Following the political unrest in the middle east

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Unformatted text preview: nancial sectors. Yet dependence on oil and gas revenues to pay for state spending in society and the economy has hardly shifted . In fact it increased during the last period of unusually high oil prices (2005–08).19 It is also debatable how much vertical integration of the petroleum sector (integrated refining, petrochemicals, plastics etc.) contributes to diversification. Just under a fifth of the oil and gas consumed in Saudi Arabia is used for feedstock and power for industry (e.g. petrochemicals, plastics and fertilizer).20 In principle, these capitalize on Saudi Arabia’s ‘competitive advantage’ as a producer of low-cost energy to generate national value through jobs, exports and economic diversification. But as Aissaoui (2010) argues, the petrochemicals industry encourages dependence on low-cost feedstock, does little to reduce the economy’s vulnerability to global oil-price cycles as its processes are closely correlated to these, and provides few jobs relative to productivity.21 231 Last printed 9/4/2009 7:00:00 PM Oil DDW 2012 1 Impact – Saudi Instability 232 Oil DDW 2012 1 Domestic consumption undermines government spending and stabilizing of oil markets Lahn, Research Fellow for Energy and Development at Chatham House and Stevens, Senior Research Fellow for Energy at Chatham House and Emeritus Professor at Dundee University, 11 Glada Lahn, Research Fellow for Energy and Development at Chatham House and Paul Stevens, Senior Research Fellow for Energy at Chatham House and Emeritus Professor at Dundee University, 12-11, [“Burning Oil to Keep Cool The Hidden Energy Crisis in Saudi Arabia,” The Royal Institute of International Affairs, Chatham House, www.chathamhouse.org/publications/papers/view/180825] E. Liu The world’s largest exporter of oil is consuming so much energy at home that its ability to play a stabilizing role in world oil markets is at stake. Saudi Arabia’s demand for its own oil and gas is growing at around 7% per year. At this rate of growth, national consumption will have doubled in a decade. On a ‘business as usual’ projection, this would jeopardize the country’s ability to export to global markets. Given its dependence on oil export revenues, the inability to expand exports would have a dramatic effect on the economy and the government’s ability to spend on domestic welfare and services. Following the political unrest in the Middle East since the start of 2011, the impulse of the Saudi authorities has been to give out more social benefits – including cheap energy. Yet the negligible cost of fuel to consumers is encouraging wasteful consumption and deterring investment in efficiency and alternative energy supplies. In a country powered entirely by domestically produced oil and gas, this is using up precious natural resources as well as having long-term environmental impacts. One indicator of the problem has been the rise in the burning of heavy fuel oil and crude oil to generate electricity when gas cannot meet the surge in demand for cooling during the summer mont...
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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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