Wednesday, March 9, 2011

Saudi Arabia's Economic Needs And The Price Of Oil


by Joseph Mann

Since the late 1990s, Saudi Arabia has faced increasing economic challenges. In order to address these problems and to improve the conditions of its citizens, the Saudi regime has gradually increased oil price targets. This article analyzes the factors that have influenced Saudi Arabia's considerations in setting a preferred oil price target. It also examines the option of diversification of the Arab economy and the creation of new industries as a means of reducing oil prices.

INTRODUCTION


Between 2003 and 2008, the West Texas Intermediate (WTI) crude oil spot price increased by 300 percent. However, the economic crisis that befell the world and reached its peak in December 2008 sent prices back to below the 2004 average. In reference to the crisis, the Saudi Arabian monarchy stated that the drop in the price of a barrel of oil to below $50 to $55 was damaging to its economy and that a continuing drop in prices would be detrimental to the growth the country had been undergoing since 2001. About five months after the crisis had reached its peak, evidence surfaced of a strong correlation between the price of oil and the Saudi government’s economic aspirations; the price of oil surpassed the $50 mark in May 2009 and reached over $60 in the second half of 2009.


The purpose of this article is to show the correlation between Saudi Arabia’s economic needs and the price of oil. The article begins with an analysis of Saudi Arabia’s status both in the world oil market and within the Organization of the Petroleum Exporting Countries (OPEC). It continues with an examination of the factors that influence Saudi Arabia’s oil policy, including the change in the country’s outlook since power was transferred to King Abdallah in 2005. In addition, the article explains the reasons behind the rise in the oil target price since 2001. Last, it focuses on Saudi efforts to diversify the economy in attempt to reduce dependence on oil and the effects this has had on its budget.


FACTORS INFLUENCING SAUDI OIL POLICY


Saudi Arabia is an absolute monarchy. Most of the kingdom's key posts are held by members of the Saud family whose legitimacy is based on the fact that they founded the country and on their commitment to Islam--more specifically to the Wahhabi movement. The Wahhabi movement originated in the Arabian Peninsula and conquered and unified the various provinces there, leading to the establishment of the modern day Kingdom of Saudi Arabia in 1932. Based on various estimates, there are approximately 30,000 Saudi princes total, though only a few hundred belong to the most prominent branch of the family. Since the late 1930s, the Saud family has gained an important international role due both to the religious duty of pilgrimage (Hajj) carried out under its patronage and to its control over the most influential oil industry in the world.[1]


Saudi Arabia’s status in the world oil market evolved from the state’s abundance of oil reserves as well as its high production capability, estimated at 10.5 to 11 million barrels a day in 2008. According to Oil & Gas Journal, Saudi reserves are estimated at 266.7 billion barrels, approximately one-fifth of world oil reserves. Members of the royal household claim that they have set aside an additional 100 billion barrels to ensure the kingdom’s economic well-being in the decades to come. The country also has more reserves that have not been designated for production, for the time being, due to high costs and a lack of technology.[2]


The royal family wields great influence over Saudi oil policy. The country is involved in the Supreme Council for Petroleum and Mineral Affairs, over which the Saudi king and several princes--including Crown Prince Sultan bin Abd al-Aziz and Foreign Minister Saud al-Faisal--preside. The presence of these three prominent figures on the council is far from coincidental; it is proof of the royal household’s highly vested interest in the energy market as well as the influence that market has on Saudi domestic and foreign policies. Furthermore, the involvement of these three individuals in the council’s affairs is a show of power within the royal household, where there have been tensions over the issue of succession and disagreement over policies and decisionmaking. Crown Prince Sultan, for example, is the full brother of the deceased King Fahd and a member of the Sudairy Clan.[3] The clan has been an important source of power in the kingdom since 1975, when King Khalid, who was not interested in politics, gave effective control of the country to his half-brother, Crown Prince Fahd.

The Sudairy Clan is conservative and opposed to reform, which it fears could result in a loss of power for the elites and prove harmful to the country’s Wahhabi tradition. King Abdallah, on the other hand, is considered to have reformist tendencies and seeks to unite the kingdom under the general umbrella of Islam and not to abide only by Wahhabi rules. Unlike the members of the Sudairy Clan, he has no natural allies, because he has no full brothers. Therefore, Abdallah has had to form a coalition with different princes in order to obtain consent within the royal family for his policies. Foreign Minister Saud al-Faisal--son of the respected King Faisal who was assassinated in 1975 by his nephew–served as deputy oil minister in the 1970s and is thus considered knowledgeable on the subject of energy. He is popular in the West and is greatly respected by many members of the royal household. He is also seen as a supporter of foreign involvement in developing the energy market and has worked toward promoting such involvement in the gas sector. Saud al-Faisal is therefore a balancing element both amid the princes who support the Sudairi Seven and among those who are close to King Abdallah.[4]


Since the 1990s, an increasing number of government positions have been filled by people outside the royal family, who now make up two-thirds of the Supreme Council for Petroleum and Mineral Affairs that determines Saudi Arabia’s oil policies. In October 2007, King Abdallah issued a royal decree renaming a number of ministries and appointing six government ministers to the council. Among those who have served on the council are: Minister of State Dr. Muttlab al-Nafissa; Minister of Commerce and Industry Ghazi al-Gosaibi; Minister of Finance Dr. Ibrahim bin Abd al-Aziz bin Abdallah al-Assaf; Minister of Petroleum Ali al-Naimi; the late Minister of Economy and Planning Khalid al-Gosaibi; the president of the King Abd al-Aziz City for Science and Technology, Dr. Muhammad al-Suwaiyel; and Saudi Aramco President and CEO Abdallah Jum’ah. Although they work for the king, most council members have a wealth of international experience in and knowledge of oil-related economics. To give but a few examples, Minister of Petroleum al-Naimi studied in the United States and earned master's degree in geology at Stanford University, and Secretary General Muttlab al-Nafissa holds a Ph.D. in Physics from Harvard University.[5]


Even prior to the creation of the Supreme Council for Petroleum and Mineral Affairs, there was a perceptible change in Saudi policy toward the oil market. Due to King Fahd’s deteriorating health, most government authority was transferred to Crown Prince Abdallah in 1998. From the beginning, King Abdallah took a hard-line approach toward oil pricing and even more so after assuming full power in 2005. He believes that Saudi Arabia should make strategic use of oil profits and reject the OECD states’ demands to lower oil prices, as long as it is not in Saudi Arabia’s interest to do so. King Abdallah’s policy proved to be beneficial to Saudi Arabia when, according to various sources, he instigated an OPEC production cut during the East Asian economic crisis of1998. He sought the cooperation of non-OPEC states in this matter--first and foremost Russia and Norway--as a means to secure an increase in oil prices. Furthermore, despite pressure from OECD states for Saudi Arabia to increase its oil production in order to bring down prices, King Abdallah announced on several occasions that he did not intend to do so as it could harm Saudi Arabia’s economic security in the future.[6]


There has been a feeling in the royal household that King Abdallah’s oil policies have become tougher since King Fahd’s death in 2005. Indeed, while his brother was alive, Abdallah felt committed to Fahd’s policy of preserving low oil prices as a means of maintaining good relations with the West. Following Fahd’s death, however, Abdallah became radical in his insistence that oil target prices correspond with Saudi economic needs, since from 2005 onward, there was a need for comprehensive administrative, health, and welfare reforms.[7]


THE SAUDI BUDGET AND THE PRICE OF OIL


In 1998, Crown Prince Abdallah announced that the days of overspending were over. However, between 1998 and 2000, total government expenditure was still higher than its total revenue, which caused a serious budget deficit. For example, in 1999, a year after the Asian economic crisis, overall spending reached almost $160 billion while total revenue was estimated at $120 billion. In addition, from the 1990s, social and economic developments--including rapid population growth, a 25 percent unemployment rate in 2003, high defense expenditures, and the need to invest more in education, health, and infrastructure--led to a change in government policies. Crown Prince Abdallah thus adopted the approach that Saudi domestic interests should be the main consideration in OPEC’s oil policy. Indeed, oil constituted 90 percent of government income and 40 percent of the Saudi GNP, causing the Saudis to impose--via OPEC--an oil target price that would meet their needs and would cover the country’s accumulated expenditures.[8]


While the gradual rise of oil prices since 2001 reflected the Saudi royal household’s new objective, it did not have an immediate effect on the budget deficit. Until 2004, government expenditure continued to exceed its revenues. For example, between 2001 and 2003, the state experienced an 18 percent increase in state expenditure due to security problems such as the war in Iraq and the wave of terrorism that hit the country. As a result, 29 percent of the 2003 budget was allocated to
defense.


In addition to security expenditures, a large part of the 2004 revenue was used to cover the country’s debts. On the other hand, a government attempt to increase its income via privatization and the introduction of foreign companies into the energy market met with little success after a number of companies that had operated in the Rub al-Khali area in 2004 reported failure in gas exploration.[9]


Saudi Arabia’s fortune changed in 2005 as a result of a sharp increase in oil prices. In December 2004, the price of WTI crude oil on the spot market was $33.05; a year later it shot up to $58.12, thereby creating a surplus budget balance. Nonetheless, Saudi Arabia’s economic objectives and its desire for significant structural reforms caused the government to demand a higher target price. Indeed, in 2006, Saudi Arabia announced a new target of $55, which resulted in oil prices that fluctuated between $53.53 and $66.85 per barrel.[10]

Source: Saudi Arabian Monetary Agency


The world economic crisis that reached its peak in late 2008 put an end to Saudi Arabia’s economic boom. The price of oil reached a nadir of $35.99 in December 2008, but it was precisely that economic collapse that proved, yet again, the link between the Saudi budget target and oil prices. The Saudis claimed that the drop in oil prices below the $50 mark was detrimental to their economy. Thus, despite the global economic crisis, oil prices rose above the $50 mark in May 2009. Furthermore, in December 2008, King Abdallah stated that Saudi Arabia’s economic needs would make it necessary for oil prices to surpass the $75 mark in the years to come many Saudis expressed great satisfaction when WTI crude oil spot price reached $76.49 per barrel in late October 2009.[11]


Several factors influence the Saudi budget and in turn affect the oil target prices set by the government. First and foremost, the security problems Saudi Arabia and the rest of the Gulf states have faced have sent prices soaring since 2003. Moreover the political and strategic tension that has existed in the Persian Gulf since 1971 and over the Iran-Iraq War (1980-1988) and hegemony in the area has caused Saudi Arabia to adopt a tough security stance and to spend more on its defense relative to other nations. Indeed, over the past few decades, Saudi Arabia has faced many challenges. First, it had to contend with the Communist threat in the 1950s and 1960s; then it was challenged by radical regimes such as Egypt, Syria, Iraq, and Yemen; and in the 1980s, it had to find a way to maneuver between the Shi’a in Iran and the Ba’ath regime in Iraq. Furthermore, the invasion of Kuwait in 1990 and Iran’s rise in military power in the 2000s have emphasized their need to protect themselves against foreign threats. In addition, the radicalization of Saudi opposition--and particularly Shi’i and Sunni fundamentalism—has led the Saudi government to invest more in the domestic security budget.[12]


Saudi Arabia would prefer not solely to rely on the superpowers but also to have an efficient army to protect it. Thus, the Saudis invested $14 to 24 billion on army equipment in the 1970s.
A-Iran War. Thus, Saudi defense and security expenditures reached one half of the country’s oil revenue during that 25-year period. It is, nonetheless, difficult to make an exact assessment of Saudi Arabia’s defense budget, because the government also invests in defense via various funds--such as the al-Yamama Defense Fund, through which a series of record arms sales from the United Kingdom was paid for with the daily delivery of 600,000 barrels of crude to the UK for over two decades. The prime contractor was BAE Systems and its predecessor British Aerospace. The first sales occurred in September 1985, and another contract for 72 Eurofighter Typhoon multirole fighters was signed in August 2006. Moreover, there are additional Saudi defense expenditures that are not part of the published annual budget.[13]


Another significant challenge for the Saudi government, besides that of the defense budget, is the oil extraction target it has set for the future. The increase in the target pumping rate from 10.5 to 11 million barrels per day in 2008 to 20 to 30 million in 2025 requires the development and rehabilitation of the country’s oil fields. According to the Saudi oil minister’s estimates, the government will need to invest $70 billion dollars,[14] to reach the desired target. Furthermore, Saudi Arabia’s commitment to stabilizing the world oil market--and its desire to influence the oil industry--has led the government to invest significant funds into the refining sector. The government has thus allocated tens of billions of dollars for the construction and improvement of its refineries both within Saudi Arabia and throughout the world from 2008 to 2012. For example, in 2004, Aramco bought control of 10 percent of a refinery in Japan. A year later, Exxon and Aramco announced a joint venture to build a refinery in China at the cost of $3.5 billion. In 2009, Aramco and Total agreed to partner up to build a refinery in Jubail at an estimated cost of $10 billion. The purpose of all these projects is to preserve Saudi Arabia’s status in the world energy market and to stabilize oil prices, which have been on the rise in recent years due to limited refining capacity.[15]


Saudi Arabia invests more in education than any other Middle Eastern country. In 2003, the education budget consisted of 23 percent of total government expenditure, and it rose to 25 percent of the entire Saudi budget in 2008.[16] Indeed, investment in education has been steadily increasing: In 1982, a mere 10 percent of government expenditure went to education; by 1992, it had risen to 17.5 percent.[17] As in Egypt, this resulted in a considerable decrease in illiteracy and increase in the number of university graduates. The building of more schools and universities, accelerated urbanization, and the promotion and support of teachers in peripheral areas as well as in the cities all brought about this success. The number of university students went from 132,927 in 1990 to 400,000 in 2000, and the total number of graduates in all levels of higher education exceeded 962,000 in 2008.[18] In addition, in 2004, the Saudi government allotted approximately one billion dollars for increasing the number of professional schools in order to reduce unemployment. Despite the significant investment in education, Saudi success in reducing unemployment has been limited. This is mainly due to the large number of foreign workers in the work force as well as the small number of students who pursue scientific studies such as mathematics and engineering. In 2004, for example, 40 percent of students enrolled in Islamic studies whereas only 18 percent chose the sciences as their area of study.[19]


Saudi Arabia has also made an effort to improve its health and welfare services. Since the 1970s, the government has invested substantial amounts of money in building hospitals and medical centers and improving coordination between the various medical and welfare agencies. Funding for the building of welfare and medical centers rose significantly between 2003 and 2008, from $4 billion in 2003 to $11 billion in 2008. The government has also invested in the training of local manpower for medical and welfare services. In 1990, for example, 98 percent of the doctors in government-run medical centers were not Saudi nationals, but by 2007, the percentage of Saudi doctors had risen to 11.4 percent. Furthermore, Saudi Arabia plans to build several more hospitals, rehabilitation centers, orphanages, and shelters and intends to allocate considerable funds to organizations helping the low-income population. In 2009, the government announced that it was expanding the health and welfare budget to $52 billion, but it will nonetheless be a major challenge for Saudi Arabia to build an efficient medical and welfare system. Indeed, in 2007 there was on average one doctor for every 1,071 people, compared to the European average of one doctor for every 317 people.[20]


Saudi Arabia’s subsidy policy has had a great impact on the target budget. Like most oil producing countries, Saudi Arabia subsidizes many products in order to maintain domestic stability. The Saudi subsidy policy began in the 1970s, and by 1996, subsidies on food products and electricity alone amounted to $1.6 billion. Although the 1998 economic crisis forced the government to cut back subsidies to $62 million, subsidy expenditures eventually began to rise gradually once again. In 1999, for example, Saudi Arabia spent $576 million on food and electricity subsidies, while 2002 subsidy expenditures reached $2.652 billion.[21]


Food and electricity are indications of the price the Saudis pay on subsidies. Between 1975 and 1991, electricity consumption in Saudi Arabia doubled from 8040 MW to 16,849 MW. Most researchers have attributed the sharp rise in electricity consumption to high subsidies as well as substantial population growth. However, the country’s rapid urbanization and extreme climactic conditions are also factors. The combination of high subsidies and extreme climactic conditions are the reason that average oil consumption per Saudi was 32 barrels a year in 2008, compared to 23.7 barrels in the United States.[22]


Source: EIA


The need for subsidies also stems from the country’s high inflation rate. Between 2006 and 2008, price increases caused the worst inflation in 30 years. The high inflation rate is linked to certain developments within the Saudi economy, which indicate that the problem will likely continue to preoccupy the government in the future. Rapid urbanization and limited housing, high government expenditure, the significant population increase and the subsequent rise in food consumption are the main reasons for the country’s inflation. Inflation has been most evident in the food industry, which is highly influenced by international markets. Furthermore, the country’s climactic conditions make it difficult to maintain a local agriculture and necessitate the import of agricultural products. In its attempt to minimize the ravages of inflation, the government has had to subsidize food products--in particular rice and baby foods--at an estimated total of $12 billion. This subsidy policy has taken a heavy economic toll, and the government will therefore either need to remove subsidies from some products or find a way to increase its income in the future. It seems, however, as though the Saudis will prefer to pay the economic price during this time of political instability and not take the risk of changing the status quo, which could engender social unrest in the kingdom.[23]


Source: Market Research Analyst


In 2005, there were roughly 3,200 royals in King Abd al-Aziz’s immediate family, and the average annual cost to sustain each royal was $1 million. If one were to include the family members of King Abd al-Aziz’s brother and six half-brothers, it is believed the bin Saud family would number more than 5,000. Counting the families of bin Saud’s cousins as well, (such as Saud al-Kabir and Abdallah bin Turki) and the families into which the Al Sauds married, (including al-Jiluwi, al-Sudairi, and al-Thunayan), the number of royals could be as high as 30,000. The annual cost to support the royal family could therefore add up to as much as $10 billion. A growing royal family and the difficulty to decide on matters of succession are likely to take a financial toll on the Saudi budget.
[24]


ECONOMIC DIVERSIFICATION AS A MEANS OF REDUCING DEPENDENCE ON OIL


In an attempt to reduce dependence on natural resources and the negative influence of oil price fluctuation on the Saudi budget, the government is making efforts to rehabilitate itself from the effects of Dutch Disease (a sharp rise in exchange rates that inflicts damage on traditional export markets).[25] Similar to Norway, Saudi Arabia aspires to develop other industries in order to expand its sources of income and thus reduce its dependence on oil. However, past experience has proven Saudi Arabia to be limited in its ability to do so. Already in 1973, the government made attempts to diversify its economy albeit with only very partial results due to a lack of educated manpower, a welfare program that did not encourage people to work, and a relatively small population. In the 1990s, there was a renewed need to for economic diversification. Between 1970 and 1990, the population increased significantly from 6,198,000 to 22,023,500. Experts predict that the Saudi work force will expand from 3.3 million workers to 8 million by 2020, which will require the government to create new places of work and to diversify its sources of income.[26]

Source: Population Division of the Department of Economic and Social Affairs of the United Nations Secretariat.


Between 1973 and 1996, the Saudis managed to reduce their oil sector ratio and increase that of other sectors in their GDP. Despite the efforts, these achievements were of no great significance due to the government’s indecisiveness. Following the 1986 economic crisis, for example, the Saudis cut back on their investment in new sectors and went back to nurturing the oil sector. Nonetheless, the rise in status of the middle class led to an increase in private sector investments and aroused hope for change--although an analysis of the sectors that strengthened between 1973 and 1996 shows most investment to be inextricably linked to the oil industry. For example, the refinery sector, which has developed significantly in recent years, is a by-product of the oil industry but has been classified as one that diversifies the economy. This is due to the fact that the Saudi definition of oil-related sectors is confined to the search for energy resources and to oil production, an indication of the government’s difficulty in developing new industries and its dependence on natural resources.[27]

Source: The World Bank Group


A number of other factors have prevented the development of new sectors, resulting in Saudi Arabia continued dependence on oil. Foreign investors find it hard to invest in Saudi Arabia due to its administrative corruption and the government’s passive policy toward such investment. Worse, few who have been suspected of corruption have been prosecuted. In addition, the inherent conflict between conservatism and progress has made the establishment of new businesses and industries difficult. The lack of stability in terms of security between 2003 and 2005 has also deterred many investors. Moreover, the country’s low education level limits development in new economic fields and raises foreign worker dominance on the local market. Last, foreign companies claim that Saudi Arabian laws are much tougher when it comes to dealing with Western companies. Thus, total foreign investments in Saudi Arabia between 1984 and 1997 amounted to $4.32 billion, compared to $51.4 billion in Singapore during the same period.[28]


The Saudi ability to diversify its economy depends upon the government’s commitment to reform. To a large extent, King Abdallah’s accession to the throne aroused hope amid the population and among foreign investors that Saudi Arabia was entering a new era. The king expressed his willingness to make significant administrative, economic, and social reforms but, as was to be expected, not everyone agreed with the anticipated reforms. For example, Minister of Interior Prince Naif, a member of the Sudairy Clan, claims that reforms will mean the beginning of the end of the House of Saud, because they will lead to exposure to the West and demands for a change in the government’s structure.[29]


Since 2002, the Saudis have made discernible administrative, legal, economic, and social reforms in order to improve their image and encourage foreign investment. In 2002, the government announced its intention to privatize several large companies and various sectors, including postal services, transportation, shipping, and the Saudi Telecom Company. A year later, Saudi Arabia published the “Charter to Reform the Arab Stand,” which attempted to bring comprehensive reform in the Arab countries but whose main purpose was to lay the groundwork for the Saudis to join the WTO in 2005. In July 2003, Saudi Arabia signed a joint agreement with the United States to improve their commercial ties.[30]


Saudi Arabia has also attempted to improve its image by reforming its judicial system. Most of the courts that deal with commercial law are no longer in the hands of the religious establishment, and the judges’ experience and education levels have also improved significantly in recent years. Still, many in the West believe that the royal household and political elements linked to it have too much influence on the running of the courts. District governors, for example, have the power to cancel judicial decisions and to influence the appointment of judges; and although judges are appointed by the Ministry of Justice, the final stamp of approval is given by the king. Last, some companies operating in Saudi Arabia that had approached the courts with legal claims maintained that even if they were able to bring the court to address a matter, it took a very long time for a decision to be passed down.[31]


In terms of politics and administration, Saudi Arabia granted its citizens the right to vote and to be elected to the local councils in 2005. Yet many did not understand the meaning of the 2005 elections, and others were skeptical with regard to the royal family’s willingness to expand citizen rights. Nonetheless, the king tried very hard to show that he was sincere in his desire for reform. During the elections, religious figures who supported the electoral process gave speeches in the mosques in the Eastern Province, and many of the Shi’a, who are renowned for their political consciousness, turned out to vote. Furthermore, the law requiring that businessmen work to promote government affairs via lobbyists was cancelled in 2004. However, businessmen have continued to operate through those who are close to the government, especially upon encountering difficulties running their businesses freely in the conservative kingdom.[32]


In an attempt to make effective use of oil revenues and to develop new sectors, Saudi Arabia is trying to combat the foreign worker problem, which threatens the country’s political, social, and economic stability. According to statistics released in 2004 by the Saudi labor minister, there were 8.8 million expatriates living in Saudi Arabia at the time--equivalent to nearly half of the indigenous population and almost 50 percent higher than official statistics. Furthermore, 90 percent of these expatriates work in the private sector thereby preventing young locals from integrating into the work force. The direct damage to the Saudi economy from dependence on foreign workers is estimated to be tens of billions of dollars, because a significant amount of government income (about $25 billion annually) goes to remittances. In 2006, the Saudis raised foreign workers’ taxes and demanded that companies with more than 100 employees ensure that at least 10 percent be Saudi nationals. The Ministry of Education was able to show positive results, with a decrease in the number of foreign teachers employed. Nonetheless, the low wages paid to the local population, the absence of minimum wage legislation--which makes the hiring of foreign workers much less expensive than Saudis-- the fact that foreign workers are easier to dismiss than Saudis, and Saudis’ unwillingness to work in physical labor will protract the foreign worker problem in the years to come.[33]


CONCLUSION


In recent decades, there has been a clear correlation between Saudi Arabia’s economic needs and the price of oil. From the late 1970s, Saudi Arabia’s mounting needs led to a gradual increase in oil target prices, thereby reflecting the economic challenges the country was facing as well as the government’s desire to improve its citizens’ standard of living. Nonetheless, Saudi Arabia understands its limitations and the dangers of its high dependence on oil for its economic security. It has therefore begun to develop other sectors in order to reduce the oil ratio in its GNP. There are, however, several factors, such as the country’s conservatism, its dependence on foreign workers, and its lack of educated manpower, that have made it difficult for the government to achieve its goals. Thus, Saudi Arabia, like most OPEC states, will have to continue raising the minimum oil target price in the years to come.


NOTES



[1] The Economist Intelligence Unit Limited, “Political Background,” Saudi Arabia Country Profile (1996), pp. 2-3.

[2] “Aramco Official Outlines Plans to Boost Production,” Oil & Gas Journal Vol. 103, No. 26 (July 11, 2005), pp. 22-24; “Global Oil Market Overview,” Saudi Arabia Oil & Gas Report (2008, Q2), pp .4-8.

[3] The Sudairy Clan refers to a group formerly known as the Sudairy Seven, made up of seven full brothers, all sons of King Ibn Saud and Princess Hassa bint Ahmad al-Sudairy. They include: King Fahd bin Abd al-Aziz Al Saud (born 1921), the fifth monarch of Saudi Arabia from June 13, 1982 to August 1, 2005; Prince Sultan bin Abd al-Aziz (born 1926), deputy prime minister, defense minister (since 1962), and crown prince (since August 1, 2005); Prince Abd al-Rahman bin Abd al-Aziz (born 1931), vice minister of defense; Prince Naif bin Abd al-Aziz (born 1934), interior minister since 1975; Prince Turki bin Abd al-Aziz (born 1934); Prince Salman bin Abd al-Aziz (born 1936), governor of Riyadh; Prince Ahmad bin Abd al-Aziz (born 1940), vice minister of interior.

[4] The Economist Intelligence Unit Limited, “Political Background,” Saudi Arabia Country Profile, (2006), pp. 1-17.

[5] Ibid.

[6] Ibid; James Hamilton, Understanding Crude Oil Prices, Department of Economics, University of California, San Diego, December 6, 2008, p. 13; “Saudi Arabia Regulations: New Saudi Monarch Vows to Retain Oil Policy,” EIU Views Wire, August 1, 2005.

[7] The Economist Intelligence Unit Limited, “Political Outlook 2004-2005,” Saudi Arabia Country Report 2005, pp. 3-5; “Saudi Arabia: Build Refining Capacity, End Blame Games,” Oil & Gas Investor, Vol. 25, No. 11 (November, 2005), pp. 11-12.

[8] F. Gregory Gause III, “Saudi Arabia: Over a Barrel,” Foreign Affairs, Vol. 79, No. 3 (May/June 2000), pp. 80-83.

[9] The Economist Intelligence Unit Limited, “Saudi Arabia 2005 Economic Outlook,” Saudi Arabia Country Report 2005, pp. 6-10.

[10] Ibid.

[11] The Economist Intelligence Unit Limited, “King Says That US$75 Is ‘Fair Price’ for Oil,” Saudi Arabia Country Report 2008 (2008), pp. 12-16.

[12] Joseph Mann, Opposition in Saudi Arabia, Unpublished Ph.D. Dissertation, Bar-Ilan University, 2004, pp. 1-30.

[13] Anthony H. Cordesman and Nawaf Obaid, National Security in Saudi Arabia: Threats, Responses, and Challenges (Westport, CT: Praeger, 2005), pp. 1-35; “U.S. Arms Sales: Agreements with and Deliveries to Major Clients 2000-2007,” CRS Report for Congress, November 26, 2008, pp. 2-4.

[14] Ali I. Al-Naimi, “Saudi Arabia Oil and Gas Investment Outlook and Strategies,” Third OPEC International Seminar, Vienna, Austria, September 2006, http://www.opec.org/opec_web/static_files_project/media/downloads/press_room/Ali_I_Al-Naimi.pdf.

[15] Bhushan Bahree and Thaddeus Herrick, “Exxon, Aramco Join Sinopec in Refinery Venture in China,” Wall Street Journal, July 11, 2005; “OPEC File: Quality Matters,” Energy Compass, June 5, 2008; “Volatility Hampers Saudi Pricing, Refiners React Mixed,” Energy Intelligence, June 5, 2008; “Saudi Aramco, Total to Build Vast Refinery,” Wall Street Journal, May 15, 2008; “Aramco Official Outlines Plans to Boost Production,” Oil & Gas Journal, Vol. 103, No. 26 (July 11, 2005), pp. 22-24; “Global Oil Market Overview Demand Outlook Stabilising?” Saudi Arabia Oil & Gas Report (2008, Q2), pp.4-8.

[16] Saudi Arabian Monetary Agency, Saudi Arabian Monetary Agency: Forty Fifth Annual Report, The Latest Economic Developments 1430H (2009G) Research and Statistics Department, (2009), http://www.sama.gov.sa/sites/samaen/ReportsStatistics/ReportsStatisticsLib/5600_R_Annual_En_45_2009_08_31.pdf, p.108.

[17] Ibid.

[18] Ibid, p. 227.

[19] Mohammed Bosbait and Wilson Rodney, “Education, School to Work Transitions and Unemployment in Saudi Arabia,” Middle Eastern Studies, Vol. 41, No. 4 (July 2005), pp. 533-36.

[20] Espicom Business Intelligence, “World Medical Market Report 2007: Current Trends & Future Prospects” (2007), p. 5; Royal Embassy of Saudi Arabia-Washington, The Kingdom of Saudi Arabia Political, Social and Economic Initiatives, (May 2009), http://www.saudiembassy.net/files/PDF/Reports/Development_November_2009.pdf, pp. 4-6; Ministry of Health Statistics Department, Health Resources in Saudi Arabia, (2007), http://www.moh.gov.sa/statistics/stats2007/Book%20Seha02.pdf, pp. 4-18; Hanan Al-Ahmadi and Roland Martin, “Quality of Primary Health Care in Saudi Arabia: A Comprehensive Review,” International Journal for Quality in Health Care, Vol. 17, No. 4 (2005), pp. 331-35.

[21] Nadir G├╝rer and Jan Ban, “The Economic Cost of Low Domestic Product Prices in OPEC Member Countries,” OPEC Review, Vol. 24, No. 2, (June 2000) pp. 143-53.

[22] Ibid; The Economist Intelligence Unit Limited, “Economy Policy,” Saudi Arabia Country Report May 2007, pp. 2-6; Neil King Jr., “Saudi Industrial Drive Strains Oil-Export Role; Kingdom's Use Jumps as Cities, Smelters Bloom in the Desert,” Wall Street Journal, December 12, 2007.

[23] “Saudi Arabia,” Oxford Economic Country Briefings (November 2007), pp. 1-2; The Economist Intelligence Unit Limited, “Domestic Politics Inflation, Saudisation and Politics: Pressure Still On,” Saudi Arabia Country Report March 2008, pp.1-4; “Hungry for Change?” Gulf Marketing Review, September 9, 2008.

[24] Nimrod Raphaeli, “Saudi Arabia: A Brief Guide to Its Politics and Problems,” Middle East Review of International Affairs, Vol. 7, No. 3 (September, 2003), pp. 24-25.

[25] The term “Dutch Disease” first appeared in a 1977 article in The Economist and was used to describe the situation in a country that had undergone an economic boom due to the discovery of natural gas. The term is applied to mineral and energy-production economies, especially those which experienced an economic boom as a result of the 1973 energy crisis. The “disease” affects the structure of governments, societies, and economies. On the economic level, it causes a collapse of the export market and leads to a significant rise in the service sector to the detriment of production. In turn, the decrease in industry and transfer to the public sector cause a sharp rise in unemployment and a decline in GNP, which results decreased foreign investment due to high exchange rates and the a lack of developing industries. Researchers claim that such countries lack political stability because of the need to protect their natural resources. In addition, their desire to maintain a ruling elite prevents the creation of a free market, which would enable a diversified economy. From the social perspective, the disease creates a high dependence on foreign workers, employed in order to avoid salary increases. The concentration of industry on single main export markets also prevents the country from investing in the research and development of advanced industries, which, in turn, affects the country’s education level.

[26] Robert E. Looney, “Saudi Arabia's Evolving Growth Mechanism: Patterns Derived from Co-integration Analysis OPEC Review,” Vol. 21, No. 3, (September 1997), pp. 209-18.

[27] Masudul A. Choudhury and Mohammed A. Al-Sahlawi, “Oil and Non-Oil Sectors in the Saudi Arabian Economy,” OPEC Review Vol. 24, No. 3 (September, 2000), pp. 235-38.

[28] Mohamed A. Ramady and John Saee,Foreign Direct Investment: A Strategic Move toward Sustainable Free Enterprise and Economic Development in Saudi Arabia,” Thunderbird International Business Review (2006), Vol. 49, No. 1 (December 2006), pp. 37-44. Hammoudeh Shawkat and Salim Al-Gudhea, Pricing Risk, Oil, and Financial Factors in Saudi Sector Index Returns (2000), http://www.luc.edu/orgs/meea/volume8/PDFS/Hammoudeh.pdf, pp. 4-6; Farhan Al-Farhan, OPEC Policies and the Economic Development of Member States (April 2003), http://www.cailaw.org/academy/magazine/opec-publication.pdf, pp. 9-10; The Economist Intelligence Unit Limited, “Saudi Arabia Oil & Gas Report,” Saudi Arabia Country Report 2008, pp. 3-6.

[29] “Can Saudi Arabia Reform Itself?” ICG Middle East Report, No. 28 (July 2004), pp. 3-6.

[30] “Political and Economic Reform in the Kingdom of Saudi Arabia,” Diplomat, No. 6 (March 2007), http://www.ids.gov.sa/IDS_PDF/DIP/pdf/Diplomat6.pdf, pp. 29-31; The Economist Intelligence Unit Limited, “Key Economic Sectors Telecommunications & Media,” Saudi Arabia Country Report 2007, pp.16-18; The Economist Intelligence Unit Limited, “Saudi Arabia Oil & Gas Report,” Saudi Arabia Country Report 2007, pp. 17-19.

[31] “Business Environment & Legal Framework,” Saudi Arabia Country Report 2007, pp. 12-13.

[32] “The Political Scene 2005,” Saudi Arabia Country Report 2005, pp. 3-6.

[33] “Can Saudi Arabia Reform Itself?” pp. 3-6.


Original URL: http://www.gloria-center.org/meria/2010/12/mann.html

Dr. Joseph Mann is a lecturer in the department of Middle Eastern Studies at Bar-Ilan University. Over the past few years, he has focused on the commodities market and on the renewable energy industry in EU countries. He now deals mainly with issues related to the oil and gas industries in the Middle East.

Copyright - Original materials copyright (c) by the authors.

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