Oil 1 Peak Oil 21
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- LOW PRICES GOOD
- NO REFORMS NOW
- NO IMPACT - SAUDI NUKES
- SAUDI ECON RESILIENT
- ECON TURN
NO SPILLOVER- US ECONUS ECONOMIC SLOWDOWN WILL NOT CAUSE GLOBAL RECESSION Brad Bourland, Chief Economist & Head of Research Jadwa Investment, “Impact of the Weak Global Economy” 4/3/08 http://www.saudi-us-relations.org/articles/2008/ioi/080403-bourland-economy.html What happens next to the US economy is unclear. The consensus view is that growth will pick up in the third quarter owing to lower interest rates (it takes around nine months for interest rate moves to effect the real economy) and a $168 billion fiscal package that provides a rebate of around $600 to every individual taxpayer and $1,200 to married couples. With corporate balance sheets still strong and exports benefiting from a weak dollar there is still some underlying strength within the US economy. However, there is much uncertainty around this outlook. Problems in the credit markets show no signs of abating and housing is likely to be a drag on the economy for some time to come (real house prices are around two-thirds higher than their post-war average). Furthermore, the growing threat from inflation means that the Fed will not keep interest rates low for very long. We therefore think that several years of below average US growth is in prospect. A slowdown in the US economy will be felt throughout the world, but we see no chance of a global recession. In fact, strong performance from emerging markets means that global growth is likely to be around its long-term average rate of about 3.5 percent. The International Monetary Fund (IMF) is currently forecasting the global economy to grow at a healthy pace of 4.1 percent this year. LOW PRICES GOODSAUDI GOVERNMENT IS BASED ON 45$ PER BARREL BECAUSE HIGH PRICES ARE NOT SUSTAINABLE Brad Bourland, Chief Economist & Head of Research Jadwa Investment, “Impact of the Weak Global Economy” 4/3/08 http://www.saudi-us-relations.org/articles/2008/ioi/080403-bourland-economy.html The main channel through which global economic conditions usually impact on Saudi Arabia is the oil price. Slowing global growth reduces demand for oil and therefore lowers the price. During the last US recession, in 2001, oil prices fell by around 15 percent. This time, the opposite has happened. Even with the US economy slowing the oil price has surged to a series of all-time highs, breaching $110 per barrel in mid-March from around $70 per barrel in the middle of last year. Oil prices have been pushed up over the last few years by growth in demand outpacing growth in supply. Despite what is happening in the US, demand growth is expected to exceed supply growth again this year owing to the health of emerging economies (China and the Middle East are expected to be the largest contributors to demand growth). A global growth rate of 3.5 percent implies an increase of global oil demand of around 1 million barrels per day for the year. Recently, oil prices have received added support from funds looking for a relatively safe haven in the face of turbulence in global stock markets and a falling dollar. We think that there is little to justify the near 20 percent rise in oil prices since the end of January and expect prices to come down as demand slackens. Our forecast is for WTI to average $76 per barrel this year (equivalent to $72 per barrel for Saudi oil). As WTI has averaged $96 per barrel so far this year, to achieve this oil has to average just below $70 per barrel for the remainder of the year. With the Saudi budget based on around $45 per barrel, such a fall in the oil price will not jeopardize the health of public finances or the external position. NO REFORMS NOWNO CHANCE OF SOCIAL AND POLITICAL REFORMS DESPITE OIL REVENUES Ben Berry, Acting Deputy Director, ATS Agriculture & Agri-Food Canada, Agri-Food Trade Service “Agri-Food Past, Present & Future Report: Saudi Arabia” December 2006 http://www.ats.agr.gc.ca/africa/4290_e.htm
Thomas W. Lippman , member of the Council on Foreign Relations and former Middle East correspondent and a diplomatic and national security reporter for The Washington Post, 2/9/08 “Nuclear Weapons and Saudi Strategy” http://www.saudi-us-relations.org/articles/2008/ioi/080209-lippman-nuclear.html It is widely believed among policymakers and strategic analysts in Washington and in many Middle Eastern capitals that if Iran acquires nuclear weapons, Saudi Arabia will feel compelled to do the same. In some ways this belief makes sense because Saudi Arabia is as vulnerable as it is rich, and it has long felt threatened by the revolutionary ascendancy of its Shi‘ite rival across the Gulf. Moreover, some senior Saudi officials have said privately that their country’s hand would be forced if it became known beyond doubt that Iran had become nuclear weapons capable. The publication in late 2007 of portions of a US National Intelligence Estimate reporting that Iran had abandoned a program to weaponize nuclear devices in 2003 did not put an end to the speculation about a Saudi Arabian response; the NIE made clear that Iran was continuing its effort to master the uranium enrichment process, and could resume a weapons program on short notice. It is far from certain, however, that Saudi Arabia would wish to acquire its own nuclear arsenal or that it is capable of doing so. There are compelling reasons why Saudi Arabia would not undertake an effort to develop or acquire nuclear weapons, even in the unlikely event that Iran achieves a stockpile and uses this arsenal to threaten the Kingdom. Money is not an issue -- if destitute North Korea can develop nuclear weapons, Saudi Arabia surely has the resources to pursue such a program. In the fall of 2007, the Saudis reported a budget surplus of $77 billion, and with oil prices above $90 a barrel, Riyadh is flush with cash. But the acquisition or development of nuclear weapons would be provocative, destabilizing, controversial and extremely difficult for Saudi Arabia, and ultimately would likely weaken the kingdom rather than strengthen it. Such a course would be directly contrary to the Kingdom’s longstanding stated goal of making the entire Middle East a nuclear weapons free zone. According to Sultan bin ‘Abd al-‘Aziz, the Defense Minister and Crown Prince of Saudi Arabia, nuclear weapons by their nature contravene the tenets of Islam. Pursuing nuclear weapons would be a flagrant violation of Saudi Arabia’s commitments under the Nuclear Nonproliferation Treaty (NPT), and would surely cause a serious breach with the United States. Saudi Arabia lacks the industrial and technological base to develop such weapons on its own. An attempt to acquire nuclear weapons by purchasing them, perhaps from Pakistan, would launch Saudi Arabia on a dangerously inflammatory trajectory that could destabilize the entire region, which Saudi Arabia’s leaders know would not be in their country’s best interests. The Saudis always prefer stability to turmoil. SAUDI ECON RESILIENTEVEN IF PLAN CAUSES DECREASE IN OIL REVENUE—SAUDI ECONOMY RESILIENT Businessweek, 2007 “Saudi Arabia Intelligent infrastructure” (Subtitle- DESPITE A PERIOD OF UNPRECEDENTED WEALTH FOR SAUDI ARABIA , KING ABDULLAH IS COMMITTED TO AN AMBITIOUS REFORM AGENDA . AND DELIVERING A WORLD - CLASS INFRASTRUCTURE IS CENTRAL TO HIS GOVERNMENT’S PLAN FOR ECONOMIC DEVELOPMENT”) www.businessweek.com/adsections/2007/pdf/09172007_Saudi.pdf+thrive+oil-prices+%22saudi+economy+%22&hl=en&ct=clnk&cd=6&gl=us&client=firefox-a However, it is clear that King Abdullah and his government see the economy as crucial to Saudi Arabia’s long-term evolution. Although high oil prices look set to stay, they have lived through many past price collapses and seem determined to stay the course in creating a genuinely diversified economy, where foreign banks and companies play a significant role. When asked what he thinks is next on King Abdullah’s reform agenda, SAGIA’s Dabbagh is circumspect. “In order to be competitive and to receive more investment than your competi- tion, you need to keep on reforming and raising the bar and making it more difficult for others to compete with you,” he says. “I can’t predict what will happen next, but I can assure you that it will be significant.” ECON TURNHIGH PRICES CAUSE GLOBAL ECONOMIC SLOWDOWN- KILLS SAUDI COMPETITIVENESS The Economist, “The puzzle of oil production” 6/19/08 http://www.economist.com/world/africa/displaystory.cfm?story_id=11592833 WITH oil prices nudging $140 a barrel, Saudi Arabia stands to receive a windfall this year of up to $400 billion, double what it earned from selling oil last year. Gloom at the world's petrol pumps, it may be assumed, can only mean hand-rubbing glee for their biggest supplier. Such is the case with some of the kingdom's rivals in the Organisation of the Petroleum Exporting Countries (OPEC), the cartel that supplies over one-third of the world's crude. Iran, for instance, has consistently argued against doing anything to bring down prices. Why, then, have the Saudis mounted a risky bid to do just that, by boosting oil output and summoning the world's top energy officials to an emergency meeting in Jeddah on June 22nd? The reasons span history, economics and geopolitics. No one in the Saudi oil ministry has forgotten what happened after the oil shock in the 1970s. The Arab boycott called in 1973 to protest against Western backing for Israel tripled oil prices. But it also prompted oil exploration in tricky places such as the North Sea and conservation measures that reduced demand. The result was a long-term slump in crude prices and a drop in the Saudis' market share. The Saudis fear that the intensified search by the West for alternative energy will result in the same thing happening again. But the more immediate worry is that high oil prices may slow not just America's but the whole world's economy. That would trigger a sharp fall in demand for Saudi oil. Just as bad, a sharp global slowdown would slash the value of the kingdom's hundreds of billions of dollars in overseas holdings. No wonder Ali al-Nuaimi, like his predecessors as Saudi oil minister, often cites “customer satisfaction” and “market stability”. Saudis retain another nasty memory from the 1970s. Branded as gluttons, they became a stock figure of ridicule in Western cartoons. And sudden wealth brought social strains at home that helped create a fundamentalist backlash that produced, among other things, al-Qaeda. The Saudi desire not to be stigmatised for the world's woes, this time, may be gauged by their donation, last month, of a generous $500m to the UN's World Food Programme. 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