What is the Effect of Oil on the Economy of Saudi Arabia
The country produces an approximated quantity of 12 million barrel of petroleum every day. Due to generous government subsidies, the domestic pricing of petroleum is lower than the prevailing international price. Saudi Arabia was ranked as the 5th largest natural gas consumer in 2014. In the same year, the potential and consumption level of natural gases in Saudi was approximated as 8488. 9 bcm contributing to 40. Over the past few years, Saudi Arabia has been crashing its oil prices. People are now thinking that the crash in oil prices is meant to hurt the global market, but this paper will exclusively explore on economic effects of oil prices in Saudi Arabia. Therefore, in this research paper, the focus will be based on what effects oil has on the economy of Saudi Arabia.
The major areas of concern are determining the negative and positive impacts of oil on the economy as well as discussing the general economic state of Saudi Arabia based on the effects of oil. The Middle East has been a huge oil supplier for a very long time. Current Saudi Arabian Economy and Population The population of Saudi Arabia is approximately thirty million but the country hosts more than eight million foreigners. Notably, more than half of the population is below the age of twenty-five years. Traditionally, the majority of Saudi nationals were nomads but the development of urban centers has led to the settlement of ninety-five percent of the population. Ideally, about eighty percent of the country’s population lives in the three primary cities of Damman, Jeddah, and Riyadh.
Further, in some cities and oases, the population exceeds one thousand people per square kilometer. In effect, the government initiated development projects in infrastructure, education, and job training. At the same time, the government improved government salaries to improve the well-being of citizens. As noted earlier, the government controls much of the country’s economic activity. In this regard, the government-owned Saudi Aramco accounts for ninety-five percent of the nation’s oil production while similar parastatals control the remaining five percent. Notably, changes in prices of oil affect Saudi’s GDP. Innately, the country cannot afford to offer huge wages to attract the best employees in the world. Besides, Saudi Arabia cannot continue to power economic growth by huge infrastructure projects or continue to fund social spending and subsidies.
Saudi Arabia-led OPEC initiated an economic war against the United States after it declined to reduce production after the decrease in oil prices. The reason was to drive some of the US shale oil producers to bankruptcy and reduce the market share of oil producers in North America. In essence, OPEC augmented oil production in Nov. Innately, the economic crisis slowed down economic growth in China, one of the leading oil consumers. Negative Impact of Oil on the Economy of Saudi Arabia Poor Authoritarian Regime Saudi Arabia is a nation based on oil. By taking a gander at the nation through the hypothetical lens of the asset curse, we can acquire bits of knowledge into the connection between tyrant administration and this 'asset curse’, (Al‐Rasheed 600).
By analyzing a contextual analysis of dictator in Saudi Arabia, and also the asset curse and the political support and debasement which are connected with it in the Kingdom, it is recommended that economic expansion speaks to a standout amongst the essential approach boulevards for this asset subordinate government. With regards to the Middle East and North Africa (MENA) locale, the Kingdom has achieved the profound entrenchment of monarchical administrations, (Ross et al. Despite the fact that not all people can be rich, Saudi Arabia is a nation of wealth and prosperity. The wealth of this country is in large part because there is no personal income tax. The level of political support and lease looking for which exists in the nation is maybe a standout amongst the most critical in the MENA area.
As noted by one local analyst, the Saudi administration has entirely deterred any movement towards monetary change and has wanted to grasp arrangements, which permit it to keep up an exceptional level of control over the global oil showcase at the same time taking part in critical support based uses at home. In this manner, because the Saudis don't have a true blue project for the motivations behind monetary expansion (Elbadawi 367; Moss et al. Domestically, the rulers utilize their cash as a method for keeping up political influence; governments charge few, however, disperse cash to all. In this manner, the rulers' hang on their states lies to a great extent in their capacity to pay out. Pain-free income decreases strains and keeps the resistance divided.
The Saudis expanded assets to rustic territories by twenty percent after the ambush in Mecca, anticipating that this should calm dissatisfaction, (Al-Sabah 85). Positive Impact of Oil on the Economy of Saudi Arabia The economy of Saudi Arabia is dependent on oil where the government controls much of the country's economic activities. For instance, Saudi Arabia lowering its prices might lead to an increase in the employment rate of companies because they will have high profits and investments that will enable them to require more workers. The country has to cut its spending to maintain the cash reserves given that the oil is the primary source of government revenue. Saudi Arabia remains as one of the best employment destinations. Further, the country offers oil at subsidized prices of USD sixteen per liter.
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