THE contrast between the compound of Saudi Aramco, Saudi Arabia’s national oil company, and the kingdom beyond its walls is stark. The box-style houses with neatly manicured lawns make it look more like American suburbia than the surrounding city of Dammam, with its apartment blocks. Cars queue patiently at red lights, rather than running through them as they do elsewhere. Women jog in leggings, rather than going around in black cloaks. English, not Arabic, is the language of choice.
The differences go deeper still. Aramco is a rare example of competence in the country’s often mediocre and royal-infused bureaucracy. Its relative efficiency, and the fact that most of the country’s oil is cheap to extract, mean that until the recent fall in oil prices engineered by Saudi Arabia, Aramco was believed to be making profits of more than $180 billion a year, far outstripping the $33 billion of Exxon Mobil, the largest listed oil firm.
With official blessing, the company has been spending heavily on getting into all sorts of businesses far removed from drilling for crude. Besides huge investments in petrochemicals—an obvious diversification for an oil producer—it has gone big on solar energy; and it is planning to build a shipyard, with a South Korean company.
In many of these sidelines it is acting as a vehicle of government policy, helping to diversify the economy and improve the skills of the national workforce. It is developing a new industrial city in Jizan in the country’s south-west, to boost non-oil exports. It runs KAUST, the kingdom’s first mixed-gender university. It was called on to take over from Jeddah’s local council in protecting the Red Sea city from floods. It is charged with building a cultural centre in Dammam, along with 11 sports stadiums. It runs an energy think-tank in Riyadh and a technology cluster in Dhahran.
Aramco is not the only national oil company to get dragged into doing the state’s economic-development work, but no other has quite such a smorgasbord of tasks. Partly that is thanks to Khalid al-Falih, Aramco’s chief since 2009, who is ambitious and, while the world price of oil was high, had plenty of spare cash. But long before Mr Falih arrived the company operated under the assumption that its job was to do far more than be the country’s principal source of tax revenues. “There is a genuine nationalism in Aramco,” says Steffen Hertog, a researcher at the London School of Economics. Even when the firm was American-owned, before the Saudis completed a buy-out in 1980, it felt obliged to do its utmost to please the ruling sheikhs, through such things as building roads and houses in the poor eastern province in which it is based.
Although the government provides the cash for some of Aramco’s nation-building projects, and the company outsources some of these to contractors, the workload of overseeing them all must surely be distracting its senior management from their core business. Yet the company continues to have new duties heaped on it, as the government’s ambitions exceed its own administrators’ capacity to achieve them.
With crude recently trading at around half of the $100-plus a barrel it was fetching a year ago, and with oil contributing over 90% of government revenues and providing 85% of Saudi export earnings, economic diversification has become more of a priority. Yet although Aramco must still be making sizeable profits (it releases no figures and refused to comment for this article), the weak oil price means it needs to devote more attention to its core operations. Mr Falih has said that some of its projects will have to be postponed. Reuters, a news agency, reported on February 1st that the firm’s deepwater oil and gas exploration in the Red Sea had been called off. There were even reports this week that it is seeking a $10 billion loan.
Tighter budgets could be an excuse for Aramco to get out of some of its less fruitful sidelines, although some observers worry that it could instead cut back on projects that have the best prospects of profitability, such as solar energy. Or it could just end up being given more duties while trying to cope with lower oil prices. “People worry that no one knows what’s going on in Aramco,” says Mr Hertog. (The same could be said for much of the government.) The more prominent its role becomes, the more likely members of the royal family will want to get involved—rarely for the region, and for institutions in Saudi Arabia, no prince or princess sits on Aramco’s board. Aramco and the ruling Al Saud family must make sure that the oil giant does not become a victim of its own success.