Goodbye Apple, Hello Aramco: Saudi Aramco supersedes Apple to become the most valuable company in the world

May 31, 2022

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3 min read

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What's going on here?

Saudi Aramco eclipses Apple as the world’s most valuable company after generating a record £32.3bn in income in the first quarter of 2022 as oil prices surge.

What does this mean?

The £32.3bn worth of income marks a record for Saudi Arabia’s national oil company as it is the highest quarterly earnings since the firm first floated on the stock market in December 2019. This is an 82% increase from the same quarter a year ago. Such an extraordinary quarterly income coupled with the broader sell-off in tech stocks has helped boost the Saudi firm to become the most valuable company in the world. The company has taken advantage of fluctuating prices caused by geopolitical turmoil, returning demand following the pandemic, and low stocks. Other companies such as Shell and BP have also posted record profits for the first quarter of 2022, £7.4bn and £5bn respectively. However, these profits are clearly dwarfed by Saudi Aramco’s.

What's the big picture effect?

The success of Saudi Aramco puts into perspective just how well the majority of oil and gas companies are currently performing. Other companies such as Shell, BP, and ExxonMobil have also done extremely well. But what does this mean for the wider economy? In the UK, an area of heated discussion is whether a windfall tax should be imposed on such companies.

A windfall tax is a one-off tax imposed by a government on a company or a group of companies. This type of tax exists to target a selection of firms that were lucky enough to benefit from something they were not responsible for – in other words, a windfall. One such example of a windfall would be high energy prices. Interestingly, Spain and Italy have already announced a windfall tax on energy companies. However, the UK Government is still hesitant to implement such a tax.

As it stands, the Government us reluctant to impose a windfall tax due to fears of deterring investments by these companies in the UK. For example, BP currently plans to spend £18bn on the UK’s energy system by the end of 2030. Similarly, Shell plans to spend roughly a maximum of £25bn on UK energy over the next ten years. Understandably, it would be unwise to deter such investment in the UK’s energy ecosystem. However, when BP’s chief executive, Bernard Looney, was quizzed on whether BP would reduce their investment expenditure if there were a windfall tax, he responded “there are none that we wouldn’t do”.

Alternatively, oil and gas companies are already taxed differently to other companies. They pay 30% corporation tax on profits and an additional 10% rate while other companies pay corporation tax at 19%. Oil and gas companies are able to reduce their tax if they are reinvesting profits in UK infrastructure. Yet, the National Audit Office claims that in some years this tax system has actually worked against the Government, providing significant relief to these companies.

Ultimately, whether a windfall tax is imposed will depend on whether energy groups can materially improve their existing plans to invest in the UK. But as households currently face a 54% rise in energy bills, how long would the Government permit energy companies to produce planned investments? Money syphoned from the fortunate oil and gas companies could make a meaningful difference to the lives of many.

Report written by William Sutcliffe

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