Explore BrainMass

Economic Profile of the Oil Industry in Saudi Arabia

Write about the economic profile of the oil industry.

Include these in terms of impact on the oil industry:

- Price elasticity of supply/demand and shifts in this
- Positive/negative externalities
- Inequalities in wages
- Fiscal/monetary policy

How is the oil industry's success affected by the economy?

What are some influences in the economy that can negatively affect the oil industry?

Solution Preview

Economic Profile of the Oil Industry in Saudi Arabia


In the Middle East, Saudi Arabia occupies a prominent strategic position due to the fact that it has a huge coverage over the land area in the Middle East across the borders of the coast. In the region, Saudi Arabia has borders around seven countries. Thousands of years back, the group of people sustaining their livelihood near the oases determined the economy. The majority of the inhabitants were engaged in the field of agriculture.

Core factors that helped in transforming the economy

In 1938, the finding of vast oil reserves by a company of the United States formed the major factor of change in the economy of Saudi Arabia. Initially the recently recognized oil industry had an indirect impact on the economy. The significant changes in the economy of Saudi Arabia was led by the settlement of the oil towns across the field of oil and also by the Arabian American Oil Company known as Aramco. These developments were accompanied by various changes such as the building of modern roads, ports, power plants, housing and water systems. Apart from this, training was required for the workers in order to acquire new skills. The opening of the oil company brought the series of opportunities for the groups like contractors and local merchants. Also, huge aids like financial, technical, and logistical were offered to the entrepreneurs by Aramco. It also paved the way for the innovation in the field of producing and distributing goods and services.

Economic policy in Saudi Arabia during the boom in the oil industry

Sudden changes were seen in the economy of Saudi Arabia in the 1970s. There was an expansion in the exports of oil and along with it; there was a sharp increase in the payment of royalty and taxes in oil companies. In 1970, quadrupled increases in the revenues per barrel of oil was observed. In 1948, it was about US$0.22 and US$0.89 during 1970. In 1982, the usual price of exports per barrel arrived at about US$30. The oil revenue of the government from 1973 to 1980 hiked from US$4.3 billion to US$101.8 billion. Therefore, the higher revenue earned gave the officials of Saudi an opportunity to make key structural transformations in the economy (De Santis, 2003).

In order to have massive development, the government took steps in utilizing the rising oil revenues in the middle of the 1970s. The linked part of the effort includes the policy of industrialization. By investing mostly in plant processing; this policy was aimed at the building of essential infrastructure. The decision regarding the increase in the resource of country's oil and gas expansion was logical in consideration with the endowment of country resources. The successful strategy was the capital-intensive downstream investments.

//From here onwards, I would like to guide you on the points given. You study them as an example and write in your own words for the industry which you have chosen. My description on these points will help you to develop an understanding of them. //

Impact of price elasticity of supply and demand in the oil industry

This helps to explain the fluctuation in the prices of crude oil. The key reason for the fluctuation is the quota system, which reflects the agreements of OPEC. In the short run, the supply of oil in Saudi is inelastic. ...

Solution Summary

This response addresses the queries posted in about 2,033 words, with 6 APA references. It first introduces the topic of the oil industry in Saudi Arabia and the factors that transformed the economy. An impact of supply and demand, externalities and wage inequalities in the oil industry is also given. Finally, the impact of monetary and fiscal policies is provided.