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Volume :14 Issue : 53 1988      Add To Cart                                                                    Download

SAUDI OIL POLICY SINCE THE BEGINNING OF 1970’S

Auther : By: Dr. Mokhtar A. Khattab

 

          The present paper discusses the potentiality of diversifying the economic and petroleum policies for oil exporting countries despite the existence of an exclusive strategy of oil and energy for the international capital.  The outcome of the study points out that the oil exporting countries had succeeded in following varying policies according to their level of development as well as their historical, economic and technological conditions.

           Furthermore, two main policies have been recognized: “Oil-Reserve-Preference”, and “Oil-Liquidation-Preference”.  The first policy rather prefers to keep the barrel of oil under-earth instead of extracting and selling it and reinvesting its general rent. This policy is supposed to be adopted when that expected world oil price at the end of a specified period is higher than its current price added to the income generated from reinvesting it over the same time period. In the second policy, i.e. the “Oil-liquidation-Preference”, the oil exporting countries try to extract as much oil as the world market could absorb, and reinvest the generated rent.  In the frame of this policy, the oil exporting countries could undertake one of the following sub-policies:

 (a)    Using oil and its rent in achieving a vertical and horizontal integration for the oil sector inside the national borders.  This sub-policy could be implemented by national capital or by joint ventures with the international capital.

(b)   Using oil and its rent in accomplishing a vertical integration for the oil sector outside the national borders.  This sub-policy could also be achieved by the national or by participation with international capital.

 It is found that the Kingdom of Saudi Arabia has followed an oil-liquidation-preference policy.  It decided to use oil and the rent generated from selling as much oil as the world market could allow in attaining some vertical and horizontal integration for the oil sector inside the Saudi national borders.

 The results attained by the Saudi choice are subjected to an economic evaluation.  The purpose is to evaluate the feasibility of this choice as compared to other alternatives.  This evaluation is performed with the aid of a simple mathematical model.

 The main finding of the evaluation is that the Saudi choice is more lucrative than the other two alternatives, i.e. “Oil-Reserve-Preference” and oil liquidation with the investment of oil rents in portfolio outside the national borders.  During the period from 1388 to 1406 h. (1968-1986) the average rate of return obtained from the above alternatives was 13.04%, 9.37% and 10.5% per year respectively, though the kingdom’s economy experienced an irrational and a high social cost performance during the same period.

 

 

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