It is acknowledged that the oil industry is a major contributor in the GDP of Saudi Arabia. However, one should not lose sight that other sectors also have significant roles in shaping the economy of Saudi Arabia. These other sectors, though currently not as significant as the oil industry have a considerable bearing in the performance of Saudi Arabia. Also, the Hubbert Peak Theory, which foretells the downslide in Saudi Arabian oil production, warns of the possible collapse of the oil industry's which will considerably reduce or even eliminate the significance oil to the country.
This paper will look at the economy of Saudi Arabia as a whole. The first part will talk about the country's GDP and its composition. Next, it will tackle the contributing sectors individually mostly concentrating on the oil industry. An assessment of the Hubbert Peak Theory and its opponent will also be done.
In general, Saudi Arabia has a robust economy supported by its strong oil industry. Saudi Arabia's economy began to flourish during after 1973, when the price of oil in the world market skyrocketed. This phenomenon made the country one of the fastest-growing economy in the world as it enjoyed a substantial surplus in its overall trade transactions with its partners, rapid growth in imports, and the generation of substantial government revenue that supports the country's development efforts (Background Note 27-28).
During 2004, the country recorded a total GDP of $310.2 billion dollars which translates to a per capita GDP of $11,742. It should be noted that in terms of GDP, the country is in a decline. The aggregated GDP average growth during the period of 1975-2000 was -2.2% as opposed to the -4.4 recorded during 1980-2000 (Saudi or Saudi Arabian Economy 5).
In spite of the overall decline in the economy, Saudi Arabia is showing signs of slow recovery from the oil price collapse in 1998. Real GDP growth rate during 2004 was seen at 5.2% while experts forecast that Saudi Arabia will expand at an annual rate of 5.7 and 4.8% for the years 2005 and 2006, respectively (Saudi Arabia 2).
The oil industry largely contribute to the total GDP of Saudi Arabia. As stated above, oil export revenue accounts for 90-95% of the country's export earnings, 70-80% of the total state revenue and 40% of the total GDP. The largest chunk of the country's GDP is shared by the industry sector which makes up 58.8%, followed by the services sector at 36.5%. The remaining 4.7% is accounted for by Saudi Arabia's agricultural sector (Saudi Arabia 2).
The Oil Industry
Saudi Arabia controls the largest petroleum reserves in the world which is 26% of the proved total, ranks the largest exporter of petroleum and undeniably plays a significant role in the Organization of Petroleum Exporting Countries (OPEC). According to the Oil Gas Journal, Saudi Arabia possesses 261.9 billion barrels of proven oil reserves in the world including those, which are in the Saudi-Kuwaiti Divided. The country has 80 oil and gas fields though more than half of the total reserves is concentrated in only eight fields which includes Ghawar and Safaniya. Ghawar is considered the largest oil field with an estimated remaining reserves of 70 billion barrels while Safaniya is the largest offshore