What is happening to the Oil Market?

Saudi Arabia is one of the most restricted countries in the Middle East which has emerged from being an underdeveloped desert kingdom to one of the wealthiest countries due to its vast oil resources. It was established in year 1932 by King Abd-al-Aziz who is also known as the Lion of Najd. He seized Hejaz from the Hashemite family and united the country under his family's rule. Since his death in 1953 he has been succeeded by various sons. Today, Saudi Arabia is the world's second largest oil producer and largest exporter. Supported by its fossil fuels, the kingdom of Saudi Arabia is regarded as a high income economy with a high Human Development Index (HDI). In fact, it is the only Arab country which is part of the G-20 major economies.

Feud in the Middle East

Feud in the Middle East

Saudi Arabia occupies an important place in the Arab and Islamic worlds. However, today's upheaval could change this view. When oil prices fell, Saudi Arabia did not make an effort to make the market more stable. On the other hand, it continued to pump oil and made the situation tougher for its rivals. In addition, when the Islamists won the elections in Egypt after a popular revolt, Saudi Arabia and other Gulf states supported the army that defeated the president, Muhammad Morsi. Moreover, when Iranian-backed Houthi rebels menaced to take over Yemen, the Saudis went to war.

Impact of the constitutional revolution

Impact of the constitutional revolution

King Salman is moving towards a constitutional revolution as instead of passing the crown to to Abdel Aziz bin Saud's generation, he is favoring a new generation, most precisely, his own son. Muhammad is now the main economic policymaker as defense minister and he embodies the sword of the Saudi flag. This has led to many important changes to the retiring and conservative habits of the past. Hence, Saudi Arabia is struggling with three new factors.

The first factor is that overall, Arab states have collapsed. Iraq and Syria seem to be devastated. In addition, Egypt which is the most populous Arab country, is trying to strengthen its counter-revolution. In this way, Saudi Arabia is the only country left to prevent the wreckage as it solely has the capacity and wealth to do so. The second factor involves the geopolitical realignment whereby the American protector wants to retreat from the chaos while the Iranian opponent is moving forward. In fact, by negotiating a nuclear deal with Iran, America has increased Arab monarchs' fear of abandonment and they think they must defend themselves. The third factor is the new economics of shale which involves America displacing Saudi Arabia as the world's biggest oil producer.

Dipping oil prices and its impact on the kingdom

Dipping oil prices and its impact on the kingdom

With the dipping oil prices, the Saudis are struggling to maintain their market share and putting other oil producers out of the business. However, the plan does not seem to work. In fact, the war in Yemen is deteriorating. After weeks of bombing, the Houthis are still progressing and a hindrance by the navy has led to a humanitarian crisis and this is causing indignation.
Apparently, Saudi Arabia seems to be reaching an end and the Saudis can no longer continue to handle government jobs and unemployed educated women due to ongoing outdated social restrictions. The economy should be more ‘open' to the outside world and the educated Saudis should try to do more in order to find alternative solutions. For instance, if you look around, you will find that Riyadh appears to be dull while Dubai is shimmering due to its global involvement; Dubai today is considered to be one of the most sought-out tourist destination worldwide.

Will the Saudis move away from fossil fuels?

Will the Saudis move away from fossil fuels?

Is the world's largest crude exporter moving towards exporting electricity instead of fossil fuel in the coming years? Apparently, yes! According to Ali al-Naimi, the kingdom's oil minister, Saudi Arabia would gradually stop the use of fossil fuels by the middle of this century. In a conference in Paris, Ali al-Naimi stated that Saudi Arabia would not need fossil fuels in future though he does not know when exactly. Hence, it is planning to become instead a “global power in solar and wind energy” which would lead to the exportation of electricity instead of fossil fuels. But, when will this happen? In 2020, 2050 or even later?

Saudi Arabia- The future

Saudi Arabia - The future

It seems that Saudi Arabia should vary its operations and cut off a bit from oil. Instead of subsidizing citizens, the Kingdom should tax them. This would really be of great benefit to public finances and lead to better relations. The government should also strive to bring about reform which would be the best way to show leadership, stand up to Iran and radicalism as well as preserve its alliance with the West. However, the question remains whether the Saudis will succeed or not in their solar project.

Warren Tancredi By: Warren Tancredi
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