Global and domestic economic challenges for Saudi Arabia’s oil policy in the 21st century -

Abstract

This project analyses the internal and external economic factors that influence Saudi Arabian oil policy in the 21st century. The Kingdom of Saudi Arabia (KSA) fulfils a central role in the global oil market, mostly due to the scale of its production capacity and exports. The oil market is dependent on Saudi Arabia, as Saudi Arabia is on the oil market however, and the revenues it generates. Saudi Arabia prides itself for only using fiscal and commercial considerations in setting its oil policy. Research is therefore focused on the internal and external economic factors that influence this policy. This research provides an analysis of global market developments and their impact on Saudi oil policy, as well as internal socio-economic and fiscal factors influencing this policy. The policy process and its primary actors are also discussed. In conclusion, this research lays bare the underlying challenge that Saudi faces on the global markets, facing structural changes in both the long term underlying outlook of the market, as well as changes in the short term dynamics. On the long term, the market outlook has changed from ‘peak oil production’ to ‘peak oil consumption’, whereby concepts as a finite amount of oil, increasing scarcity and ever rising prices have become redundant. With consumption expected to peak, before slowly starting to decline within two decades, will need to formulate oil policies for stagnating or even contracting markets, where price levels drop. On the short term, the emergence of tight oil on the market has changed market dynamic, which will influence the KSA’s oil policy. Increased flexibility in production will dampen price fluctuations, forcing Saudi to contemplate its current spare capacity policy. Bringing that capacity onto the market might be a way to mitigate increasing domestic consumption, partially caused due to excessive energy subsidies, now under revision. Increasing price stability at moderate levels, has for long been a KSA policy objective howe