Analysis: Saudi $7 trillion investment goal puts spotlight on oil prices

Analysis: Saudi $7 trillion investment goal puts spotlight on oil prices

A multi-trillion dollar spending push designed to diversify the economy's sources of income will require state companies to cut the dividends they pay the government to boost capital spending, Crown Prince Mohammed bin Salman has said.

It is not clear how much companies like oil group Saudi Aramco - whose $75 billion dividends last year were vital to support state revenues - would cut their dividends, but any reduction would likely need to be compensated by higher oil prices, analysts say.

"If dividends are lowered, a higher oil price would boost Aramco transfers to the sovereign through taxes and royalties instead,“ Jean-Michel Saliba, MENA economist at Bank of America, said in a research note.

This leaves crude revenues at the centre of the kingdom's strategy targeting 27 trillion riyals ($7.2 trillion) in domestic spending by 2030.

The scale of the investment plan means OPEC leader Saudi Arabia may need to curb supply over the coming years to boost oil prices. This was already visible in early 2021 with the kingdom implementing unilateral production cuts and keeping output steady for April, said Monica Malik, chef economist at Abu Dhabi Commercial Bank.

"Saudi Arabia has managed to keep cohesion in the OPEC+ group so far, though there