Saudi Arabia Essay

Submitted By south2014
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Saudi Arabia: The Oil-Exporter of the World
Pareel Shah Saudi Arabia: The Oil-Exporter of the World
Pareel Shah 08
Fall
08
Fall

Built upon a booming oil industry, the Kingdom of Saudi Arabia has consistently remained one of the strongest Arab economies. The Kingdom was founded by Abdul-Aziz bin Saud in 1932 and has since remained an Islamic absolute monarchy. The current monarch is King Abdullahbin Abdul-Aziz Al Saud, who ranks as one of the richest royals in the world with a net worth of approximately US$21 billion (“Doing”). The Kingdom of Saudi Arabia is reputed for its petroleum sector, which accounts for 18% of the world’s petroleum reserves, ranks as the highest petroleum exporter in the world, and plays a leading role in the Organization of Petroleum Exporting Countries. Saudi Arabia is home to the world’s largest oil field, the Ghawar Oil Field, in addition to 100 other major oil and gas production sites (“OPEC: Saudi”).
The sector’s rapid ascension began primarily during the 1973 Oil Crisis, during which the global demand for oil boosted Saudi Arabia’s economy to a %1858 growth during the 1970’s. While this rapid growth did subside in the 1980’s due to a decreased global demand and generally unorganized distribution channels, the Kingdom was able to regain a 20% growth during the 1990’s (“Doing”).
Today, oil accounts for 90% of national exports and 75% of government revenues. More importantly, oil production is regulated enough to avoid another global “oil glut” of the 1980’s, when excessive Saudi production pushed oil prices down by about 30%. These policies drove oil production down from roughly 10 million barrels per day in 1980-81 to only 2 million barrels per day in 1985 (“Report”).
Looking to the future, the Kingdom’s petroleum sector may be hurt by the growing global trend to use cleaner and renewable sources of energy. Saudi oil currently accounts for 17% of the United States’ oil imports, as well as equally high percentages of nations in the European Union. Unfortunately for Saudi Arabia, these nations are at the vanguard of discovering and employing new sources of energy as part of a larger effort to reduce international vulnerability from foreign oil dependency (“Saudi Aramco”). Thus, in the future, the demand that Saudi Arabia and other OPEC nations work to maintain may falter under the growth of alternative sources of energy. However, according to United States Secretary of Energy, Steven Chu, the demand for foreign oil will not decrease to a point that would significantly affect Saudi Arabia’s economy for at least 30 years. Moreover, current sanctions being placed upon Iran have left developed economies searching for new sources of oil to replace Iranian production. In short, the Saudi petroleum sector, and the nation’s economy as a whole, seems to be safe for the foreseeable future (“Doing”).
The government has also made tactical decisions in allowing foreign investment in the Saudi economy. Prior to the last decade, the Saudi government maintained a strict policy of limited foreign involvement in the nation’s economy, which was a controversial position due to the allure of the booming petroleum sector. However, in April 2000, the Kingdom made the first step towards increasing market access by forming the Saudi Arabian General Investment Authority with the task of attracting and regulating foreign direct investment. These FDI programs allow the Saudi government to significantly reduce national debt because of the legal structure behind such international agreements regarding oil trade, as well as the added consumer demand to the domestic economy (“Report”).
Saudi Arabia has added to these trade efforts by negotiating membership in the World Trade Organization in November 2005. The government defined the goals of this membership as a step towards allowing non-oil sectors to grow through international cooperation. Government officials have remained true to this…