How the Creation of Oil Economies Influenced the Societies of the Gulf And Saudi Arabia - Essay Example

TO WHAT EXTENT DID THE CREATION OF OIL ECONOMIES INFLUENCE THE SOCIETIES OF THE GULF AND/OR SAUDI ARABIA? Submission Date Introduction The Middle East region, besides the instabilities that have bedeviled the region for many decades, is known to the cornerstone of the world’s oil industry. Many of the countries in this region have managed to develop their economies from huge investments they have made out of the proceeds from the sale of oil in other countries across the world. So far, research has shown that this region has about 810 billions of barrels that have been proven, which amounts to more than half the total oil reserves in the world (Ehteshami 2008, p. 23). In this regard, it is important to accept the fact that the Middle East has become the epicenter of the world’s total oil market. The statistics revealed indicate the fact the Middle East regions accounts for more than 37.8 billion barrels in production of the global market for crude oil (Ehteshami 2008, p. 34). Inasmuch as this region has a lot of reserves for oil, it still faces major challenges when it comes to exportation and sale of this crude oil. As far as the oil market is concerned, several factors have been noted to play a major role in transforming many of the states of the Gulf into major energy consumers in the world; some of these factors include a highly growing middle class, increasing populations as well as an equally growing consumerism. This paper examines the extent to which the creation of oil economies has influenced Saudi Arabia and the societies of the Gulf region. Oil in the world economy According to King (2006), following the famous oil crises that took place between 1973 and 1974 and again between 1979 and 1980, oil consumers in the world were very intent not to experience the same troubles again. This perspective led to an establishment of two key developments that implied an imperative drop as far as oil consumption across the world is concerned. One of these developments involved finding effective strategies and approaches that could be used in energy conservation and the send being development of alternative sources of energy in order to prevent overreliance on oil since it is a non renewable source of energy. In the second development, this thinking resulted in advocacy for the use of solar energy, coal, nuclear power as well as natural gas. Until the oil crisis that happened in the 1970s, the global oil consumption has risen by very huge margins. In fact this demand has continued to go higher even after the price increases that were first witnessed between 1973 and 1974 (King 2006, p. 34). During this time, many economies has to change the economic approaches in order to adequately adjust following the price increases. In 1970, it was noted that the overall production of crude oil had reached about 47 million barrels in a daily basis; ten years after, the production had increased to over 60 million despite the weak world economy at then (King 2006, p. 37). However, the two decades that followed witnessed a contrast to what had been experienced earlier. During this time, there was a huge drop in the production, something that had been attributed to stagnation in most of the world’s economies. Additionally, in as much as most of the growth in the demand for oil came from many of the industrialized nations in West, the demand for the same oil in these countries remained fairly constant. King (2006) has observed that the western nations that were heavy consumers of oil in the Middle East no longer do so as they have discovered the potential in alternative source of energy like hydro power and solar among many others. This shift is said to have began during the time of consequentially slow growth in the demand for oil. It is important to note that these trends are bound to continue over the next decades as the world tries to tackle with the problems of climate, which is said to have been caused by petroleum products. The economy of the Middle East has continued to grow, and so has been the need for petroleum products; natural gas and oil have so far been identified as the main energy sources in the gulf and larger Middle East region, with each of the individual sources making up to 50% of the total supply of energy from this region (King 2006, p. 56). One of the things that the Middle East region enjoys is a great amount of cheap labour, which reduces the overall costs of production of this energy. A good example of this is Saudi Arabia, where it only costs about five dollars in order to extract approximately one barrel of oil. It is this among many other factors that have led to the massive growth of oil in the gulf region, which many countries continue to rely on. Furthermore, the many subsidies in oil have also continued to enhance an increased demand for oil something that has encouraged a lot of wasteful habits. Saudi Arabia’s $50 billion oil industry and Iran’s $50 billion easily provide the most amount of oil subsidies, which have been essential in keeping the prices of this oil as low as possible on the global market (King 2006, p. 76). The Region of the Gulf is still very young As noted above oil energy has been deeply ingrained in the gulf region that its demand structure happens to account for approximately 40% of the entire power generation. At 350 TWh annually, this amount of energy when combined can meet all the energy demands for New York City and Florida when combined (Keating 2004, p. 43). However, inasmuch as it may look on the surface, it is actually a big problem for the Middle East and entire gulf region, a place that makes up about 35% of the entire oil that is used in generating electricity across the world. Therefore, Saudi can be said to hold a strategic position in the global energy, which other countries have to be strategically prepared in order to reduce overdependence on this important business partner (Azab 2005, p. 67). So far, petroleum has changed itself to become a specially designated fuel used in almost all the automobiles in the world; on this note, electricity has often been seen as a “low-value use,” which for no major reasons, simply increases costs (Keating 2004, p. 47). For instance, at present, oil produces about 3% of the entire major electricity in the world from the time it stood at about 22% back in 1970. According to Keating (2004), the IEA has often reported that the process of generating electricity using the oil that is gotten from the gulf region will soon cost approximately about $60 per MWh by the year 2020; however, if subsidies are not factored in the cost could increase, reaching up to $215. Keating (2004) says that even if oil is estimated to cost more than $100 for a barrel, produces of power can manage to pay between $5 $10 because of the subsidies in this production. Azab (2005) observes that countries in the Gulf region have been aiming as reducing oil in the production of electricity since the decision will go a long way in increasing their prospects in the oil export business. In countries like Saudi Arabia, the production of oil stands at more than 60% of all the electricity produced, the country is likely to make more than $45 billion in terms of revenues if not for its use in the country’s expanding population, which calls for an increase in the resource (Keating 2004, p. 51). In Saudi Arabia, proceeds from oil make more than 85% if the country’s national budget. The low prices being fetched from the crude oil have highlighted the need to have a diversification the country’s energy demands. Saudi Arabia has been successful in the development of an effective solar power program in order to supplement its energy demands and increase its oil exports especially to many countries where this commodity is high in demand. With such a high amount of energy, the country has managed to create a plan that will see the development of a power plant estimated at about $80 billion which is expected to be complete in the next 20 years. How oil has influenced the economy of Saudi Arabia Niblock & Malik (2007) explains that oil has been the cornerstone of Saudi Arabia for a very long time, with the country emerging to be the world’s largest producer of this important resource. Many of the investments that the country has had in the past have been necessitated by the proceeds from these oil deposits. Being the largest single producer in the world, Saudi has often been blamed for its strategies in the oil market, which have been known to influence the world’s oil prices and thus the entire industry. According to Niblock & Malik (2007) the share of the world’s oil market held by Saudi has often faced various challenges across the globe, especially with countries from West Africa that produce oil as well as others in Latin America. Additionally, more criticisms have also emerged from oil fields in Iraq that have remained untapped as well as the huge reservoirs that exist in the region of the Caspian Sea (Niblock & Malik 2007, p. 45). It is important to acknowledge the fact that all these oil producers, seemingly new in the industry cannot match Saudi Arabia in terms of oil reserves and production. However, their collective bargaining is said to have the potential to oust Saudi as the dominant producer in the world. In the long run, it has been thought that Iraq is bound to become the greatest competitor to Saudi in the next decades. Saudi, in the process of consolidating on its dominance in the world’s oil energy industry, has invested heavily in alternative sources of power in order to increase its prospects in oil exports, this means that while it is making enough energy reserves for its growing population, it is placing itself in a pole position to control oil production and sale across the world. Asia, together with Western Europe produces about 16 percent of all the global oil, which means that they cannot also oust Saudi in the industry (Niblock & Malik 2007, p. 78). Saudi’s oil holds a great influence on its trade patterns with other countries of the world. The country has had to foster a good international relationship with many of the country that it trades with, something that has had a positive impact on its economic growth and development prospects. Niblock & Malik (2007) says that most countries in the Asia Gulf heavily rely on oil in the Gulf, most of which is produced by Saudi Arabia. In the recent past, Saudi has been active in the development of major cities that will be economic hub snot only in the gulf region but also in the world, matching the New York. These kingdoms are said to play a big role in increasing the countries tourism prospects, something that will diversify the economy and increase its returns on investments in the oil industry. The decision to create alternative sources of energy and income stems from the fact that Saudi has predicted an age where oil reserves will be depleted since they are non-renewable sources of energy. Therefore, by developing these alternative sources of energy, the country plans to increase its revenue from the reserves still available. Furthermore, as the rest of the world will be coming to terms with the energy crises that will prevail at that time, Saudi plans to be in a position to have a different way of trading with them increasing its economic growth and development prospects even when the oil reserves will have been depleted completely. Conclusion In conclusion, the development of oil economies in the gulf region and the larger Middle East has played a central role in influencing the economy of these places. A lot that has been achieved in terms of investments has been because of the huge oil reserves that are plenty in the Middle East region and in Saudi Arabia in particular. The development of alternative sources of energy is aimed at achieving two main purposes. First, it will help the country to diversify its economy, reducing overreliance on oil, which will be depleted at one point in time. Secondly, the investments are meant to ease pressure on the population’s energy demands, which means that the country will have a lot of proceeds from oil exports. Bibliography Azab, M. 2005. Oil pollution and its environmental impact in the Arabian Gulf region. Elsevier, Amsterdam. Ehteshami, A. 2008. Reform in the Middle East oil monarchies. Ithaca Press, Reading, Berkshire, UK. Keating, S. 2004. Saudi Arabia. Mason Crest, Philadelphia. King, J. 2006. Oil in the Middle East. Raintree, Chicago, Ill. Niblock, T., & Malik, M. 2007. The political economy of Saudi Arabia. Routledge, Abingdon, Oxon. Read More