Both king abdullah and president george w bush took

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Unformatted text preview: een itself and Riyadh. But with Iraq a mess and Iran a continuing challenge to American power and goals in the region, the US could not afford a further deterioration of its only working relationship with a major Gulf power. The run-up in oil prices from 2003 to 2008 also brought home to Washington the American interest in good relations with Saudi Arabia — the Organization of Oil Producing Countries’ (OPEC) dominant player and the world’s leading exporter of oil. Meanwhile, in the upheaval of the post-9/11 Middle East, with war and chaos in Iraq and the concomitant increase in Iran’s regional power, the Saudi leadership almost by instinct suppressed its misgivings about many Bush Administration policies (including the gentle but real pressure in 2004-05 for domestic political reform) and sought security in its historic refuge — its relationship with the United States. Both King ‘Abdullah and President George W. Bush took political risks (in terms of their respective domestic public opinion) to maintain the relationship during this difficult period. 95 Last printed 9/4/2009 7:00:00 PM Oil DDW 2012 1 Oil Key to Stability 96 Oil DDW 2012 1 High oil prices are key to maintain Saudi stability and pay off debts Cairns, Department of Economics and Calfucura, 10 Robert D. Cairns, Department of Economics at CIREQ McGill University and Enrique Calfucura, 10, [“OPEC: Market Failure or Power Failure?,”] E. Liu The countries with high reserves have low populations, as pointed out by Hnylicza and Pindyck (1976). However, the populations have been increasing since the 1970s and there is very limited other economic activity to absorb them. The populations are (have to be) supported by large transfers from the public purse. Not doing so would destabilize the regimes, which are not secure (cf Ulrichsen 2009). Moreover, oil-based products are provided to the domestic market at prices far below their border prices. Many OPEC countries such as Iran, Venezuela and Indonesia use much of their output to provide for their domestic markets at extremely low prices. Consumption in OPEC countries, especially in Middle Eastern countries, is almost three times what is observed in other countries with similar levels of income per capita. Moreover, domestic demand in OPEC countries is inelastic to price and income (Chakravorty et al. 2000). Domestic consumption is expected to grow continually in those countries. Exports are from what is left over. There is an important limitation to revenues. Notwithstanding their access to oil revenues, the regimes, even Saudi Arabia, have had continuing fiscal deficits. Oil revenues are required to contribute to the governments‘ cash flows. 97 Last printed 9/4/2009 7:00:00 PM Oil DDW 2012 1 Mutual investment patterns from oil wealth strengthen development and stability Maloney, Senior fellow at the Saban Center for Middle East Policy at the Brookings Institution, 08 Suzanne Maloney, Senior fellow at the Saban Center for Middle East Policy at the Brookings Institution, 12-5-08, [“The Gulf...
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This note was uploaded on 01/30/2013 for the course ECON 101 taught by Professor Burke during the Spring '13 term at Southern Arkansas University.

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