to increase.
The benefits deserve careful consideration at this time. Aramco’s September exit from Malaysian PRefChem joint ventures generated a gain of $6.91 billion. Its interim report explains that this included derecognition of the net liability and recognition of additional receivables associated with the gross provided. PRefChem’s total trade receivables at closing were $7.33 billion. About $1.55 billion has been received, with the remainder to be paid over six years. This is clearly not a financial windfall of $6.91 billion.
The above explains how to read everything. Accounting gains are legitimate but should not be construed as having the same recurring value as cash from oil production and sales. Nor does it show that international integration invariably generates attractive benefits. The only result is that portfolio discipline sometimes requires a step back.
Cash flow also raises another warning. Third quarter free cash flow exceeded quarterly base distributions. However, over the past nine months, free cash flow of $59.10 billion fell short of the base dividends paid of $65.66 billion. Free cash flow increased only 2%, despite a much higher realized oil price.
There is no liquidity crisis, but internally generated cash after capital expenditures did not fully fund base distributions to shareholders during this period. Other requests come from acquisitions and other cash commitments. Certainly, low debt provides flexibility, but it does not eliminate the need to choose between competing uses of capital.
Aramco is faced with political choices linked to the Kingdom’s public finances. The Saudi government’s revised projection puts the budget deficit for 2026 at SAR245 billion ($65 billion), or 4.9% of GDP. Initially, it was expected to amount to SAR 165 billion. Public spending currently exceeds the initial budget by 9.3%, exceeding the upward revision of revenues. For 2027, expenditure is projected at SAR 1,392 billion, while revenue is expected to reach SAR 1,202 billion. This comes as the Saudi economy is expected to contract by 3.6% in 2026. Overall oil activities are expected to fall by 21.8%, despite continued growth in non-oil activities. These are government forecasts that clearly contradict any suggestion that rising oil prices automatically translate into national economic strength.
The oil giant is currently undergoing two financial tests. First, the business test, which evaluates investment returns, operating costs and cash flow generation. Second, a sovereign test which concerns the funds necessary to support public spending and economic transformation. It must be clear that the Kingdom’s fiscal needs cannot be reduced to the cost of producing a barrel of Aramco. Even a highly profitable producer may still face pressure if its majority shareholder (the Kingdom/PIF) requires more cash than the company can comfortably distribute over the cycle.
Even if not all of Aramco’s dividends go directly to the central budget, the Saudi public sector’s increased reliance on oil-generated cash in the coming period will make the dividend restriction politically consequential.
Operational figures show that liquid production declined sharply year-on-year. At the same time, the NOC said supply reliability fell to 97.8% from 99.9% a year earlier. Between the lines, this means a high delivery rate in difficult conditions. However, international customers evaluate reliability based on actual commodity availability, replacement costs and refinery timing. Aramco’s profitability does not concern them.
Geography also plays an increasingly crucial role, with the East-West pipeline remaining strategically essential. However, the pipeline is no longer an invulnerable escape route. Another geographical distinction comes into play. Exports from Yanbu heading north toward Suez do not need to transit Bab el-Mandeb. Cargoes heading south to Asian markets usually do so. Red Sea exports are now limited by destination, vessel availability and threat environment. Amin Nasser’s statement, “we continue to explore additional storage capacities abroad and alternative export routes,” is a strong and important strategic signal. Aramco will bring oil closer to customers while expanding delivery options beyond the current system. This will be more than the additional capacity of the tank; it will also require reliable terminal access, loading and unloading slots, appropriate draft, blending facilities, transfer pipelines and contractual rights that remain usable in the event of disruptions. A terminal, reservoir or port without secure supply is not an asset.
However, keep in mind that storage volumes abroad only save time. Storage can only compensate for a disruption until stocks are exhausted. Filling the tanks will tie up working capital. Reserve capacity is also expensive. Realistic options for everyone will be European Mediterranean and ARA facilities, or Asian storage.
At the same time, there will be a “morning after” moment in Hormuz, where Aramco will face a competing offer. New non-Gulf offers are developing around the world. The EIA’s October outlook forecasts average U.S. crude production of 13.9 million barrels per day in 2026 and 14.3 million in 2027. Other volumes will come from new offshore capacity in Brazil and Guyana, with Guyana increasingly selling into Asian markets. All these qualities will influence the purchasing and negotiating power of refineries in Asia.
In the years to come, competition will play a major role, as it is linked to the value delivered: crude quality, price, freight, insurance, financing and reliable arrival. Aramco’s upstream cost advantage remains significant, but customers buy the delivered cargoes. Persistent uncertainty may encourage diversification even when Saudi production itself remains highly competitive.
At the same time, it is necessary to refocus attention on capital allocation, which is becoming more complex today. Aramco’s 49% investment in HUMAN involves asset transfers and approximately $2.6 billion in cash contributions. At the same time, a mining joint venture adds another adjacent activity. While there is a lot of media coverage about AI, including at ADIPEC 2026, many expect industrial AI to improve operational performance. Currently, these investments have yet to deliver results against a backdrop of competing demands for gas development, export resilience and liquidity for shareholders.
The coming months or years will be interesting because the outlook contains an awkward paradox. If regional conditions improve, the Saudi giant should regain operational flexibility and potentially volumes. It will also lose scarcity prices and exceptional downstream margins. At the same time, if instability persists, prices may remain high, but pressure from delivery costs, investment needs and customer diversification will increase.
For the Kingdom’s NOC, the next test will be sustainable cash generation after dividends, investments and resilience spending at less favorable prices. Current financials show financial strength, but that strength also depends on market conditions that the company cannot control.
The Kingdom can demand more money from Aramco but cannot require international customers to accept higher delivery costs. Nor can it prevent competitors from expanding. As shown here, it has no leverage on the security of maritime routes. Aramco’s strategic priority at present should be to convert low-cost reserves into reliable and competitive cash flows. Until this is implemented, especially during a normal market cycle, rising quarterly profits are only evidence of earnings power. This does not prove that the underlying Saudi oil dilemma has been resolved.
By Cyril Widdershoven for Oilprice.com
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