Saudi Arabian Oil System Essay Example
Case Analysis: Saudi Arabia: Modern Reform, Enduring Stability (A) (HBS Case 9-709-042)
Question #1: How has the global oil system impacted the development of Saudi Arabia? |
Saudi Arabia has taken major strides towards economic reform in the past few decades, and this is largely caused by its increase in revenues from oil.
Saudi Arabia is the largest producer of crude oil in the world. It contains a quarter of the world’s known oil reserves, and its state-run company, Aramco, is the highest valued company in the world at $781 billion. Saudi Arabia received 90% of its $230 billion export revenue from petroleum products. It requires that oil prices remain between $49 and $55 per barrel to keep the country operating. Therefore, the global oil system has impacted the development of Saudi Arabia by its regulations of oil prices. There are three main factors that I will discuss that have influenced the global oil system and consequently the development of Saudi Arabia. First is the emergence and growth in importance of OPEC countries, followed by an increase in production from non-OPEC countries. Second is the commoditization of oil and its effect on oil prices. Lastly is the power and importance of state-run oil companies, notably Saudi Arabia’s Aramco.
One of the factors that control the price of oil is the artificial amount of oil supply that is managed by OPEC nations. The OPEC cartel is an intergovernmental organization of 12 oil-producing countries, which possess up to 75% of the world’s proven oil reserves. Saudi Arabia joined the cartel in order to maintain economic stability so they can support their own development projects. It was created in the 1970’s, which is the same time Saudi Arabia was able to develop a more sound economic system. Throughout OPEC’s history, member countries have attempted to control the supply of oil in order to maintain a higher market price for oil. Saudi Arabia, as the largest influencer of the cartel, has been a strong
Question #1: How has the global oil system impacted the development of Saudi Arabia? |
Saudi Arabia has taken major strides towards economic reform in the past few decades, and this is largely caused by its increase in revenues from oil.
Saudi Arabia is the largest producer of crude oil in the world. It contains a quarter of the world’s known oil reserves, and its state-run company, Aramco, is the highest valued company in the world at $781 billion. Saudi Arabia received 90% of its $230 billion export revenue from petroleum products. It requires that oil prices remain between $49 and $55 per barrel to keep the country operating. Therefore, the global oil system has impacted the development of Saudi Arabia by its regulations of oil prices. There are three main factors that I will discuss that have influenced the global oil system and consequently the development of Saudi Arabia. First is the emergence and growth in importance of OPEC countries, followed by an increase in production from non-OPEC countries. Second is the commoditization of oil and its effect on oil prices. Lastly is the power and importance of state-run oil companies, notably Saudi Arabia’s Aramco.
One of the factors that control the price of oil is the artificial amount of oil supply that is managed by OPEC nations. The OPEC cartel is an intergovernmental organization of 12 oil-producing countries, which possess up to 75% of the world’s proven oil reserves. Saudi Arabia joined the cartel in order to maintain economic stability so they can support their own development projects. It was created in the 1970’s, which is the same time Saudi Arabia was able to develop a more sound economic system. Throughout OPEC’s history, member countries have attempted to control the supply of oil in order to maintain a higher market price for oil. Saudi Arabia, as the largest influencer of the cartel, has been a strong