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Thesis & Antithesis

A critical perspective on energy, international politics & current affairs

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Location: Washington, D.C.

greekdefaultwatch@gmail.com Natural gas consultant by day, blogger on the Greek economy by night. Trained as an economist and political scientist. I believe in common sense and in data, and my aim is to offer insight written in language that is clear and convincing.

03 November 2005

The Saudi predicament

The Financial Times reports: “The International Energy Agency, the oil sector monitoring body, on Wednesday said that oil prices by 2030 would be 50 per cent higher than today if Saudi Arabia did not muster the political will to invest billions of dollars in new production.” The IEA’s chief economist, Fatih Birol, is quoted in the article: “It is not a problem of availability of reserves or capital. We need to be sure that the increase in production will be high enough and a sustained production capacity increase policy is in place. That will need sustained political will” (1).

The challenge that Saudi Arabia faces will be crucial for the Middle East. Some numbers will help illustrate why: in 1979, Saudi Arabia had a production capacity of 10.84 million barrels a day (mbd); in 2005, that figure stood somewhere between 10.50 and 11 million. In other words, in a quarter century Saudi Arabia has been unable to increase its production capacity.

In 1986, Saudi Arabia’s GDP per capita (market exchange rates) was little over $8,000; today it is roughly over $11,700, hardly an impressive increase for a country with the world’s most abundant oil reserves. The third number to complete the picture: in 1982, Saudi Arabia’s investment stood at 27.80% of GDP; in 1992, at 20.37%; in 2002 at 18.11%.

Put the three numbers together and the expectation that Saudi Arabia will be producing 20 or 25 mbd in the next decades looks questionable. This is a country that has not invested and has been unable to raise the standard of living of its people—to take away money from consumption and put it into investment will be a monumental political challenge. Stay tuned.

References:
(1) Carola Hoyos, “IEA warns of 50% oil price rise by 2030,” Financial Times, 3 Nov 05

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