Objectives
The study aims:
1. To demonstrate Saudi Arabia’s oil policy in the 21st Century and its effect on world oil price
2. To demonstrate the importance of Saudi Arabia’s oil policies in global events
3. To determine the substantial impact of Saudi Arabia’s performance in the global oil market
4. To show relationships between oil production and oil prices, and Saudi Arabia’s production strategy in global events.
Literature Review
Oil is a critical component of the modern daily life, spurring economic growth and prospects of the billions of people around the globe. The oil industry is a complex but an essential energy requirement of the 21st-century energy. Many countries have the capacity to produce and export oil in different volumes. Saudi Arabia is the global giant in the export of oil, producing up to 8.8 million barrels per day as of 2015. Adept plans are also in place to increase the capacity to 12 million barrels per day (OPEC; Reuters, 2015).
The oil market has remained simple despite the complexities of the industry. It is governed by the basic principles of supply and demand. However, a number of other factors play a role in the determination of the oil prices. They include perceptions about the future, speculations, and conjecture (ARAMCO). The influences of oil supply of have been critical. International communities have sought the aid of OPEC to help regulate the oil prices. The United States are the most notable ones, with the Bush government signing a Memorandum of Understanding with Saudi Arabia to increase its oil production in order to decrease the oil prices (Bronson, 2006).
Methodology
The oil prices from the years 2000 – 2015 are analyzed. Saudi Arabia’s oil prices at the same time are also analyzed. The two variables are merged to find out the probable relationship between global oil prices and Saudi Arabia’s production. This should enable perception of the extent of Saudi Arabia’s influence on the global oil prices.
Discussion
From the first graph, it can be seen that there is some relationship between the production of oil in Saudi Arabia and the world prices. Saudi, being the largest exporter, has significant impacts in the prices of the oil. For example, in 2003, the United States attacked Iraq (Kilian, 2006). This meant a decrease in the global supply of oil as Iraq is one of the countries that supplies oil. Saudi Arabia responded by increasing its oil production to maintain the oil prices.
Saudi Arabia also responded in 2008 to save the global economy when the world was facing recession. The prices of oil were going down as the systems had crashed. Saudi Arabia reduced its oil production, therefore increasing the oil prices. The reduction in production allowed the global economy to stabilize as the oil prices rose up. Economic crises and international oil prices play a central role in the determination of the prices (Cole, 2014).
From the second graph, it can be seen that Saudi Arabia’s oil policy is influenced by global events. In 2001, the world was faced by recession after the 9/11 attacks on the American twin towers. The oil prices were reducing and the global economy was on a slump. Saudi Arabia responded by reduction of oil production. When the United States attacked Iraq in 2003, Saudi increased its oil production. The same was seen when Russia cut off the supply from three oil producing countries. It can, therefore, be observed that Saudi Arabia stands out during the time of global need to help stabilize the oil market. Saudi Arabia has oil policies for guidance on the amount of oil to produce depending on the circumstances (Cole, 2014; Kilain, 2006).
The oil policies of Saudi Arabia have been very significant in the restoration of global economic sanity after events such as wars and recession as shown from the second graph. The policies are based on the stabilization of the oil prices and supply. Without the policies, the world would be faced with detrimental global surplus or shortage of oil. The economic and political gains of the oil policies in the chief oil producer have been tremendous and plausible from time to time.
Conclusion
The impact of Saudi Arabia’s oil to the global economy cannot be understated. The large capacity of oil produced by Saudi Arabia means that it plays a central role in the determination of the demand and supply shifts. Saudi Arabia has also diversified its resources to shield itself from drops in oil prices. The world, on the other hand, has great reliance on the oil from Saudi Arabia. Shortages caused by cuts in production result in increased prices and the country benefits from such trends.
The oil policies of Saudi Arabia should be aimed to buffer the country from influences of the dynamic prospects of demand and supply. The country has time and again risen to the occasion to save the global economy from the disruptions of oil supply caused by wars and other events. The country should also have future-oriented policies to have a precise forecast of the happening in the global market.
- ARAMCO Home. (n.d.). Retrieved May 7, 2015, from http://www.saudiaramco.com/en/home.html
- Bronson, R. (2006). Thicker than oil: America’s uneasy partnership with Saudi Arabia. Oxford University Press.
- Cole, D. P. (2014). Struggle in Saudi Arabia. Current Anthropology, 55(4), 494-495.
- Kilian, L. (2006). Not all oil price shocks are alike: Disentangling demand and supply shocks in the crude oil market.
- OPEC Home. (n.d.). Retrieved May 7, 2015, from http://www.opec.org/opec_web/en/
- Reuters. (2015, April 8). Saudi Arabia boosts crude oil production to highest level on record. Retrieved May 7, 2015, from http://www.theguardian.com/business/2015/apr/08/saudi-arabia-boosts-crude-oil-production-to-highest-level-on-record
