Saudi Oil and Global Economic

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Saudi Arabia is one of the most developed countries in the Arab world, after United Arab Emirates. The stability of Saudi economy is solely dependent on its oil industry. This implies that most of her wealth has been earned from her trade in oil and other petroleum products. This paper will focus on how the production of oil can affect the world economy. This is because of all the volumes produced in the whole world; most of it comes from this Arabian country.

Yizraeli argues that there are many countries that produce oil, including the US and other European countries, but the highest output is derived from Saudi Arabia (58). Before the oil crisis that happened back in 1973, the oil industry was dominated by western countries, but when the crisis ended, Saudi Arabia benefited the most because it has very large volumes of oil in its fields. The impacts of oil production in Saudi Arabia can only be understood after one understands the importance of oil in the world.

Oil is a form of energy that is used in most industries to power equipments such as in the agriculture and transport sectors. In fact, industrialization would not have been realized without oil because it was the most reliable source of energy back then.

At the moment, the economy of Saudi Arabia relies on oil production, but a plan is in the pipeline to diversify this economy in such a way that other economic activities such as agriculture will also be incorporated in the economy. One is left to wonder if this initiative is necessary, considering that the volume of oil production of Saudi Arabia has been on the upward trend since 1997.With this notion in mind the world expects the economy to remain stable due to the increase in oil production (Cordesman 465).

The above mentioned initiative has been induced by the changes in the oil market where the oil is at risk of being replaced by other sources of energy such as nuclear and green energy. The need of developing alternative source of energy has been prompted by international bodies that argue that oil has negative effects on the environment that could cause global warming due to the toxicity of carbon dioxide that is emitted during combustion of oil products (Yizraeli 59).

In response to environmental concerns, the world is already resorting to use green energy because it does not have any harmful effects on the environment. Besides, green energy can never be exhausted compared to oil deposits.

However, Mason asserts that the shift from the use of oil is a gradual one and if Saudi Arabia was to reduce its participation in the oil trade, there would be a very big gap in the global economy caused by her action. This is because it is estimated that 25% of oil reserves are in Saudi Arabia and this is a big margin that cannot be suppressed by the other major oil producing countries.

The exit of Saudi Arabia from the oil market would cause the global economy to decline. This is due to the fact that the supply of oil would be very little compared to the ever growing demand of energy. This happening would cause the price of oil to hike and only the countries that produce it in large volume would benefit.

However, this scenario is far from being experienced because its speculated that Saudi’s dominance of the oil market will end in future. This is because new oil deposits have already been discovered in other countries such as Iraq and West African countries such as Democratic Republic of Congo and Nigeria (Yizraeli 59).

If the production of oil was increased due to emergence of new oil producers, the price of oil in the world would come down. This argument can be best explained by analyzing the concepts of demand and supply, which are used to determine commodity prices. The increase in oil production would cause investments to increase and thus, the world economy would stabilize.

In the last few decades, Saudi has continued to influence the world economy by commanding the prices at which oil will be traded. However, technological advancement has come to end this era of Saudi sovereignty in the oil market. This is because in the past there was no reliable technology that could be used to discover oil fields, but nowadays the same technology has been developed to suit our needs; that is why more oil fields are being discovered every other day.

Furthermore, lack of technology hindered the exploration of oil fields, but technology has already mended that gap because it has made it possible to access areas that could not be exploited.

Thus, there is reduction in the cost of extracting natural resources. Likewise, the western nations are the major consumers of oil and Saudi has aligned itself to become the permanent supplier of oil to these nations. But according to Cordesman, this current position is subject to time because as newer sources of oil continue to be discovered, the competition for customers will stiffen (465).

It is certain that Saudi Arabia will loose its dominance in the oil market, but on the other hand, it will continue to be an influential element in the global economy. This is because the new oil fields will require a lot of time to establish themselves as reliable oil sources because most of these unexploited fields lie in war torn areas. The issue of insecurity will have to be solved before hand to create a favorable environment for the mining process to commence.

There is a possibility that the US will not be allowed to venture into the oil trade in Iraq and Iran due to the flaws that exist between the three parties. This implies that the other members of G8 countries will have to combine their efforts to extract oil from these two nations. In such a case Saudi Arabia oil will remain confined in the Asian continent.

In conclusion, Saudi Arabia will have to review its oil prices for it to cope with the emerging trends. In fact, the hike in oil prices is what has induced most nations to go for alternative sources of energy. Most people think that the issue of pollution is the major contributor towards this move, but this is not true because most manufacturers have made sure that their products that are powered by petroleum products combust it to a magnitude that only small amounts of carbon are emitted.

Works Cited

Cordesman, Anthony. Saudi Arabia Enters Twenty First Century. Westport: CT: Greenwood Publishing, 2003. Print.

Mason, Rowena. Saudi Arabia Worried High Prices Will Hit Global Economy. The Telegraph. 2011. Web.

Yizraeli, Sarah. “How Important is Saudi Oil?” The Middle East Quarterly 2.1 (2000): 57-64. Print.

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Saudi Oil and Global Economic

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