Saudi Arabia’s Energy Policy

August 31, 2012

The oil market has long been dominated by the Kingdom of Saudi Arabia because of its ability to produce and export large quantities of crude oil, a valuable globally traded commodity. Saudi Arabia’s role is further enhanced by its ability to maintain a surplus capacity that can act as a strategic cushion during times of market tightness, allowing production to be expanded in relatively short order. For that reason the kingdom has been crucial to the stability of the oil markets. This pivotal role was highlighted in the previous decade as future expectations of demand growth had been increasing while supply growth expectations were cut. Lately, however, the importance of being the supplier of last resort seems to have come into question, as both the International Energy Agency (IEA) and the Energy Information Administration (EIA) have cut their demand forecasts while increasing their projections of supply growth. Other factors that may be contributing to this notion are slower economic growth due to the 2008 financial crisis, better energy efficiency measures in the transportation and industrial sectors, and burgeoning supply prospects in Canada, the United States, and abroad with the advent of new technologies.