Saudi Arabia: Oil and gas industry

In last few decades, the OPEC (Organization of Petroleum Exporting Countries) has had minimal manufacturing and industrial share in their GDP. Oil and gas have been contributing around 60 per cent of GDP of Gulf countries that command considerable influence on global oil markets. Saudi Arabia, the world's largest producer and exporter of petroleum and other fuels, has successfully controlled global oil prices by changing its production and export volumes. However, the recent American oil boom can change the equation and bury the Saudi dominance in the global petro-landscape. Recently, International Energy Agency (IEA) has estimated that the United States has the potential to overtake Saudi Arabia as the world's biggest oil producer by 2020. Currently, Saudi Arabia produces 11.75 million barrels per day (mbd) compared to America’s 10.59 mbd and the former generates around 92.5 per cent budget revenues and 90 per cent export earnings from this sector. Interestingly, the Saudi Arabian Minister of Petroleum and Mineral Resources Ali Al-Naimi has welcomed the US energy renaissance as it may help stabilize global oil markets. He said, “Our number one interest is a well-balanced oil market that promotes a strong global economy.” Amidst such pleasantries, there is also the disconcerting fact, as stated by Gal Luft, Senior Adviser to the United States Energy Security Council, that “there is something profoundly wrong when the United States, which sits atop barely two percent of global conventional oil reserves, produces more barrels per day than Saudi Arabia, a country with reserves 10 times bigger.”

This could simply be because Saudi Arabia is producing oil based purely on seat of the pants responses from its rulers. The recent news that brought out the contradictory production plans between Prince Turki al-Faisal (the current chairman of the King Faisal Center for Research and Islamic Studies) and Ali Al Naimi (Saudi Arabian Petroleum Minister) exposes the synergy lag among the policy institutions within the region. While Prince Faisal proposed to increase the nation’s production capacity by 2.5 mbd, Naimi stood his ground. At the political level, the Arab Spring has increased the government's expenditures manifold in terms of providing freebees and subsidies to supress increasing discontent within the public. At the economic level, the government needs to spruce up its non-oil based economy. Of interest is the data that Saudi Arabia consumes more crude than some major industrialized countries like Germany and Canada and it reserves only 7 mbd for exports. That clearly shows that there is a thriving group of domestic industries, whether product based or service focused, and these should be encouraged to get the oil monkey of Saudi Arabia's back.

It's not that making money out of oil is a bad capitalist model – it surely isn't – but the fact is that there's no reason to not make the economy more vibrant.