Saudi Aramco’s oil production pivot signals Riyadh’s embrace of fungible fiscal policy

Al-Monitor Pro Members

Dr. Karen E. Young

Senior Research Scholar, Center on Global Energy Policy, Columbia University

Feb. 27, 2024

Saudi Aramco announced on Jan. 30 that it had been instructed by the Ministry of Energy to scale back its previous 13 million barrels per day target of production by 2027, or its "maximum sustainable capacity," meaning what it could consistently produce over an extended period of time. What was the reason for a walk-back of the previous target, one that was justified vociferously by the minister of energy himself, as a defense of the necessity of global investment in oil based on an assessment that oil demand is increasing, not declining, and a necessary component of a global energy demand mix, even as investment in renewable energy accelerates? The longer-term assessment of oil demand has not changed in the kingdom; oil and its derivatives will be part of our energy mix for decades. Rather, the decision demonstrates a fungibility across Saudi fiscal policy, in which state resources from oil production, and any other sector in which the state is a dominant owner of assets, may be used at the discretion of national development policy. 

The Public Investment Fund (PIF) has been the primary vehicle for both domestic and international investments as the core mechanism of economic transformation in the kingdom's Vision 2030 plan, but also as the brain trust in how the state will prioritize resources at a given point in its economic development goals. The PIF is also an Aramco shareholder, and it could be that shareholder activism is now more pertinent to company production targets. Aramco Chairman Yasir Al-Rumayyan is also governor of the PIF. 

Aramco's CapEx has accelerated dramatically, from $38 billion in 2022 to $48 billion in 2023, according to MEES. Some redirection of spending from upstream projects may now be moving to broader Vision 2030 aims, including an announcement in January for the company to direct an additional $4 billion (to a total of $7.5 billion) into Aramco Ventures, a new investment vehicle to focus on new energy, chemicals and transition materials, diversified industrial businesses and digital technologies. Even Aramco is an energy transition investor.