Oil giant Saudi Aramco's profit plunged 73 percent in the second quarter of the year, reflecting a disastrous year for oil markets, as the global economy continues to take a beating from the coronavirus pandemic. Oil prices have fallen drastically over the past few months, with sales taking a hit at the world's biggest exporter. Saudi Aramco's result comes just days after its subsidiary, Saudi Basic Industries Corp (SABIC), reported a third straight quarterly loss.

Saudi Arabia's economy largely depends on oil export, which could take a massive hit if the coronavirus pandemic continues to persist for a longer time. According to the International Monetary Fund (IMF), Saudi Arabia is headed towards its deepest contraction in 30 years, with its economy set to shrink 6.8 percent in 2020.

Saudi Aramco Feels the Heat

Saudi Aramco
Saudi Aramco's net income plunged to $23.2 billion in the first six months of the year compared with $46.9 billion over the same period in 2019 YouTube Grab

Saudi Aramco reported a 50 percent decline in net income for the first half of its financial year, once again reflecting how the oil market has been battered by slowing demand and sales of the crude. The company said that net income plunged to $23.2 billion in the first six months of the year compared with $46.9 billion over the same period in 2019.

However, Saudi Aramco still intends to pay $75 billion in dividends this year, as the company believes that global oil demand is gradually recovering. The dividend will be paid in the second quarter. Its first-quarter dividend of the same amount was paid in the second quarter. This was also the first earnings press conference Saudi Aramco has held since it went public in December, suggesting a maturation in efforts to build transparency at one of the world's biggest businesses.

Saudi Arabia in Crisis

Saudi Arabia
According to the International Monetary Fund (IMF), Saudi Arabia is headed towards its deepest contraction in 30 years, with its economy set to shrink 6.8 percent in 2020 Pixabay

The oil-rich economy has been feeling the heat because of slowing sales of crude as the coronavirus-led lockdown drastically cut down on global travel resulting in a steep plunge in demand for fuel. Saudi Aramco's financial results for the second quarter reflect the biggest shock to global energy markets in decades.

Saudi Aramco, which listed in Riyadh last year in a record $29.4 billion flotation, has been the backbone of the country's economy. Naturally, this is now going to reflect on the country's GDP. Only a few days back, the United Nations said that Arab economies could shrink by 5.7 percent due to the coronavirus pandemic, which could push a quarter of the Arab population into poverty.

The IMF has particularly warned that Saudi Arabia's economy could take a massive hit and shrink 6.8 percent this year. This has made Saudi Arabia's government to consider all options to bolster its finances including selling state-owned assets. In fact, the country is reportedly considering introducing income tax for its citizens.

Saudi Arabian citizens so long didn't have to pay income tax although. However, expats and corporates pay a 20 percent income tax, while there is a flat 20 percent federal tax for all. Although such a move will help the country bolster its finances, it definitely will be a burden for its citizens.

However, with economies finally starting to reopen, the oil market might bounce back in the coming months. Also, executives at Aramco are optimistic on the recovery trajectory in the third quarter and beyond.