The Kingdom’s Heart: The Hydrocarbon and Minerals Sector

Abstract

Energy is a necessary and vital input to economic activity throughout the world. Oil plays a key role in this regard; crude oil is today one of the most highly-valued commodities in international trade. While some might consider oil as a homogeneous commodity that should carry the same price worldwide, in reality price differentials among regions of the world exist due to market conditions, shipping distance and political factors. The sharp oil price increases to over $50 per barrel during 2004, as well as Saudi Arabia’s decision — along with its fellow Organization of Petroleum Countries (OPEC) member states — to raise oil production levels, vividly illustrates that the future of the Kingdom’s petroleum sector will be as important to the world as it is to Saudi Arabia for many years to come. While the hydrocarbon sector has brought about undoubted material benefits to the Kingdom over the past thirty years, it has also brought great responsibilities and limitations on how far Saudi Arabia can act in pursuing its own energy interests, unlike marginal oil producers that wish to optimize on current revenues, knowing that their reserves will run out in the short run. According to Saudi Aramco, the Kingdom sits on 260 billion barrels of oil, or a quarter of the world’s total known reserves (Saudi Aramco, 2002).