Contribution Of Oil In Economic Growth Of Saudi Arabia

Background of the Country – Saudi Arabia

Describe about the Contribution Of Oil In Economic Growth Of Saudi Arabia?

In between the year 2002 and 2008, there are a rapid changes observed in the prices of the petroleum in market. The main areas of the oil industry in the market of the world are a unpredicted modification in association and political scrutiny. The quick changes in the price of crude oil in market also affect the financial inclination of the country in producing oil and selling it in the market of the world. The lack of resources causes the manufacturing company of oil has failed to meet the necessity of the petroleum in global market (Alkhathlan, 2013). The shareholders of the oil manufacturing company were in the panic to invest their monetary value of the oil manufacturing company present in the market of the world. The Government Saudi Arabia has also facing the same problem regarding the manufacturing of oil. One of the main reason of declining the price of the oil is the steps taken by the United States of Government The shareholders have started to invest more monetary value of the Shale gas manufacturing company. As  the supply of Petroleum is much higher as compared to the demand for the Crude oil in the market of the world.

The country is known as one of the leading Petroleum producers and exporting countries in the world. The country is also known as the oil reservoir, and it has been analyzed which the nation has around 3.5 billion barrels of Petroleum are reserved in their country. It has been found that Saudi Arabia produces around 0.8 billion barrel of Petroleum per day (Alshahrani and Gurrib, 2013). Now the nation’s Government have decided to increase their production rate of petroleum to 1.2 billion barrels per day. Saudi Arabia plays an important role in OPEC for being leading Petroleum producer and exporting country in the  world. The country is one of the important and oldest member of OPEC for being the leading Petroleum producer and exporting country in the world.

The country is known as the world's leading exporting oil producing company in the world. The oil manufacturing companies in the country produces the huge amount of crude oil in  country and exports it in all over the world in the market of the world (Brown and Obaid, 2000). By selling the crude oil in overseas country  global market, the nation’s Government earns huge amount of country revenues that helps the nation’s Government to increase their The financial increment in the nation. In between the year 2002 and 2008, the oil production in Saudi Arabia has fallen due to lack of natural resources in the country that affects The growth of financial situation of the country (Bybee, 2010). But in the second half of the year 2008, the oil production has started to increase in the country. From the first half of the year 2009, Saudi Arabia has started to export petroleum in all over the world in the market of the world.

The relationship between oil prices and the macro-economy of Saudi Arabia

During the year 2009, Saudi Arabia has achieved a new phase by exporting crude oil in the market of the world. This is because, from the year 2009, the demand for the petroleum in  global market has increased (Cashin, 2012). The demand for petroleum was high as compared with the supply of crude oil in the market of the world. The stock price of the petroleum manufacturing company has increased in the global stock market.

For the last four years to the middle of the 2014 year, the price of Petrol has increased rapidly in the market of the world. The petroleum barrel has been traded at a price of US $ 100 / barrel in the market of the world (DibooÄŸlu and Aleisa, 2004). But in the year 2015,  the price of the petrol has fallen dramatically. This fall in the price of petrol in the market of the world has become one of the largest falls in the price of petrol in the history. This fall in the price of the crude oil in the market of the world has a bas aspects on the  economic conditions of Saudi Arabia.

One of the main reason of declining the price of the oil is the steps taken by the United States of Government Apart from this, the other main factors of vigorous price movement of crude oil in the World are the Non-OPEC countries have the manufacturing level has been increased Petroleum (Hertog, 2008). This is because the supply of Petroleum has become high as compared with the necessity of crude oil in the market of the world. The Government of USA has started manufacturing Shale Gas in their country and export shale gas in the market of the world at a very cheap rate. All this aspects have influences bas aspects on the  OPEC countries like Saudi Arabia. The shareholders have started to invest more monetary value of the petroleum manufacturing company. This helps the petroleum manufacturing company to have more funds generated from the shareholders of the company that helps the company to invest more in the new projects of extracting petroleum (Mansell, 2012). Apart from this, the company can extract more crude oil in the country and helps the nation’s Government to increase their GDP rate in the country.

From the given figure, it has been observed that the price of the petroleum remains low in the market of the world. The OPEC organization have analyzed that the price of the Petroleum will be declined in between the year 2015 to 2020. The price of the petroleum will be declined to the US $ 50 per barrel. This will bring a bas aspects on the  economic conditions of the country.  It has been analyzed by the nation’s Government that the financial inclination of the country has increased by around 3.5 % from the year 2009 (Nakov and Nuño, 2013). As  the price of the petroleum was high in the market of the world. This is why The growth of financial situation of the country was at its peak point. The growth of financial situation of the country will be stable till the mid of the year 2016. But according to OPEC organization and the nation’s Government, the price of the Petroleum will be declined from the year 2015 and the price will be declined to The US $ 50 per barrel. But after the year 2016, the fall in the price of the Petroleum will bring a bas aspects on the  economic conditions of Saudi Arabia. From the beginning of the year 2017, the GDP of Saudi Arabia will decline by 1.4% of their normal GDP rate of the country. This will hamper the economic conditions of Saudi Arabia, and it will last till the end of the year 2020 (Ross, 2012).

Trends in Oil Prices

Figure 1: Growth in crude oil in the nation

The nation’s Government has analyzed that the price of the Petroleum will start recovering from the year 2020. In the year 2020, the price of the Crude oil will be US $ 73, and the country will export the Crude oil in the market of the world (Yates, 2012). The nation’s Government has estimated that in the year 2021, the country will recover the GDP rate and will be increased by around 0.5 %.

Figure 2: Traded cost of crude oil

In the year 2025, the price of the Crude oil will be high in the market of the world. In that period, the price of the Crude oil will be of its peak value. According to OPEC organization, the price of the Crude oil will be around US $ 150 per barrel. This will give a positive impact on the financial situation of the nation. The rate of financial situation will be much higher than the baseline of the GDP rate of Saudi Arabia.

Figure 3: Financial rate impact in the nation.

Conclusion:

The economic conditions of Saudi Arabia have fallen vigorously as the price of the petroleum has fallen in the market of the world. For the last four years to the middle of the 2014 year, the price of Petrol has increased rapidly in the market of the world. The petroleum barrel has been traded at a price of US $ 100 / barrel in the market of the world. But in the year 2015,  the price of the petrol has fallen dramatically. This fall in the price of petrol in the market of the world has become one of the largest falls in the price of petrol in the history (Yépez-Garcia and Dana, 2012). This fall in the price of the crude oil in the market of the world has a bas aspects on the  economic conditions of Saudi Arabia. It has been found that in the year 2025, the price of the Crude oil will be high in the market of the world. In that period, the demand for the Crude oil will be high and it will in its peak value. The price of the Crude oil will be increased by around US $ 150 per barrel. This will give a positive impact on the economic conditions of the country. The GDP growth will be much higher than the baseline of the GDP rate of Saudi Arabia.

Reference List:

Alkhathlan, K. (2013). Contribution Of Oil In Economic Growth Of Saudi Arabia. Applied Economics Letters, 20(4), pp.343-348.

Alshahrani, S. and Gurrib, I. (2013). Pricing and Volatility Relationships for the Largest Oil Producer: Saudi Arabia. JOEBM, pp.57-61.

Brown, L. and Obaid, N. (2000). The Oil Kingdom at 100: Petroleum Policymaking in Saudi Arabia. Foreign Affairs, 79(4), p.161.

Bybee, K. (2010). Reservoir-Management Practices in the Offshore Oil Fields of Saudi Arabia. Journal of Petroleum Technology, 62(01), pp.49-51.

Cashin, P. (2012). The differential effects of oil demand and supply shocks on the global economy. [Washington, D.C.]: International Monetary Fund.

Dibooğlu, S. and Aleisa, E. (2004). Oil Prices, Terms of Trade Shocks, and Macroeconomic Fluctuations in Saudi Arabia. Contemporary Economic Policy, 22(1), pp.50-62.

Hertog, S. (2008). Petromin: The slow death of statist oil development in Saudi Arabia. Business History, 50(5), pp.645-667.

Mansell, R. (2012). Size, role and performance in the oil and gas sector. Calgary, Alta.: School of Public Policy, University of Calgary.

Nakov, A. and Nuño, G. (2013). Saudi Arabia and the Oil Market. Econ J, 123(573), pp.1333-1362.

Ross, M. (2012). The oil curse. Princeton, N.J.: Princeton University Press.

Yates, D. (2012). The scramble for African oil. London: Pluto Press.

Yépez-Garcia, R. and Dana, J. (2012). Mitigating vulnerability to high and volatile oil prices. Washington, D.C.: World Bank.