Aramco CEO warns of oil market ‘catastrophe’, economic consequences in prolonged Iran war

Just as the global oil markets slump, tensions in the Gulf are threatening to disrupt supply further, keeping traders and governments on edge, Saudi Aramco’s chief executive officer has warned that the impact of this on the global oil markets will be “catastrophic”.

In his first public remarks since the conflict disrupted Middle East energy shipments, the head of the region’s largest oil producer said Aramco can reroute more crude through an alternative pathway that bypasses the Strait of Hormuz.

However, the company remains unable to ship its usual volumes due to capacity limits.

Nasser said, “There would be catastrophic consequences for the world’s oil market the longer the disruption goes on, and the more drastic the consequences for the global economy. While we have faced disruptions in the past, this one by far is the biggest crisis the region’s oil and gas industry has faced.”

Aramco is racing to divert oil from its usual route through Hormuz toward Yanbu on the Red Sea coast. It can pump as much as 7 million barrels a day through a pipeline to the west, and will ramp up to that level in coming days, Nasser said. About 2 million barrels a day of that will go to domestic refineries dotting the Red Sea coast. The company is still exporting refined products like diesel from its western refineries, he said.

Aramco normally exports about 7 million barrels a day of oil. Most of the current exports through the East-West pipeline are its most plentiful Arab Light grade, and some Extra Light, Nasser said.

“So certain areas where we have Medium and Heavy we are not utilising for the time being because we have adequate capacity to meet our requirements,” he said. The company is using its global network, including storage sites outside the kingdom, to meet market needs, he said.

Meanwhile, Aramco has shut down Saudi Arabia's biggest oil refinery after a drone strike. Nasser said that the company was working to begin its operations.

Some other oil fields have been targeted, according to Saudi government statements.

On Tuesday, Aramco announced a first-ever buyback plan of $3 billion. It plans to repurchase up to 350 million ordinary shares over the next 18 months starting in March and may retain them for a maximum of 10 years.

The repurchase is tiny for a company that has a market valuation of about $1.7 trillion, and would further reduce its already small free float. Aramco is buying back the stock at a time when shares have risen almost 12% this year, even though they’ve lagged behind other global supermajor such as Shell Plc and Exxon Mobil Corp.

Aramco is boosting its base dividend to $21.9 billion for the quarter ended Dec. 31, a 3.5% increase from the preceding three months. The higher payout will benefit the Saudi government and the sovereign wealth fund, which together own more than 97% of Aramco. The government depends heavily on the company’s huge payout for its multitrillion-dollar economic diversification plan.

The company’s free cash flow — funds left over from operations after accounting for investments and expenses — rose to $27.5 billion in the quarter, which covered the total dividend for a second-straight quarter after falling short for a prolonged period previously. Adjusted net income in the quarter fell 1.9% to $25.1 billion, matching analyst estimate compiled by Bloomberg.

(With Bloomberg inputs)