Why Saudi Arabia Isn't Feeling The Oil Pinch
What does oil mean to the Kingdom of Saudi Arabia? One of the last absolute monarchies left in the world (they never got the message about constitutions), the Saudis rely more on the commodity than any other nation. No less than 77% of their GDP depends directly on the price of petroleum, with an additional 9% related to non-crude oil and natural gas, and a further 3% related to polyethylene compounds. If you think that the sliding prices of oil are making the Saudis afraid for their well-being, think again: Saudi Oil Minister Ali al-Naimi told journalists that the country would not cut production in order to drive up the price of oil, currently trading at just under $50 per barrel.
A Brief History of Oil: Not As Lucrative As You Think
One hundred years ago, oil provided a great deal of energy needed for lighting and heating. Only small deposits on petroleum had been found throughout the world prior to 1900, however, and the use of whale oil provided more power on average than fossil fuels -- not until the conclusion of World War One did petroleum and petroleum derivatives overtake the consumption of energy burned from whale blubber. With relatively few vehicles patrolling the roads and coal available at ultra-low costs (easy to afford when miners have no unions, health insurance, or pensions), petroleum was in about as high demand a century ago as flax seed oil is today. That all changed with a scouting expedition in 1933 when the former king Abdel Aziz sent a team of geologists scouring the Jubail region of the desert, near modern-day Bahrain. Initially, the team reported disappointment with the project due to finding thick black oil rather than life-saving water needed for nearby city development. The Saudi Arabian government steadily began to export oil on a larger and larger scale, though it would take a second World War to drive demand high enough for oil exports to overtake the agricultural economy. The Saudis sold oil to Allies and Axis ...