opec publication

8/2/2019 Opec Publication

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OPEC Po lic ie s a n d t h e Econ om icDeve lopm en t o f Mem ber S t a t e s t h e

S a u d i Ar a bia n E x p e rie n ce a n d w h a t is

n e ed e d i n t h e 2 1 s t c e n t u r y

Farh an Al-Farhan *Apr i l 20 03

ABST RACT ........................................................................................................2

INTR ODUCTION................................................................................................5 THE CREATION OF OPEC................................................................................6

OPEC STRATEGIES..........................................................................................8

SH OR T- TE RM POLICIES .................................................................................9

LONG-TE RM POLICIE S................................................................................... 11

OPE C AID AND DEVELOP MENT ....................................................................1 2

HOW CAN WE DE F INE THE RE LATIONSHIP BETWEEN OPE C AND

MEMBE R ST ATES DEVELOPME NT? .............................................................2 0

SAUDI ARABIA AND THE DEVELOPMENT STRATEGIES.............................24 SAUDI ARABIA AND TH E NATIO NAL LABOUR .............................................2 8

DIVER SIF ICATION STR ATE GY......................................................................3 2

THE F UTURE OF OPE C AND SAUDI ARABIA................................................3 6

CONCLUSION .................................................................................................. 4 1

BIBLIOGRAPH Y ..............................................................................................4 3


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List of GraphsPage:

Graph (1): The Political, Economic Events and Oil Prices. 7

Graph (2): North America Oil Production.

38

Graph (3): World Oil Forecast.

39

List of Tables

Table (1): U.S.A. Assistance to OPEC Members, 1996-2001.

10/11/12

Table (2): U.S.A. Foreign Military Sales and Construction Sales Agreements with Major

Oil Producers, 1996-2001. 12/13

Table (3): U.S.A. Merchandise Trade with Major Oil Producing Nations,

1996-2001.

13/14

Table (4): World Economic Growth Rates 1996-1997. 17

Table (5): OPEC Member Countries Real GDP Growth Rates 1996-1997. 24

Table (6): World Oil Demand. 25

Table (7): Growth of The Civilian Labour Force, 1975-1980 (Saudi Arabia). 26

Table (8): Statistical Information OPEC and Non-OPEC Developing Countries. 29

Table (9): World Oil Demand in 2000. 34

Table (10): World Oil Forecast. 38


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AbstractOil i s the top ranking commodi ty of our modern wor ld. Some wouldsay that the discovery of vast reserves of oi l in the Middle East is one of

the great i ronies of history because, s ince the 1960s, oi l has played a

m ajor role in th e in tern ationa l econom y. So mu ch of th e worlds

produ ct ion an d in fras t ru cture is depend ent on affordable su ppl ies of oil.Coun tries bless ed with lar ge reserves, logically th en s h ou ld h ave a stron g

ba rgaining tool with which to influ en ce th eir own p olit ical an d econ omic

status in the wor ld economy. Indeed i t i s commonly bel ieved that the

Organisation of Petroleum Exporter Countries (OPEC) and i ts memberstates are able to monopolise the world economy through i ts policies and

prices.

Oi l has been and remains the focal mean of Middle Eastern economic

development ; i t i s thei r main expor table resource and main source of income. Al though OPEC, and in par t icular the Gulf member s tates have

st ressed the idea of wor ld peace and progress being dependent on the

mutual respect of the internat ional communi ty, this may conf l ict wi th

their own targets of protecting their national interests and long-term

development plans. This i ssue has been and cont inues to be debated inth e fields of econom ics, p olit ics, a n d d evelopm ent al an d rel igiou s s tu dies.

It is on ly logical to th in k th at when a s tate or na tion dom in ates 6 0% of

the current international oi l reserves and 22% of daily international oi l

prod u ction , tha t it will h ave to work ha rd to keep oil at a price wh ich ca nmaintain profi table global prices able to compete with other materials

an d goods .

The aim of the following analysis is to discuss the impact of OPEC price

policies as a core point to the development of member states withpa r t icu lar reference to th e Sa u di Arab ian exper ience.

*BA Law King Saud University (Riyadh) LLM-International Commercial Law Kent University (Canterbury).Legal Advisor & Political Econ omy Ana lyst Royal Emba ssy of Sau di Arab ia London , PhD Stu dent at Kent LawSchool (Can terbu ry) Diplomas : Political Econ omy Developmen t, Foreign Policy Ana lys is, Organization and

Strategic Management at L.S.E. (London) &Media Law Advocates Training Programme (MLAP) OxfordUniversity (Oxford). The author can be contacted at ([email protected]). The author wishes to thank DR.AFM. Man iruzzam an for his su pport an d encou ragements also, special tha nks to Professor. Peter Muchlinsk i,for his inspiration char acter an d su pport.


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I n t r o d u c t i o n

Oil, du e to it s specific n atu re, is a key produ ct an d a s t ra tegic comm odity

in toda ys in te rn at iona l society. In du st ry worldwide is depen den t on it

for survival and its cost will always affect the price of the finishedprodu ct , th ereby its control is a powerfu l tool in todays in tern ationa l

ma rket . OPEC member s t a tes h ad an ear ly un der s tan ding of th is new

internat ional economic system, and i t s potent ial to shi f t the balance of

power f rom the West . I t can be argued that they demonstrated thisunderstanding in the early 1970s, as evidenced by the drive of i ts

mem bers towards fas t econom ic growth a n d developmen t .

Over the last three decades some exper ts have highl ighted the vi tal

importance that OPEC has played in the socio-economic developmentan d th e hu ge growth of th e mem ber s ta tes . Moreover , becau se OPEC h as

control of vast petroleum deposits i t has been perceived more as apotent ial polit ical organisat ion th an as an econom ic one. Some h ave said

that OPEC should not control oi l in the same way as other products inthe global market . There appears to be opposing morals for the West ,

wh ere i t is perceived to be fair to control and dom in ate m an y produ cts, in

the interest of thei r own countr ies economic secur i ty but unfai r for

others, especial ly in developing countr ies, to do the same with their

resou rces, n am ely oil. Th is argu m ent will be h ighlighted later on throu ghth e sp ecifical ly stu died Sau di Ara bian developm en t experien ce.

During the immediate post cold war period of history, international

at tent ion was focused on the tense s i tuat ion between the Eastern Blockan d th e Western powers. At th e sa me t ime oil-r ich coun tr ies su ch a s th e

Kingdom of Saudi Arabia, Iraq, Kuwait , I ran and Venezuela founded a

new international cartel , namely OPEC. Among all international trade

organisat ions, OPEC has proved to be a good example of an al ternative

in terna t iona l polit ical economy with an u nd ispu ted am oun t of ba rgain ingpower and one of the few powerful organisat ions not controlled by the

West.

I have chosen to concentrate on the Kingdom of Saudi Arabia in this

paper because I bel ieve i t can be considered as a model s tate amongst

the OPEC members in that i t has taken advantage of this per iod toachieve massive development in the pet roleum indust r ies and has

diversified into oth er a reas of produ ction. At p resen t , i t is n ot poss ible to

measure what the cont inual increasing demand for oi l wi l l be, but i t i senough to say that i t impacts on many countr ies pol i t ical and economic

policies. I t is also safe to say that new technologies and production

methods worldwide are largely affected by the availability and price of oil

in th e in terna t iona l m arket .


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In this study I will first highlight OPEC policies on prices and production

control and how these policies are affecting the development of themember states. Secondly, I shall go onto give some examples of OPEC

policies that have directly led to enormous developments of the whole

m em ber st at e. Th irdly, I will focu s on th e two iss u es of developm en t an daid as the targets of OPEC policies in the long-term development of otherLess Developed Countries (LDC). The Saudi Arabian experience in this

cont ext is th en h igh lighted . I will conclu de with a n explan at ion of th e

role OPEC plays in the international economy of the twenty-first century

and wi l l propose scenar ios of future possibi l i t ies based on the

in format ion discu ss ed in th is a n alysis .

Th e Crea t ion o f OPEC

On September 1 4, 196 0, OPEC was formed. The foun ding m embers wereSaudi Arabia, I raq, I ran, Kuwai t and Venezuela. Since then the

membership has expanded to include Alger ia , Indonesia, Libya, Qatar ,United Arab Emirates and Nigeria, making for a total of eleven country

member s .

Since i ts formation OPEC quickly began to dominate the oil industry

market . Prior to this date these oil r ich countr ies had l i t t le to no controlover the decision making within this industry. Part icularly, in the most

impor tant a reas of the o i l bus iness , such as in the market ing ,

developmen t , pr icing a nd produ ct ion of the res ource, On th e other h an d,

the member states were, at the t ime, far away from having any long-termna t ional developme n t plans . Ind eed, the exper ience sh owed th at withou t

OPEC policies a nd su ppor t m ember s ta tes were u n likely to ha ve ach ieved

th eir goals in dividu ally. Th e ta sk can be regar ded as even m ore difficu lt i f

we regard oil as the most important budgetary revenue to OPEC

member s .

Oil producing countr ies concentrated on oil production eff iciency in the

196 0s, p loughing a lot of thei r profit s b ack into th e bu siness , an d th en in

th e 197 0s th ese coun tr ies were able to leap forward in terms of econ omic

growth. Revenue from oil has increased more than fourfold, compared to

the doubling of the world economy as a whole. Over the same period, oi ldemand in the Asia-Pacif ic region has also r isen fourfold, while total

in terna t ional oil dem an d h as in creased by 40%.

This continual growing demand for oi l and i ts corresponding growth in

bargaining power for OPEC gave rise to a conflict between the oil

producers and the western mul t i -nat ional companies who were, and

rem ain , concern ed a bou t con trol of fu tu re world en ergy. Th is conflict


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las t ed 13 year s an d came to a head in th e 1970s . The mem ber s t a tes

m otive was simp ly their in terest in con tin u in g their own econom ic growth

an d developmen t , bu t the s am e can b e said of the western compa nysmot ives. Dur ing 1960s a n d ear ly 197 0s, OPEC m emb ers were su ffer in g

from the hegemony of the giant western oil companies but their act ions

dur ing the 1970s resul ted in them gaining more control and this resul tsign ified a s h ift in g point in th e su ccess of OPEC. Th ere are u n derstoodto be fou r elemen ts th at cont r ibu ted to the s u ccess of OPECs 19 70s

policies:

1. Unsta ble cu rrency pr ices an d the large in crease

in inflat ion rates due to the instabil i ty of thein terna t iona l economy an d ca sh liqu idi ty.

2. In creas in g dem an d for OPEC oil, in pa rt icular ,

due to economic recovery and increase between

1971-1973 and the diff iculty to f ind any

alterna tive sou rces of power.3. Th e encou ragemen t an d poss ibility of OPEC

members to control most of the oil producing

operat ions. Bear in m ind th at at that t ime most

of the OPEC members were not indust r ial i sedcountries, nor were they big consumers of oi l

product s .

4. Th e sen se of disap poin tm ent in th e Arab

coun tr ies regarding th e Isra eli drawback to th eir

196 7 ter r itory.

Graph 1 below demonstrates how worldwide poli t ical events havesh aped oil pr ices over the last three decad es.

Graph (1): Poli t i ca l Event s an d Oi l Pr i ces .

1-Arab -Isra eli war an d OPEC p olicies d u ring th e war

(1973)

2-Resigna tion of Presiden t Nixon (19 74 )3-Th e at t ack of OPEC conferen ce in win e (19 75 )

4-Th e Islam ic revolu tion in Ira n (19 79 )

5-Th e in vasion of Soviet Union to Afgha n ist an (19 79 )

6-Th e intern at ion al econ omy sta gnat ion (198 0)7-The increa se of oil pr odu ction a ffecting prices (19 84 )

8-Th e fai lu re of OPEC to con trol oil produ ction du e to

ab sen ce of interest by some OPEC memb ers (198 6)

9-Black Monda y an d th e fai lu re of th e in terna t iona l money

ma rket (1987)10 -Th e in vas ion of Ku wait by Ira q, which led to th e Sau di

an d Kuwait govern m en ts con tr ibu tin g billions of dollars to


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th e gulf war (19 90 )

11-Ear ly 90s, s tagna t ion of western economy (199 0s)

12-Black Wedn esda y, Br itain leaves th e Eu ropeancur rency mechan ism (1992)

13 -Asian econom y su ffers st agn ation (19 98 )

14 -OPEC, Mexico an d Norway d ecreas e oil produ ction,which leads to an 300 % in crease in th e oil pr ices (199 9)15 -Th e conflict between Pa lest ine a n d Israel lead to an

in creas e of cru de oil prices u p to 35 USD a b arr el (20 00 )

OPEC S t ra t eg ie sThese d evelopm ents and others

made i t imperative for producer as

w ell as cons um er coun tries to follow

rational oil policies w ithin the fram e

w ork of the v ital interes ts of their

respective nation." (AL-Otaiba p, 4)

AL-Otaibas a rgum ent ca n be in terpreted to mea n th at OPEC cou ntr ies

had the oppor tuni ty to be considered as a ser ious power wi thin the new

intern at ional society/ system a nd sh ould u se th at ra t ional ly in order to

achieve their own countries goals. The classical definition of power is the ability to get people to do what you want them to do (Krasner p.3).

The power of OPEC can be viewed in relat ion to the rat ional aspect and

absolute role when i t used the r ight strategies and policies to achieve i ts

goals . In this cas e th e goal is how OPEC m emb ers can m ak edevelopmental progress through the policies OPEC employs. For OPEC

members, the power they hold i s in the way they manage the demand of

o il. On th e other h an d it ha s been a rgu ed, tha t a lthou gh m embers h ave

the production experience, they lacked empirical knowledge in oil

m ark etin g, poss ibly becau se th ey n ever cons idered i t as a powerfu l tool.

Cu rren tly, mos t of OPECs s tra tegies a re focus ed on gu ar an teein g a

broader p olit ical secur i ty for it s m emb ers a n d th ose th ey sym path isewith . Exper ience has t au ght the m ember s t a tes th a t th is s ecu r ity can be

ach ieved th rough m aintaining a consta n t su pply of oil an d OPECs ear lyexper iences h ave been t ra ns lated in to policies a s i t ha s learnt to

u n dersta n d th at i t can h ave a ma rked a ffect on it s cons u mers p olicies .

As Sh eikYamani argues , "Let u s ca pital ize on th e fact t h at th e Ara bsneed Am erica as m u ch as America needs th em. He goes onto say

"Am erica h as an in terest in crea ting sta bility in t h e Gu lf an d br in gin g

ab ou t a pea cefu l set t lemen t to the Ara b-Isra eli conflict , not on ly becau se

of oil bu t a lso b ecau se i t is th e lead er of th e Free World, a role wh ich


9/45

dictates th at i t pu rsu e its t ime -hon ou red policy of str ivin g to up h old

righ t, jus tice an d p ea ce."(Yam an i, Nov 20 th 1 9 9 0 )

Yam an i delivered th e sa m e mes sa ge, albeit in differen t words, twent y

years ear l ier du r in g the 197 0s , wh en h e was Sa u di Min ister of

Pet roleu m. At th at t ime the US ignored the pledge, and th e 1973 MiddleEa st war a n d oil emb argo soon followed.

Moreover, oi l producers have a wider economic interest in protecting the

sta bility of oil prices within th e intern ationa l ma rket . For this reas on

alone Sau di Arab ia can be s aid to ha ve been sa cr ificing i t s own na t iona lin teres t for th e las t fifteen years in ord er to protect OPEC pricin g an d th e

production quotas of fel low members. However this approach has led to

lower overall petroleum prices, a diminishing OPEC market share, and

gain s by n on-OPEC oil produ cers at an alarm in g rate . Th u s, from theSaudi point of view, OPEC has shifted from being a primary tool for

Saudi af f luence and prosper i ty, to fast becoming a burden on i t seconomy.

S h o r t -t e rm P olic ie s

We can mea su re the p ower tha t oil h as ha d b y the ran ge of policies th atcan be adopted by oil producers. These policies have a unique f lexibil i ty

in that they can be used as a cure or as a weapon, but commonly thei r

pu rpos e is to pr omote or protect econ omic in terests . In th is s ection I will

demon stra te the effect tha t th ese policies h ave had on Sa u di Arabia.

Saudi Arabia and i ts immediate al l ies in OPEC could adopt the policy of

dramatically increasing their production rates whilst decreasing their

prices. In an im agin ed s cena rio, Sau di Ara bias oi l produ ction p lan s

could realist ical ly be to increase current production capacity of 10,5 00 ,00 Ba rrel Per Day (BPD) to 16,00 0,00 0 BPD with in a few mon th s

an d 20,000 ,000 BPD with in th ree years . Bear in g this in mind, Sau di

Arabia s ta r ted an oil-pr ice war in 198 6 in an at tem pt to coun ter cheat ing

on qu otas by oth er OPEC an d non -OPEC mem bers. Th is kind of act ion

has the abi l i ty to maintain s tabi l i ty in the internat ional oi l market andth ereby contr ibu tes towards th e long-term fu tu re of th e Sau di economy.

Long-term policies of this type have the advantage of achieving two,usually confl ict ing goals: they can protect the national interests at the

sa m e t im e as promot ing global econ omic growth .

So oil has proved to be a powerful economic tool and then in 1973-1974

it was also proved to be a capable poli t ical weapon. OPEC implemented

sanctions on the industr ial nations as a short- term policy to force them

to change their foreign policy in the Arab-Israeli conflict. In following this


10/45

policy

OPEC is s aid to ha ve gained su ccess in three ways:

1. It allowed for a sh ar p in creas e in oil prices in a

very sh or t t im e.

2. It res u lted in ach ieving a ch an ge in th e foreignpolicies of som e in du str ial ised n ations .

3. It provided a lesson tha t econ omic in terests are

somet imes m ore im por tan t th an polit ical in terests

to some cou ntr ies .

It is widely understood that this historic period provided, for the firstt ime, a clear understanding of how the control of oi l gave a power that

could have an ef fect on the indust r ial countr ies economies, and how

OPECs short-term policies could affect international affairs (Licklider

1988, p 272). However, this does not mean that al l policies are going to

be successful ; they need to be wel l managed wi thin a sustainableba lan ce of power.

Saudi Arabia has played an impor tant role in OPEC that cannot be

du plicated by an y other cou n try. However it h as n ot always beensuccessful and has made the occasional miscalculat ion. This can be

demonstrated in a recent event when President Cl inton of the Uni ted

States announced that 30 mil l ion barrels of oi l would be released f rom

th e US Strat egic Petroleu m Reserve (SPR) on a swa p ba sis. Rath er tha n

selling the oil, as it had in 1990, the Department of Energy (DOE) invitedoffers for the oil based on the volume of replacement oi l to be put back

into the SPR between August and November 2001. This American effortto contr ol sh ort- term oil policy back fired for fou r rea son s;

The re lease ha s been h an dled in a c lu ms y

fashion.

I t did not provide the best value for the DOE and

the taxpayer, and by offering a large hidden

discount it actually offered oil traders thepossibility of locking in large profits.

I t did not , in any way, seem an appropr iate way

to achieve the objective, at least not the publicly

stated objective.

I t confused the i ssue of what the SPR was

actually for , and i t has, at least temporari ly,

blunted the effectiveness of SPR release for the

purpose for which i t was intended (Horsnell , Oct

2000).


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Therefore, we can see how some short- term policies, and in this case a

USA policy, can have the long-term negative affect of increasing the cost

of crude oil when the objective was to reduce the price. The outcome ofthis policy became clear through the analyses from the International

En ergy Agency (IEA) an d th e DOE: Th e US econom y en ded u p pa yin g

$87 PB in stead of th e wholesale ma rket pr ice of $40 .50 PB, mean in g thatthe US ta xpayer was h aving to pay for an ext ra $46 PB.

We can argue that in the 21st century oi l remains the dominant energy

supply and that countr ies wi th vast reserves of i t can use that fact to

yield s t rong inf luence over countr ies dependent on a s teady and

affordable supply of oil. The US blunder policy described above isevidence that even the mighty US SPR is far away from achieving its

aims. However , this case has been said to have encouraged the current

President Bush to adopt new policies of strong-arm diplomacy. This was

dem ons trated b y th e new US En ergy Secretary sta t in g on the 7th March

200 1 th at : the Uni ted Sta tes , as the largest cons u m er of oil in th e wor ld,will choose qu iet diploma cy with OPEC (Th e Midd le Eas t 9/ 3/ 20 01 P.11).

Lon g-t e r m Polic ies

The longterm policies employed by OPEC have provided them with the

abil i ty to control the oil market since the 1970s. These policies have

remained much the same s ince 1986 a t the t ime when US crude o i l

pr ices, as adjus ted for in flat ion averaged a t a roun d $ 18.63 PB.

It is recogn ised n ow th at t h e long-term policies of OPEC can be u sed as a

guide by the upst ream segment of the crude oi l indust ry in s t ructur ing

thei r business. The main lesson of this i s to be able to operate, wi th a

profit, at below $15.00 PB for half of the time. Without this ability, thebusiness could be at r isk of collapsing should world events take a

dramatic turn. During the long history of the oil price war it is

understood to be the pr ice of the oi l that has been responsible for

shaping the long-term policies of OPEC. For example the US attempt to

con trol oil prices in th e 19 70 s, followin g the Arab Em ba rgo, tu rn ed ou t to

be a b ad policy th at cost th em d ear ly.

As d escribed a bove th e US ma de th e mista ke of im posing price contr olson d omest ically produ ced oil in an at tem pt to less en the imp act of th e

197 3-74 OPEC pr ice increas es. Th e resu lt of this was th at US consu mers

of crud e oil end in g up pa yin g 48% m ore for thei r imp or ts th an n ecess ary.


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One of the long-term Saudi Arabian policies with other OPEC member

st at es is ba sed on m u tu ally accep ta ble prices for oil. Th is is becau se

they recognise th at h igh oil pr ices would lead to a redu ct ion in d ema nd .Therefore, from 1982 to 1985 OPEC attempted to set production quotas

at a low enough level to stabilise the price. The trade exchange between

OPEC mem bers an d th e consu m er cou ntr ies led to th e abi lity to iden t ifythe real si tuation facing oil demand. Yamanis forecas t joined a growin gchorus of voices in Washington warning of a mid-1990s petroleum

supply crisis that would force up the price of oi l and increase the import

am oun ts from th e Arab cou n tr ies to ab ove 50% of US im ports. Yam an i

expressed his own belief that the Gulf oi l producers, with almost seven-

tenths of the world's total oi l reserves, are locked into a mutualrelat ionship with the US. They are the lowest cost producers of oi l , but

the US is l ikely to continue to consume one-third of the non-Communist

wor ld 's oi l , thereby making them somewhat economical ly dependent on

th ose Gu lf coun tr ies. However, over t im e an d in excha n ge for providing a

relatively low cost source for oil, the Gulf countries have developed adepen den ce on Am erican imp or ts an d techn ology.

OPEC Aid an d Deve lopm en t

OPECs aid organisat ions were noted as good examples to the developing

countr ies in the ear ly 1970s. OPEC member s tates , act ing in

par tnership, decided in the 1970s to join forces to achieve greatereffectiveness and relevance in the f ield of development assistance

delivery. The idea was to aim for greater impact and to better manage

official aid resources, which were increasing in both volume and

significan ce. So bega n OPECs join t m ove into th e world of mu ltilat era l

developm en t fin an cin g.

Several OPEC and other oil produ cing n at ion s receive ass is ta nce a nd / or

pu rcha se m ilitary equipmen t from th e United Sta tes . As s h own in Table 1 ,

Indonesia, Nigeria, Russia, and Mexico are the current largest foreign aidrecipients am ong th is grou p. Most oth er OPEC mem bers receive n o U.S.

foreign aid assistance but Saudi Arabia, Kuwait , the United ArabEmirates, Norway, and Oman do buy signif icant amounts of arms f rom

the US, as i l lustrated in Table 2. Table 3, provides addit ional data

regarding t rade f lows between the US and the oi l producing nat ions.Pending legislat ion would not impose trade-related sanctions.


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Table (1): U.S. Assistance to OPEC Members, FY1996 - FY2001 ($millions).

FY1996 FY1997 FY1998 FY1999 FY2000

Estimate

FY2001

Request

OPEC Members Algeria

Food aid 0.0 0.0 0.7 0.0 0.0 0.0

Military aid 0.1 0.1 0.1 0.1 0.1 0.1

Total U.S. aid 0.1 0.1 0.8 0.1 0.1 0.1

Indonesia

Development aid 33.5 34.8 51.8 52.1 72.0 80.0

Economic SupportFund

0.0 0.0 0.0 0.0 23.0 50.0

Food aid 0.0 0.0 76.8 126.6 20.0 5.0

Military aid 0.6 0.1 0.5 0.5 0.0 0.4

Total U.S. aid 34.1 34.9 129.1 179.2 115.0 135.4

Iran

Total U.S. aid 0.0 0.0 0.0 0.0 0.0 0.0

IraqTotal U.S. aid 0.0 0.0 0.0 0.0 0.0 0.0

Kuwait

Total U.S. aid 0.0 0.0 0.0 0.0 0.0 0.0

Libya

Total U.S. aid 0.0 0.0 0.0 0.0 0.0 0.0

Nigeria

Development aid 1.8 1.3 9.6 16.8 27.5 55.0

Economic SupportFund

0.0 0.0 0.0 1.0 20.0 25.0

Military aid 0.0 0.0 0.0 0.1 0.6 0.7

Total U.S. aid 1.8 1.3 9.6 17.9 48.1 80.7


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Qatar

Total U.S. aid 0.0 0.0 0.0 0.0 0.0 0.0

Saudi Arabia

Total U.S. aid 0.0 0.0 0.0 0.0 0.0 0.0

United Arab Emirates

Total U.S. aid 0.0 0.0 0.0 0.0 0.0 0.0

Venezuela

Economic Support

Fund0.0 0.0 0.0 0.0 0.5 1.0

Narcotics aid 0.5 0.6 0.6 0.7 0.7 1.2

Military aid 0.4 0.4 0.4 0.0 0.0 0.0

Total U.S. aid 0.9 1.0 1.0 0.7 1.2 2.2

Other Major Oil Producers:

Mexico

Development aid 20.8 3.2 15.3 8.9 14.2 13.9

Economic Support

Fund0.0 1.2 1.5 1.5 2.0 2.7

Narcotics aid 2.2 5.0 5.0 8.0 10.0 10.0

Military aid 1.0 1.0 0.9 0.9 1.0 1.0

Total U.S. aid 24.0 10.4 22.7 19.3 27.2 27.6

Norway

Total U.S. aid 0.0 0.0 0.0 0.0 0.0 0.0

Oman

Military aid 0.1 0.1 0.2 0.2 0.2 0.3

Total U.S. aid 0.1 0.1 0.2 0.2 0.2 0.3

Russia

Development aid 174.7 60.8 132.1 161.2 178.5 161.9

Food aid 0.0 0.0 0.0 760.7 0.0 0.0

Peace Corps 3.4 4.2 3.1 3.5 4.0 0.0


15/45

Military aid 0.8 0.8 3.0 0.2 1.3 1.8

Total U.S. aid 178.9 65.8 138.2 925.6 183.8 163.7

S o u r c e s : USAID, USDA, an d Depa rtm en t of Sta te . Food aid in clud es PL 48 0, t i t les I an d

II (bi lat eral an d World Food Program m e), an d Sect ion 4 16(b) don at ions . Food aid figu resfor FY200 0 a nd FY200 1 a re very ten ta t ive an d s u b ject to cha nge .

Table (2 ): U.S. Fore ign Milit ar y Sales a n d For eign Mili t ar yCon s t ruc t ion Sa les Agreem en t s wi th Major Oil P roduce rs ,

FY1 9 9 6 - FY20 0 0 ($s m ill ion s)

FY1996 FY1997 FY1998 FY1999 FY2000est

OPEC Members:

Algeria 0.0 0.0 0.0 0.3 0.5

Indonesia 27.8 0.8 0.3 1.6 0.0

Iran 0.0 0.0 0.0 0.0 0.0

Iraq 0.0 0.0 0.0 0.0 0.0

Kuwait 235.7 48.1 92.4 478.1 360.0

Libya 0.0 0.0 0.0 0.0 0.0Nigeria 0.0 0.0 0.0 0.2 2.3

Qatar 0.0 0.0 0.0 0.0 0.0

Saudi Arabia 1,289.4 742.4 2,340.5 1,388.8 1,277.0

United Arab Emirates 2.8 5.6 69.8 48.0 167.0

Venezuela 24.5 59.4 6.0 9.6 10.0

Other Major Oil Producers:

Mexico 4.9 27.7 1.3 5.7 20.0

Norway 477.1 64.5 79.9 52.9 62.5

Oman 2.9 11.5 2.0 4.2 167.0

Russia 0.0 0.0 0.0 0.0 4.5

S o u r c e s : D e p a r t m e n t s o f D e fe n s e a n d S t a t e .


16/45

Table (3): U.S. Merc h an dise Trade wit h Major Oil Produ cin gNat ions , 199 6-19 99 ($s m ill ion s).

1996 1997 1998 1999

OPEC Members:

Algeria

U.S. Exports to 631.7 694.9 650.2 456.3

U.S. Importsfrom

2,270.4 2,645.6 1,798.7 1,951.5

Indonesia

U.S. Exports to 3,965.0 4,531.7 2,290.9 1,938.9

U.S. Imports

from

8,742.6 9,754.0 9,973.0 10,272.2

Iran

U.S. Exports to 0.3 1.1 * 48.1

U.S. Importsfrom

* 0.1 * 2.4

Iraq

U.S. Exports to 2.8 81.9 106.5 9.5

U.S. Importsfrom

0.0 317.1 1,360.7 4,516.1

Kuwait

U.S. Exports to 1,979.1 1,394.0 1,479.4 909.0

U.S. Imports

from

1,782.1 1,998.0 1,470.7 1,578.2

Libya

U.S. Exports to 0.0 0.0 0.0 0.0

U.S. Importsfrom

0.0 0.0 0.0 0.0

Nigeria

U.S. Exports to 816.2 814.3 819.6 628.3


17/45

U.S. Importsfrom

6,171.4 6,717.7 4,548.5 4,631.9

Qatar

U.S. Exports to 207.1 359.9 354.1 145.9

U.S. Importsfrom

163.2 167.9 237.5 298.9

Saudi Arabia

U.S. Exports to 7,295.3 8,450.8 10,524.9 7,901.7

U.S. Imports

from

9,442.7 10,353.0 7,168.7 8,903.1

United Arab Emirates

U.S. Exports to 2,526.9 2,605.6 2,369.6 2,713.0

U.S. Imports

from

537.9 964.9 708.5 756.5

Venezuela

U.S. Exports to 4,740.8 6,607.5 6,519.8 5,372.9

U.S. Importsfrom

13,719.0 14,389.4 10,072.8 11,950.0

Other Oil Producing Nations:

Mexico

U.S. Exports to 56,760.8 71,378.3 79,010.1 86,865.8

U.S. Importsfrom

74,111.0 87,167.2 96,196.1 111,089.3

Norway

U.S. Exports to 1,557.2 1,720.0 1,709.2 1,439.7

U.S. Imports

from

4,057.4 3,924.6 3,037.2 4,239.8

Oman

U.S. Exports to 215.3 341.9 302.7 187.9

U.S. Importsfrom

447.4 260.9 230.4 230.5


18/45

Russia

U.S. Exports to 3,340.2 3,288.7 3,584.7 1,844.7

U.S. Importsfrom

3,745.2 4,523.8 6,008.5 6,017.5

* = Less tha n $50 ,00 0 . S o u r c e s : U.S. Censu s Bur eau Fore ign Trade S ta t i s t ics an d U. S .In te rn a t iona l Trad e Cent e r .

Since 1971 OPEC member s tates , act ing individual ly and concerned by

the diff icult economic circumstances of neighbouring countr ies, had

provided assistance to their neighbours. At the mult i lateral level , theobjective has been to cooperate and coordinate to make the total aid

effort m ore effective. OPEC h as su ccess fu lly ma n aged, over th e years , to

estab lish a set of in terna t iona l aid b odies. Th ese a re:

The Arab Authority for Agricultural Investment and Development (AAAID)AAAID is an investment organisat ion consist ing of 15 Arab states

aimed at improving food security in Arab countries. Its objective isto develop agr icul tur al resources in th e mem ber s tates by invest ing

in all forms of agricultural production and related activities.

Part icular areas of involvement include: land reclamation; plant ,

animal and f ish product ion; pastures and forest ry creat ion; the

transportat ion, storage, marketing, processing and export ing of agr icul tural produce; and, al l inputs necessary for agr icul tural

product ion .

Arab Gulf Program for United Nations Development Organizations (AGFund)Seven Arab Gulf countr ies (Bahrain, Iraq, Kuwait , Oman, Qatar ,

Saudi Arabia and the Uni ted Arab Emirates) contr ibute to the

resources of the AGFund, an organisat ion that provides grantassis tance to UN agencies and Arab NGOs in suppor t of

humanitarian projects. The type of projects supported by the

AGFund is in the f ields of health, nutr i t ion, water and sanitat ion,

educat ion, the disabled and the environment . The main

ben eficiar ies of th is fun d a re m others an d ch ildren .

Arab Monetary Fund (AMF)The AMF was established by Arab countries with the objectives of

laying the monetary foundations of Arab economic integration,

accelerat ing the process of economic development in al l Arabnat ions, and promot ing t rade amongst them. The main act ivi ty of

the AMF is the provision of loans in support of economic

adjus tm ent programs .


19/45

Arab Fund for Economic and Social Development (Arab Fund)The Arab Fund f inances projects for economic and social

developmen t in Arab coun tr ies . With a mem bersh ip comp rising al l

22 members of the League of Arab States, i t extends concessional

loans to governments as well as to public and privateorganisat ions. Preference is given to projects that are of vi tal

importance to the Arab world and to joint ventures involving Arab

cooperation

Arab Trade Financing Program (ATFP)The ATFP is a special ised f inancial inst i tut ion launched by the

Arab Monetary Fund in 1989. I ts objective is to develop andpromote t r ade be tween Arab count r i es and enhance the

competitive ability of Arab exporters. The ATFP functions as an

autonomous body and opera tes through des ignated na t ional

agencies.

Arab Bank for Economic Development in Africa (BADEA)BADEA seeks to promote economic, f inancial , and technicalcooperation between African and Arab countr ies. Funded by Arab

governments, i t f inances economic development in African

countries, st imulates the contr ibution of Arab capital to African

developmen t , an d p rovides techn ical ass is ta nce.

Islamic Development Bank (IsDB)The objective of IsDB is to foster economic development and social

progress in member countr ies and in Musl im communi t ies inaccordan ce with the pr inciples of Is lamic Sh ar iah. It s m embers h ip

consists of 52 cou ntr ies , which are a lso m emb ers of th e

Organization of the Islamic Conference. IsDB has the authori ty to

extend f inancing and raise funds in many ways and to establ ishsp ecial fu n ds for sp ecific pu rposes .


20/45

How can we d e fin e t h e

r e la t io n s h ip b e t we e n OP EC a n d

m e m be r s t a t e s d e ve lo pm e n t ?Th e capital provided from oil revenu es repres ent th e prim ar y determ in an t

of each of th e OPECs cou n tries econom ic stru ctu re an d developm en t

potential (Peterson 1983, p147). Therefore, the former Saudi Minister of

Petroleu m , Ah m ed Yam an i, diagnosed th e problem from a different an gle

which points to i ssues such as, lack of indust ry, agr icul ture, lack of water , and ma np ower . Here we can u nd er s tand what development m eans

for Sa u di Ara bia.

Beforehand, let us have a look at the economic growth of OPEC member

sta tes. (Tab le 4)

Table (4 ): Wor ld Econ om ic Growth Ra t es 1 99 6 -19 97 .

It is a imp or tan t to un dersta nd tha t the m ajor ity of gul f coun tr ies depen don their oi l revenues for survival . Early development in the Middle East

and other oi l producing countr ies concentrated on suppor t ing that

product through product ion methods and pr ice mechani sms. But

recent ly several OPEC Members have int roduced measures to improvethei r general business environment . For instance, in the f i r s t quar ter of

2001, Algeria issued a series of tenders for contracts, includingin vestm en t in fixed-line a nd mobi le ph ones, infras t ru ctu re projects an d a

consu ltan cy on th e pr ivat isat ion of s ta te-own ed m onopolies in th e energy

an d fin an cial sectors. Th e Islam ic Repu blic of Ira n h as step ped u p effortsto improve scient i f ic research and R&D. Spending in this area i s now

0.44% of GDP, compared wi th 0.29% three years ago, and is planned to

reach 1.5% with in th e pres ent five -year plan (20 00 04). In Sau di Arab ia,

a ser ies of improvements in the s tate-owned Internet regulator , and theKing Abdul-Aziz City for Science and Technology (KACST), are planned.

In Venezuela, f lood-related reconstruction and rural development

programmes are providing a major boost to inf rast ructure investment .

Incentives offered to foreign investors in the non-oil sector, and clear

policies to privatise telecommunications, power projects, and regionalelectr ic ut i l i t ies and transport , wil l contr ibute greatly to enhancing the

business environment. In Indonesia, the cumulative effects of

l iberal isat ion and trade deregulat ion, associated with f inancial

ad ju stm ents , ha ve recently in creas ed th e private s ectors a ccess to credit

and spurred expor t - led growth; manufactur ing now const i tutes a larger


21/45

propor t ion of GDP than either agr icu ltu re or pet roleu m. Ku wait plan s to

push ahead wi th a $7bn plan to al low wor ld oi l majors to operate the

coun trys n orth ern oil fields . Th e declara t ion sign ed for th is planunder l ined the impor tance of managing pet roleum pr ices in a way that

produced stable prices that are competi t ive with the prices of al ternative

sources of energy. It called for the development of the skills of OPEC tomake i t capable of exploit ing the latest developments including thephenomenon of globalisat ion and technological development. I t also

u n der lin ed th e imp or tan ce of cooperat ion am ong the n at ion al pet roleu m

companies in OPEC member s tates as wel l as between these companies

an d th e in terna t ional pe t roleum ind u s t ry.

This declaration called for a dialogue towards finding effective channels

of cooperat ion between th e oil produ cers a n d th e oil consu mers in order

to st ab ilise th e oil m ar ket . It is also called for cont r ibu tion s to

internat ional economic growth and environment protect ion f rom OPEC

m em bers . It u n derlin ed th e im porta n ce of OPECs con tr ibu tion to worldefforts in ensuring the safety of the environment through reducing the

use of pet roleum and gas in ci rcumstances known to have an adverse

imp act on th e in terna t iona l environm ent . However , the declara t ion

reiterated th at OPEC wou ld go ah ead in its efforts to a ccelerate econ omicdevelopment in the developing countr ies through i t s aid programs; The

Internat ional OPEC Development Fund and the Internat ional Fund for

Agricu ltu ral Developm en t. It u rged the in du str ial cou n tr ies to con tr ibu te

posit ively to these efforts and to work towards the reduction of debts of

th e developin g coun tr ies.

The declara t ion noted th a t th e t axes imp osed on p e t roleum product s a re ,to a great extent , responsible for the high price that is paid by the

consumer in the consuming countr ies . I t cal led on the consumercoun tr ies to revise th eir policy in th is res pect so a s to eas e the b u rden on

consumers. The declarat ion underscored the impor tance of enhancing

the ef for ts of OPEC member s tates and thei r programs that aim at the

diversif icat ion of their economies. The industr ial countr ies and the

relevant international organisat ions were requested to cooperate in therealisa t ion of th is goal . Th e declara t ion sa id.

The declara t ion recommen ds en ha ncing t ies am ong the Research Cen tres

in the OPEC mem ber s t a tes s o as to boos t r esearch , an d i t recomm endedalso considering the possibil i ty of establishing a research inst i tute or a

universi ty. The Declarat ion called on Finance Ministers in the OPEC

mem ber s tates to explore the m ean s for cemen t ing fin an cial cooperat ion

am ong the member s t a tes .


22/45

The declarat ion also called for boosting cultural cooperation among

OPEC member states. I t cal led for the organisat ion of a summit

conference for the h eads of s ta tes a nd governm ents from OPEC mem berstates to be held at regular t imes af ter consul tat ion wi th the member

states so as to enhance the capabil i ty of the oil cartel to continue along

the path of i t s achievements , which were based on oi l pr ice andproduction. We will focus our at tention on Saudi Arabia and i tsdevelopmen t , present ing it as a ca se s tu dy.

One of the pa rad oxes in the developmen t of th e Gu lf Corporat ion Coun cil

(GCC) and Saudi Arabia is the strong economic dependency on foreign

labour. I t was fel t that this problem could be solved through long termplans and internal pol icies wi th the main idea of reaching an average

econ om ic level of developm en t (UN developm en t rep ort, 1 99 9).

Th e lack of a local lab ou r force is th e resu lt of an im pe rfect edu cationa l

system, which is the quintessence for responding to the needs of developmen ts p lan s. Th e developmen t in Sa u di Arab ia i s ba sed on th e oil

indust ry, so that the real need is to work on human development to

replace the huge amount of foreign skil led labour. The following points

will clarify this statement:

1. GCC cou ntr ies are facing profoun d cha nges an d

transformat ions in di f ferent areas, such as

polit ics , economics, s ocial s ta tu s an d cu ltu re.

2. GCC produ ctivity system s are observin g amassive rest ructur ing; these operat ions are

ba sed on four elemen ts: Generating a specif ic capital ist

productivi ty system, transferr ing theexisting system of employing high

techn ology equ ipm ents an d reinvest ing

t he fu nds .

The cont in u at ion of 198 0s econ omic

reformation which is based on thereacquaintance and rethinking of the

role of oil as the core of equilibrium in

both the economic and social s ides,

an d a s a gen erator of developmen t . The financial restoration will not be

focu sed on th e in du str ial sector only; it

will cover the whole governmental

system. However, the new idea of

developm en t will give th e p rivat e s ectorthe chance to par t icipate in the


23/45

nat ional economy; besides, the s tate

will n o longer be th e fu n da m en tal actor

in the national economy focusing i tsat tention to the economic restorat ion

in GCC becau se of:

A: Th e su bord in at ion of GCC in the oilsector , which represents the 95% of totalexports.

B: Th e h igh dep en den ce on foreign

labour and foreign consumer goods,

which r epresent 45% of the total in come.

C: Th e profou n d liability on th e oilmarket, being deeply affected by price

changes .

D: Th e in cons isten ce of th e edu cation al

system and the re-adaptat ion of the

national labour force for the goal of part icipating in the international market

and to cope wi th the requirements of

new technologies; therefore the

underl ined restorat ion wil l have i tscen tre in t h e followin g:

The restructure of economic

development plans by adopt ing

efficien t p olicies an d procedu res.

Joining as a whole the GCCeconom ic mark et .

Revising the economic andpolitical style of the GCC, which

will lead to a better usage of oilpolicies to achieve an economic

development?

The mentioned points wil l encourage the GCC governments to establish

new s tages a nd societ ies n ot bas ed u pon or affected b y the oil pr ices.

The stated new directions of development are experiencing the

transformation of the current unprofi table economy (e.g. Saudi Arabia)

an d t ryin g to adjus t th e econ omic system towards a capi talis t ic direct ion,by the reinvestm ent a n d continu an ce of capital . Th erefore, at ten tion will

be focused on a new stage of developmental strategies in Saudi Arabia.

The main two problemat ic i ssues wi th development are the educat ional

system an d i t s posi t ion on th e developmen t s t ra tegies, and th e lack of a

nat ional labour force (Khadejah, The Human Resources Development ,1998)


24/45

S au d i Arab ia an d t h e

De v e lo p m e n t St r a t e gie s

The rights of people an d n ations to permane nt

sovereignty over their natural w ealth and

resources must be exercised in the interest of

their national developme nt and of the w ell-

being of the people of the state concerned.

The exp loration, de velopme nt an d d ispos ition

of such resources, as w ell as the import of the

foreign capital required for these purposes,

sh ould be in conformity w ith the rules an d

conditions w hich the peoples and nations freely

cons ider to be ne cess ary or des irable w ith

regard to the authorization, restriction or

prohibition of s uch activities . (United Nations

General Assembly, Resolution 1803 XVII of 14

December 1962-

The un ited s tates proposes to organize the

developed countries first, as a prerequisite to

other contacts and negotiations involving either

the developing countries or the oil-producing

countries (Henry Kissinger).

If we look at these two statements their intentions are clearly

contradictory. King Faisa l r ea lised th is a nd adopted the m ost su ccessfu l

str ategy in order to a ch ieve fou r goals:

First, the military goal during that period the political position wasn ot clear for th e Ara b side. Th is is especial ly tru e for the Egyptian s.

Presiden t Al Sadat believed th at the United Sta tes h ad the solu t ion

but were actually unable to do anything because of i ts support for

th e Isr aeli govern m en t. Th is was es pecially tru e followin g th e

dra wback of th e Soviet Union troops in J u ly 197 2. Du rin g th isperiod Al Sadat tr ied to communicate with the newly elected

President Nixon, but unfortunately the United States refused to

understand the Egypt ian proposal . Al Sadat went on to reason that

if he used military power first then he could get into a good position

to n egotiate with th e Isra elis. However, he ackn owledged tha t thesu ccess of an y military act ion d epend ed on the s u ppor t of the Arab

oil coun tr ies . Military act ion was n ot end orsed bu t in Au gust 1973

King Faisal of Saudi Arabia confirmed to Al Sadat that the time was

r ight to use oi l as a weapon, which up unt i l then King Faisal hadrefused to do. Yamani, the Saudi Oil Minister , then proposed an oil

t reaty wi th the Uni ted States which had i t been accepted would

h ave in creas ed Sau di oil produ ction to 20m BPD. Th e treaty wou ld


25/45

have given the United States priori ty over and a long-term

guarantee of Saudi oi l in exchange for al lowing Saudi Arabia to

invest in United State markets. All this was within the target toremove heavy tariffs and to increase the Saudi oi l production.

However, th e Am erican s r ejected th e idea .

Secondly , in 1973 the Saudi King was sure that i t was the r ightt ime,

to pursue two targets at the same t ime, namely economic growth

a n d

th e expa n sion of th e milita ry sector .

Thirdly , he d ecided to a void b ein g pu rsu ed by other Arab leaders .

And lastly, King Faisal gave the Uni ted States and the Western

countr ies a clear s ignal that OPEC member s tates would work

together to maintain the existence of the organisat ion. ThereforeKissingers US policies to split the OPEC countries failed to achieve

any goal and then Nixon sent warnings and messages in an

at tem pt to chan ge th e rolling system s, su ch a s th at of Ira n an d

Libya and Egypt. In conclusion of this argument i t has beensuggested that Kissinger and his advisors were not yet aware of

h ow depen den t th e fu tu re was goin g to be on oil. Th ey could also

be s aid to h ave believed in th e m ain idea of th e t im e th at n ot if th e

oil will find the market but the truth is the market will find the oil

(Ian Seymou r, 19 83 ).

Saudi Arabia i s a young state , less than a century old, and so i s i t spopulat ion. The t rue reason for the internat ional s igni f icance of Saudi

Arab ia l ies in th e fact th at i t poss ess es m ore tha n a qu ar ter of th e worldsoil reserves. This has created a lot of interest in the development of the

in tern at iona l an d regiona l role of th e cou n try.

Sa u di Arab ias power is ba sed solely on i ts p oss ess ion of oil reserves. The

Saudis are haunted by the prospect that one day; there wi l l be no moreoil below the sands. When that day comes, the oil companies will leave,

th e m igran t workers will probably follow an d S au di com pa n ies s taffed b y

Saudi workers wil l have to take their place. This is a prospect that has

inst i l led an acute sense of pragmat ism in the Saudis and thei rdevelopmental policies.

Bearin g this in m in d a s th e prima ry drivin g force for cha n ge, ma n y oth er

factors have contr ibuted to the changes in the overall posit ion of Saudi

Arab ia with respect to its power an d a bility to in flu ence events arou n d i t .The ch an ges th ems elves can be categor ised u nd er three ma in p rocess es:


26/45

1 - Th e developm en t of Sa u dis p opu lation in to a workforce

of adequate quali ty to sat isfy the needs of the ambit ious

development plans that the Kingdom began to set i t sel f af ter the decision was taken to divert most of the r ising

oil reven u es int o th e developm en t of a n on-oil econom y.

2 -The industr ial development of the country and thea t t empts , tha t began in the 1970s , to c rea te a modernsector f rom scratch and t ransform the country f rom a

less-developed state where most of the production was

employed in tradit ional industr ies, into one with a

growin g m odern in du str ial sector . Th ere were also

attempts to diversify the economic base away from totaldependence on fossi l fuels in a country where oi l i s the

only source of external political influence.

3 - The development of the political relations of Saudi Arabia

with oth er n a tion s, es pecial ly th ose of the Gu lf an d the

Midd le Ea st .

Each of these processes contr ibuted to the t ransformat ion of Saudi

Ara bia int o a well-developed an d effective power on t h e world s ta ge.

Since 1973 Saudi Arabia has successfully created a development

revolut ion in order to diminish i t s dependence on oi l as the pr imary

source of national income. I t has done this by encouraging investment in

alternative industr ies that wil l create employment, increase GDP figures,

maximise revenue der ived f rom oi l weal th and diminish the Saudidependence on oil . Direct government investment was made in strategic

indust r ies such as power generat ion, water desal inat ion, andpetrochemicals. For development processes to work, they need to have

strong strategies in dealing with all eventualities from war to effectivediplomacy.

Of the m any strategic interes ts tha t the USA

and its allies have in the Middle East, surely

one of the most crucial is securing energy

su pplies from that region (Kanovs ky ).

Kanovsky art iculated this point of view by adding: since 1970s much

at ten t ion h as focus ed on OPEC: ind eed, mu ch of the influ ence th at Arab ,

an d pra ctically all Gu lf st at es (GCC) h ave wielded in world affairs derivesf rom thei r asser ted cohesiveness and presumed abi l i ty to br ing the

industr ial ized world to i ts knees with a turn of the spigot . This widely-

held belief rests upon two assumptions: that oi l is and wil l continue to

present a sel lers market in the foreseeable future and that the countr ies

comprising OPEC will pursue common policies toward commonobjectives.


27/45

Kan ovsky later argued th at b oth of thes e hypotheses were false an d s aid

that for a variety of reasons, the price of oil was likely to drop in the

n eares t fu tu re (Kan ovsk y 199 2). Th e contr ad ict ions between Kan ovsk ysarguments and the reali ty of facts can be analysed from an ideological

perspect ive, which can be seen as just an outcome of hegemonic

im perialist ic th in king. His argu m ent rejects OPEC, m erely becau se itdoes not represent the decolonisat ion of Arab countr ies, whereasimperialistic ideology profoundly views the whole scenario as an inferior

complex compared to the post imperial ist powers of England, France and

German y e tc .

Noneth eless OPEC, as an intern at ion al organ isa t ion h as proved to h ave avery strong economic character . I t has shown this by targeting the

development of i ts member states as a goal to achieving the highest GDP

growth possible. In 1996-1997, when the total world economic growth

rate was 3.8%, (s l ight ly in creased from 199 6, wh en it rea ched ju st 3 .7%),

nonOPEC developing countr ies reached 4.3% growth in 1997, when inprevious years the highest rate reached 5.4%; whereas OPEC reached a

4.9% growth rate of (GDP) in 1997 against a 4.6% rise in 1996. See

(Tab le 5)

Table (5): OPEC Mem ber Coun t r ies Re al GDP Growt h Rat es1 9 9 6 - 1 9 9 7 .

(OPEC Annual repor t , 1997) The above rates show that the major

economic expansion occurred in the developing countr ies , where the

avera ge econom ic growth was of 4.6 %. Th is was also reflected by a h ighdemand for oil, particularly from Asia. We were then able to disprove

Kavons kys argu m en t.

On e of th e cru cial developm en ts was th e growin g econ omic, polit ical , an dmili tary and diplomatic relat ions between China and the Middle East .

These led to dramatic improvements in the development of OPECs

member s t a tes . For example C h i n a commit ted to purchasing at least

3.5million tons of oil from Saudi Arabia over a three year period (OPEC

Bu llet in , 19 94 Tab le 6).

Table (6 ): Wor ld Oil Dem an d.


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The Saudi Arabian economy i s unique in tha t i t adheres to what has

come to be known as the Is lamic Growth Model . Saudi Arabia i s anexample of a country where religion governs all aspects of everyday life

and the running of the s tate , i t s inst i tut ions, and i t s people. I t i s

therefore important to state that the foremost consideration given by theKingdom, in i ts at tempts to industr ial ise and modernise i tself , has beento whether such a process of development would be in conformity with

its rel igiou s ideals. In a tra dit iona l an d deep ly rel igiou s s ta te su ch a s

Saudi Arabia, any indust r ial development planning or moderni ty

plann in g tha t did n ot give credence to religious concerns or tha t could be

perceived a s a th reat to th e Kin gdoms t rad it ions , wou ld h ave been b othpolit ical ly dislocating a n d th ereby doom ed to fai lu re.

Th e comm encem en t of Sa u di Arab ias ra pid modern isa t ion program m e,

which h as been ru n n ing since the ear ly 197 0s, i s at t r ibu ted to the effor ts

of Kin g Faisa l. Alth ou gh he was a deeply rel igiou s ma n , h e h ad th eforesight to real ise that i f the country did not modernise and

industrialise itself in a rapidly changing and competitive world, it would

be in dan ger of becoming a back ward s tate th at was intern al ly vu lnera ble

an d h ad lit t le extern al polit ical an d econom ic in flu en ce.

The historical base for modernisat ion was founded in the ten-point

reform program me as an nou nced in November 1962. This program me

end orsed th e decision to divert m u ch of th e sta tes oil revenu es into th e

economic and industr ial development of the Kingdom. There wereess en t ial ly two sch ools of thou gh t , within th e coun try. On the on e h an d,

there were the group tha t were su spicious of modern isa t ion, seein g it asa threat to the s tabi l i ty of society. On the other hand, the newly and

more widely educated Saudi groups who were pro-modernisat ion,managed to gain the support of the ruler by emerging with a

compromise. This compromise appeased those suspicious of change by

ensur ing that the development of the country had to be in conformity

with th e n at ions u n iqu ely deeply en tren ch ed religious beliefs. This ha s

been an extremely important aspect of Saudi industr ial development forthe successive development plans have not generated any of the social

an d p olit ical react ion th at could eas ily ha ve ar isen . For tha t reas on i t is

very important to put the process of development in Saudi Arabia within

its Islamic context.

S au d i Arab ia an d t h e Na t io n a l

Labou r fo rc e

The development transformation covers a wider scope than factories and


29/45

plants , for in du st r ialisa t ion rem ains an inp u t of th e developmen t process

rather than a goal in i tself . The industr ial isat ion process involves

increasing possession of capi tal equipment and working towardsin creas in g th e produ ctivity of th e workers. Sa u di Arab ias economic an d

developmental strategies are designed specif ical ly for the part icular

country in quest ion and should enable the indust r ial sector to beentrepreneur ial and to innovate. I t a ims not to just increase output ornational income, but also to introduce modern technology and to work

toward s cha n gin g th e nat iona ls at t i tu des towards d evelopm ent.

However, Sau di Ara bias d evelopm ent plan s h ave been a n d will continu e

to b e, effected by:

(1) The availability of capital.

(2) Th e a vaila bility of ch ea p en ergy.

(3) Diversificat ion as a m ean s of offset t ing a wasting a ss et .

(4) Industr ial ramifications of the part icipation agreements.

(5)

The Saudis desi re to achieve the maximum economic andsocial benefi ts for Saudi nationals from industr ial

developm ent , i.e. , a willin gnes s t o su cceed.

As sta ted ea r lier , Sau di Arab ia is a you n g state . An d a s p oin ted ou t inthe fir s t developmen t plan of the 197 0-75:

About 46% of the population are below 15

years of age an d th erefore not in clu ded in th e

group from which the (current) labou r force isrecrui ted

Sa u di Ara bias efforts to crea te its own edu cat ed a n d flexible lab ou r force

were hampered by the oi l boom, which at t racted a considerable numberof foreign workers into th e coun try. Th is influ x of qu ality workers cau sed

the proport ion of Saudis in the working population to decline from 72%

in 197 5 to 57 % in 198 0, as sh own in (Tab le 7).

Table (7): Growt h of th e Civi lian Labou r F orce ,

19 75 -19 80 (Saud i Arab ia )


30/45

Th e plan to replace the n on-Sau di labou r force by a n at ion al lab our force

had to be pushed f rom two di rect ions, those of encouragement and

enforcement . This was because i t had been recognised that the goalwould not be achieved if it were left to develop under natural market

forces. Wh at was needed was the cooperation of both th e sta te an d the

private sector to work togeth er towards th e sam e goal . Toward s th is endth e followin g procedu res were ad opted:

Aid a nd su bsidised loan s were no longer approved u nless th e

recipr icant had reached seat rain levels of Saudi-sat ion and

h ad ad opted replacem ent p olicies .

The rules of contracting with non-Saudi labour forces wererespected .

Adoption of hierarchy policies to stop importing foreign

lab our becau se of th eir experien ce bu t to h ome -grow th at

requ ired exper ience.

To encourage women to work especial ly in the f ields of edu cat ion , h ea lth an d a dm ini s t r a t ion .

To replace the foreign labour force with a national labour

force in m an y of th e emp loym ent sectors, for examp le, in th e

pu blic sector .

In a strong economy such as that of Saudi Arabia the long-term effect of

the lack of a national labour force can affect the economic growth.

Because the oi l indust ry i s the major indust ry in Saudi Arabia the non-

national labour force reflects an error in the long-term developmentalplans of th e cou n try.

A lar ger , stronger, cap ab le an d m ore experienced S au di workforce would

be m ore prominent an d m ore deeply felt th an if th e kn owledge and kn ow-how rema ins concentra ted in th e h an ds of a tempora ry foreign workforce.

Dur ing the 1980s and through much of the 1990s , Saudi Arabia

under took a rapid process of modernisat ion based solely on the

purchasing power that oi l revenues could provide. But, i f that process

were to be broken down into i t s const i tuent components , then i t wouldbe found to be more a process of advancement than of actual

development. That was only to be expected, perhaps as the involvement

of Saudi nat ionals in the professional and technical groups may have

natural ly been impeded by the delay factor due to the t ime i t takes forpeople to filter through the various levels of education provided by the

sch ools , u n iversit ies a nd colleges th at proliferated d u r in g the 1 970 s an d

1980s .

By making a conscious effort to l imit the number of foreign workers inthe country and slowly but steadily educating and training i ts own


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n at ion als to replace th em, Sa u di Arab ia is p roviding the wa y to a fu tu re

where it s p eople will be s t ronger an d m ore secure in th e kn owledge that

th ey are increas in gly contr ibu tin g to their own econ omy. Th is is seen a sthe means of s t rengthening the foundat ions for i t s own development .

Th is n ew dr ive becam e not iceable with th e end a recen t ph as e of na t iona l

developmen t , wh en th e ma in ca u se for imp or t in g an d m aintaining such alarge foreign workforce, namely the creation of an infrastructure, wasmore or less el iminated. For that reason, the predict ion is that the

number of non-Saudis in the labour force is expected to decline to less

tha n 30 % by the year 200 5.

Th e m ain r eas on for Sau di Ara bias n ew Sau di-sa t ion drive h as beenexplained, but here fol lows addi t ional considerat ions that the Saudi

decision m ak ers ha d to consider :

Firs t l y , the global recession of the early 1980s led to a

slump in oi l pr ices and this cur tai led some of SaudiAra bias m ore am bit iou s p rojects a n d forced i t to try

an d obta in the m aximu m re turn on it s inves tment . One

of th e clear est ways of doing so was for it to invest m ore

in i t s own people rather than just spend i t s income onprojects run by a transient workforce, who on the

whole, took th eir earn in gs with th em b ack to thei r own

countr ies instead of ploughing i t back into the Saudi

economy.

S e c o n d l y , s ince most Saudi nat ionals prefer

ma na ger ial jobs, th en employin g Sau di Man agers couldcost a lot less th an emp loyin g foreign n at iona ls.

T h i r d l y , Sau di Arab ias increa sing in flu en ce an d

prestige following the 1973 oil embargo compelled some

Saudi decision-makers to believe that , al though foreign

lab ou r will always play a role in S au di life, it cou ld n ot

be a llowed to be ess en tial to developm en t. Th ere was a nin creas in g need for Sau di Arab ias expa n ding

international role to be f irmly backed by an active,

experien ced, a n d d iversified na tive work force.

I t i s due to these and other al ready ment ioned reasons that

the Kingdom felt that decisive action was needed to train and

employ more Saudi nationals and to replace the majori ty of the foreign workforce.. I t has not been an easy or fast aim to

achieve but their efforts to improve the quali ty of i ts


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workforce, further strengthened by the policies of Saudi-

sa iton a re begin n in g to pay dividen ds .

Sau di Arabia h as tak en the in it iat ive in providing t rain ed Sa u di na t iona ls

for its modern sector of the economy by providing vocational colleges to

cat er for th e n on-aca dem ically in clin ed Sa u di ma les. The colleges s econdin tent ion was to t rain th ose Sau dis that ha d left agr icul ture, whichbecam e one of th e m ain s ources of th e ind u st r ial workforce.

Divers i fica t ion S t ra t egy

Saudi Arabia had to work hard within the OPEC policies to achieve i ts

own goals an d to ens u re th e sta bility of oil prices at a certa in leve l . It

needed a long-term guarantee of income with which to maintain thecontinuity of i ts development plans. Although she was working towards

adopting new policies to change the old task of constructing a modelbudget based purely on the price of oil. The figures in Table 8 show a

high dependency on oil therefore Saudi Arabia, as a member of OPEC,understood that the role of her development was to reduce her

depen den cy on oil by ad opting a cap ital ist ic econ omic system .

Table (8): S ta t is t ica l In form at ion OPEC an d Non-OPECDeveloping Countr ies .

Saudi Arabia has pursued an indust r ial pol icy at home that i s aimed at

diversi fying the economic base of the nat ion and to tap into i t s natural

resou rces of oil an d gas. Comp ared with oth er Arab oil produ cers it ha s

made comparat ively l i t t le investment abroad. The indust r ial area that

has received the most at tent ion in Saudi Arabia i s wi thout doubt thepet rochemical in du st ry. Moreover , no other Arab coun try ha s p lan n ed i t s

ind u st r ial developmen t in s u ch a deta iled fas h ion. It s pet rochem ical

plan ts h ave su ccessfully been developed to b e export-oriented , protected,

su bsidised, ext remely capi tal in tens ive an d u n bu rdened by labou r costs .

I t can be argued tha t Saudi Arabia has been able to pur sue such an

industr ial policy more readily than i ts Arab neighbours because of the

coun trys u n iqu e at tr ibu tes. Th ese inclu de i ts ab ility to earn m ore sim ply

becau se i t was a llowed to sel l m ore. It s a nn u al expor t earn ings potent ialreached a peak of 120mill ion barrels which al lowed i t to build up huge

reserves of money in the 1970s and 1980s. Secondly, i t invested in

providing the ski l led management to car ry out i t s intended pol icies of

Saudi-at ion. She has also proved to be a low absorber of funds and istherefore in a strong position to diversify its funds into development

plan s u n like high a bsorbers su ch a s Iraq or Iran . She also has close and


33/45

cooperative contact with a number of western companies, which helped

her through the technology t ransfer processes, and i t s s t rategic

relat ion sh ip with t h e USA also as sisted in th is regard .

Al though the 1970s were marked by capi tal accumulat ion on the one

hand, even Saudi Arabia was not immune to the inflat ionary effects of the 1980s global recession. As a result of this, in the 1980s developmentwas carr ied out with more caution, and the reserves were drawn down to

st em th e effects of th e econom ic recess ion.

During the period of the two first five-years plans (1970-1980), the

emphasis was placed on developing the infrastructure, , on social welfareprojects an d in the n on -oil in du st r ies . Th e sh are of n on-oil

manufactur ing in the GDP remained low dur ing the 1980s and 1990s,

and was fur ther impeded by the impact of the Gulf War . This area was

heavily concentrated on the production of building materials and other

intermediate goods but the constraint here were the lack of skil led Saudipersonnel , and the rel iance on foreign labour. But there was a high

growth rate in the non-product ive sectors , such as t rade and services

dur ing the 1970s which some would argue ref lected r i s ing spending on

impor ts .

Dur ing the 198 0s the Sa u di governm ents indu st r ialisa t ion programm e

ascribed the responsibil i ty for major projects to state enterprises in

partnership with foreign companies. The Saudi private sector was

encouraged to lead the way in creating small industr ies. At the samet ime, the s tate enterpr ises concentrated mainly on the development of

capital-in tens ive h ydrocarb on-based ind u st r ies a imed at reducing heavydepen den ce on cru de oil exports. Two in du str ial cit ies were bu ilt , na m ely

J u b a i l a n d Yanbu , completely from scratch. These housed new oilrefiner ies a nd gas -ba sed p et roch emical plan ts .

Th e importa n ce th at diversificat ion played in th e Kin gdoms in du str ial

and economic base, can be appreciated by consider ing two of the basic

broa d objectives con tain ed in th e las t five -yea r developm en t plan of1990 to 1995:

To reduce the development of the product ion and expor t of

cru de oil as the m ain s ource of na t iona l incom e,

To cont inue wi th the real s t ructural changes in theKin gdoms econom y so a s to esta blish a diversified econ omic

bas e , with d u e emph as i s on ind u s t ry and a gr icul ture .

The industr ial isat ion of Saudi Arabia is the responsibil i ty of both the

pu blic an d the private sectors. Bu t it is in th e private s ector where theIslam ic lin es h ave m ad e their ma rk, becau se it is in th ese in du st r ies tha t


34/45

th e most pos it ive im pa ct is m ad e. Th e govern m en ts policy is to on ly

intervene when i t i s absolutely necessary, such as funding the bui lding

of new heavy industr ies which require a level of investment that onlypu bl ic spen ding can provide.

Sa u di Ara bias d rive for in du str ial isa t ion h as been m otivated by thefundamental objective of building and maintaining a viable industr ialbase. In the long- term, assuming success, this indust r ial base i s hoped

to redu ce the Kin gdoms econ omic depen den ce on oil. Cur ren tly, th e

levels of su ch redu ction are difficu lt to a ss ess .

Yet , despite the a cute a wareness of the Sa u di plan ners an d decision -makers to ensure that the development process was compat ible wi th the

fabric of the society, there developed areas of friction. As has already

been mentioned, Saudi Arabia was and st i l l is a very tradit ional society,

with deeply entrenched beliefs. I t was therefore not surprising that the

prospect of indust r ial i sat ion and modernisat ion was met wi th somesuspicion.

The suspicions raised included a worry that indust r ial i sat ion was

u n likely to ru n sm ooth ly when spea rh eaded b y foreign workers who ha veno commitment or obligation to the welfare of the country. Another

suspicion was that industr ial isat ion would not be helpful i f industry

formed a symbolically modern sector of the economy without developing

ever-expan ding lin kages with the n at ive econ omy an d cu ltu re.

The ind u st r ialisa t ion dr ive in Sau di Arab ia h as been fu elled by th e wish

to diversify away from a dependence on oil . Up unti l the early 1980s, oi lrevenu es h ad cons isten t ly ha d a s ha re of GNP of no less th an 90%. Sau di

seemed to have realised that whatever influence oil gave i t ; i t also gaveinfluence to others over itself. An economy so vulnerable to the

fluctuations in oi l prices could easi ly be weakened or placed in danger.

So the government acted wisely and diversif ied i ts income into other

in du str ies. Th is inclu ded investing hea vily in a gricu ltu re, with th e aim of

achieving self-sufficiency in food production and slowing the migration ofit s p opu lat ion from th e coun try in to the b ig towns.

To su m ma rise, th e im portan ce of th e creation of a viab le n on -oil

in du st r ial bas e, to th e polit ical and econom ic fu tu re, and hen ce regionalsta n ding of Sa u di Ara bia, is ess en tial. Th e diversificat ion of the econ omic

base of the Kingdom away from oil and its derivatives is the most

essen t ial as pect of tha t indu st r ial base. It would be u n realis t ic to expect

diversification to be a short-term goal for it is in fact a very long one,

especially in view of the problems that have been discussed. Howeverthere are posi t ive s igns that this indust r ial base i s in s ight , and the

success of the pet rochemical indust r ies at test to that , but ser ious and


35/45

yielding decisions must soon be taken about how to take diversif icat ion

even fu r ther . It can t be denied th at both agr icu ltu re an d th e expor t of

wheat have had l imi ted success, but this can be at t r ibuted to heavysu bsidisa t ion a n d th e cou n trys lack of ad equa te water does not bode

well for its fu tu re expa n sion.

In the end i t seems that i t wil l be the heavy industr ies that wil l form theba ckbon e of th e indu str ial diversificat ion ba se. This b ein g condit iona l on

whether the nat ional workforce can catch up wi th the pace of indust r ial

development, If one is moving in the direction of modernisat ion and the

other is s tu ck with t radi t ional ideas an d m ethods then the two will ha ve

difficulty marrying up and working together effectively. This is the mostim portan t difficu lty tha t h as faced th e developmen t of Sau dis h u m an

resource. The reason being tha t lit t le at tent ion ha s been pa id to the

coordination of the two, processes with the result , so far , being the

u n balan ced developmen t of the Kin gdom .

Th e idea of Sa u di-sa t ion is to bridge some of th e gap s b etween th e needs

of the m odern s ector , an d th e exist ing hu ma n resou rce ski lls . Bu t it will

be an u ph ill s t ruggle du e to a t t itu de issu es towards the m odern sec tor in

area s su ch as work produ ct ion a n d efficiency. And if th e only jobs th atmost Sa u dis a re willin g to take are in ma na gemen t then gradu ates a re

bound to outnumber the posts avai lable. The can only resul t in ser ious

unemployment levels.

It i s l ikely then th at u nem ployed, you ng, an d edu cated gradu ates will beforced to accept a lower stat u s r an ge of jobs. Oth erwise, in th e long -term ,

they may vent their frustrat ion through social problems. Anotherproblem th at could face th e developm en t of th e Kin gdoms al terna tive

economy is that Saudi-sat ion has been shown to have i t s l imi ts . TheAsians are proving to be the largest sector of the working population

becaus e they are cheaper to employ than the Sau dis a nd ma ny

in du st r ies a re taking advan tage of th at fact .

One way for Sau di Arab ia to redu ce the large nu m ber of m igrant workersin th e Kin gdom while m ainta in in g th e econom ic viab ility of its in du str ies

could be to follow th e exam ple of J ap an . Like J ap an , Sau di Ara bia cou ld

star t by creat ing expor t -or iented indust r ies aimed at i t s immediate

neighbours or even f inance the set t ing-up of Saudi indust r ies abroadwhere the r aw mater i a l s a re cheaper and more avai l ab le , as Japan has

done in Sou th Eas t Asia. In this m an n er produ ct ivity an d p rofit could be

m aint ained withou t th e com peti t ive asp ect of im porting more workers .

Indus t r i a l development has been shown to have both s t r engths andweak nes ses. The Sa u di pet rochem icals ind u st r ies a re con t inu in g to enjoy

an unassai lable advantage. With proven oi l reserves of more than 200


36/45

billion ba rrels am oun tin g to more th an a cen tu ry of oil left , Sau di Arab ia

will be providing, expanding and processing oil long after most, if not all,

current oil reserves have lost their exploratory viability. Saudi policyrests on the hope that i t is only a matter of t ime before organisat ions

such as the European Communi ty r educes or drops a l together the

im por t tar i ffs agains t su ch pet rochem icals . Th is is a persu as ivepossibil i ty because the GCC petrochemical industr ies are reaching sucha level of compet i t ion that i t makes more f inancial sense to buy the

processed, rather than just the crude oil of Saudi Arabia. By developing

thes e in du st r ies Sau di Arab ia is con solida t in g it s p osit ion a s th e m ain oil

produ cer an d exporter to the world. . An other as pect of th e Kin gdom s

future securi ty is through i ts relat ionships with the West . The moreim porta n t Sa u di oil is to th e West , th e more Sa u di Ara bias s ecu ri ty will

be assured, and the stronger i ts posit ion wil l be with respect to i ts

neighbours. Yet, such industr ies continue to require coordination and

cooperation amongst the GCC countries, given the proliferat ion of

pet rochemicals plants in the Gulf . Otherwise, the new power of thepet rochemicals indu st r ies will be m u ch cu r tai led.

Th e F u t u r e o f OP EC a n d S a u d iArabia

Th e victory of th e Gu lf War over Iraq s igna lled th e d awn of a n ew era in

international relations. No longer is the world divided into two distinctly

antagonist ic polar spheres. Internat ional co-operat ion and consul tat ion

have become more commonplace par t icular ly under the auspices of theUnited Nations.

OPECs m ost recen t meet in gs point to th is grea ter sen se of co-opera tion

between the consuming and the oi l producing countr ies where an

exchange of information and ideas is on the agenda to promote moreharmonious relat ions. Al l the OPEC meet ings dur ing the 1990s had two

major themes: the future pricing and production policies and the future

of th e Ru ss ian petroleum ind u str y. As th e Midd le Ea st oil produ cers

share of the world oil output is set to increase rapidly over the next two

decades (by 12% to nearly 40%), oi l demand by the consuming OECD

nations is expected to r ise slowly from 75m BPD to 85m BPD over thesa m e period in which OECD oil ou tpu t is set t o fal l.

The oil forecast ing method is a completely new approach in predict ingthe oil production needed for nations, geographic regions, special

categories, a n d th e World. I t evolved over a p eriod of seven years with th e

pu rpose of:

(1)Superseding obsolete penci l -and-paper sketches and outmoded


37/45

curve-fi t t ing techniques, and

(2)To meet a set of r igorous design sp ecificat ion s. The m ethod brea ks

world oil production into the top 42 oil-producing nations,accounting for more than 98% of world production in 1998. Then

th e u ser s epara tely forecasts the oil product ion for each of th e 42

nations. Next the Expected Ultimate Recovery (EUR) and the OilReserves (OR) are calculated by integrating each nation's oi lproduction curve (i.e. its complete life cycle of oil production from

star t to end) . The nat ional forecasts are then summed, as needed,

to get th e forecas ts for the regions an d cat egories, a n d th e world.

It would th erefore seem th at OPECs futu re is related to iss u es ou t of its

control su ch as :

WORLD OIL DEMAND: According to the latest revisions, world oil

demand growth for 1999 has been adjusted up f rom the previous

1 .20mb/ d to 1 .29mb / d . The adjus tm ents a re most n oticeable in thedeveloping cou n try growth rate, wh ich h as been revised u p b y 0.3% from

the p revious 1.4%. OECD oil consu mp t ion is also up , by 0.01mb/ d,

mainly to account for higher growth in North America. The figure for

apparent consumpt ion in the former CPEs has a l so been increased to

s t a n d a t 0 .1 8 m b / d .

World oil demand growth has once again been revised down for the year200 0. Th e revision arises from th e lates t availab le dat a, which includ e 11

mon th s (J an u aryNovember) an d th e best est imate for December .Accordin g to this, dema n d grew on average by 75.81 mb / d for the year

2000 . Th e qu ar ter ly data sh ows tha t , compa red with year-ear lier figu res,

consumpt ion decl ined by 0.4%, dur ing the f i r s t quar ter ; for the

remaining three quar ters , demand growth recovered, r i s ing by 1.4%,

2.0% and 1.5% respectively. On a regional basis, OECD consumptionregistered a m argina l in crement of 0.1%, to average 47.67m b/ d. DC

consumption is expected to show a r ise of 2.7%; however, due to the

limited reliability and availability of the data, no definite conclusion can

be drawn yet . Finally, Other regions apparent consumption growth,der ived from produ ct ion an d t rade sta t is t ics , seems to ha ve increas ed by

3. 1 %(Ta ble 9 ).

Table (9 ): Wor ld Oil Dem an d.

A recognised expert of the oil industry, Odell, predicted that oil demand


38/45

would increase f ive t imes the amount demanded in 1979. European

sources said that the oil cartel would propose a document set t ing a

referen ce price of $2 0-23 a ba rrel for th e period 2000 to 201 0. As one of the new ideas to control oi l prices and the production levels the Saudi

government hinted that OPEC should be replaced. This cal led for the US

Energy Secretary to be contacted so that he could call for oi l at $20-25 aba rrel , warn in g th at a t $3

opec publication

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