International Journal of Nonlinear Analysis and Applications

Saudi Arabian oil policies in Vision for 2030 plan and its influence on global oil market with a game theory approach

Articles in Press

Document Type : Research Paper

Authors

1 Faculty of Economics, Allameh Tabataba’i University, Tehran, Iran

2 General Director of OPEC Affairs, Petroleum Ministry, Tehran, Iran.

Abstract

It is important to assess Saudi Arabia's economic performance because its role in the global oil market and how international investors perceive its actions have global consequences. The goal of the article is to analyze the role of Saudi Arabia in the world oil market and the world economy for a long historical period. It is shown that the strategic behavior of Saudi Arabia has always been and continues to be subordinated to ensure a stable supply of oil in the world oil market. Under the Saudi Arabian leadership, OPEC aims at pursuing an economically rational and responsible policy, supporting the balance of the demand for oil and its supply, thus allowing it to avoid a deep and lasting oil price decline. Until very recently, an important factor impacting the formulation of Saudi oil policy was maintaining strategic interaction with the US. The restructuring of the world oil market, driven by the shale revolution and the nearing peak of global oil demand, has created new challenges for Saudi Arabia's oil strategy. The OPEC+ situational agreement enacted in 2017 by OPEC and non-OPEC countries to voluntarily reduce levels of oil production temporarily allows to keep a supply–demand balance in the world oil market, preventing a substantial drop in oil prices. At the same time, the agreement opens opportunities for competitors, first of all American producers of tight oil, to maintain and expand export niches. The shale revolution created an open conflict between the oil interests of the US and Saudi Arabia. For political and strategic considerations, a price war to crowd American oil producers with their relatively high production costs out of the market is not a feasible option for the Kingdom. Attempts to transform the state oil company, Saudi Aramco, into a mega supermajor utilizing the global economic and financial potential have failed, as the leading international banks and corporations avoided the company’s IPO. The failure of Saudi Aramco's partial privatization is a signal of a false start for the company to open the Saudi economy to the large-scale inflow of foreign investment. Paradoxically, the long-term perspectives of Saudi Arabia crucially depend on how effectively it will use the coming 10- 20 years of oil export earnings for diversification of the national economy outside the oil sector.

Keywords

[1] F.C. Araujo and A.B. Leoneti, Game theory and 2 × 2 strategic games applied for modeling oil and gas industry decision-making problems, Pesquisa Operac. 38 (2018), 479–497.
[2] O.F. Ayadi, A. Chatterjee, and C.P. Obi, A vector autoregressive analysis of an oil-dependent emerging economy—Nigeria, OPEC Rev. 24 (2000), no. 4, 329–349.
[3] E.B. Barbier, Economics, Natural-Resource Scarcity and Development (Routledge Revivals): Conventional and Alternative Views, Routledge, 2013.
[4] B.S. Bernanke, M. Gertler, M. Watson, C.A. Sims, and B.M. Friedman, Systematic monetary policy and the effects of oil price shocks, Brook. Papers Econ. Act. 1997 (1997), no. 1, 91–157.
[5] R.B. Bratvold and F. Koch, Game theory in the oil and gas industry, Way Ahead 7 (2011), no. 01, 18–20.
[6] F.I. Brichs, Political Regimes in the Arab World: Society and the Exercise of Power, Routledge, 2012.
[7] S.P. Brown and M.K. Yucel, Energy prices and aggregate economic activity: an interpretative survey, Quart. Rev. Econ. Finance 42 (2002), no. 2, 193–208.
[8] Y. Chang, J. Yi, W. Yan, X. Yang, S. Zhang, Y. Gao, and X. Wang, Oil supply between OPEC and non-OPEC based on game theory, Int. J. Syst. Sci. 45 (2014), no. 10, 2127–2132.
[9] S. Claessens, M.A. Kose, L. Laeven, and F. Valencia, Understanding financial crises: causes, consequences, and policy responses, CAMA Working Paper 05/2013, Available at SSRN: https://ssrn.com/abstract=2295199 or http://dx.doi.org/10.2139/ssrn.2295199
[10] S. Dubey, J.N. Sarvaiya, and B. Seshadri, Temperature dependent photovoltaic (PV) efficiency and its effect on PV production in the world, Energy Procedia 33 (2013), 311–321.
[11] B. Dudley, BP Statistical Review of World Energy 2016, British Petroleum Statistical Review of World Energy, BP plc. editor, Pureprint Group Limited, UK, 2019.
[12] M. Gisser and T.H. Goodwin, Crude oil and the macroeconomy: Tests of some popular notions: Note, J. Money Credit Bank. 18 (1986), no. 1, 95–103.
[13] J.D. Hamilton, Oil and the macroeconomy since World War II, J. Politic. Econ. 91 (1983), no. 2, 228–248.
[14] G.A. Kahn and R. Hampton, Possible monetary policy responses to the Iraqi oil shock, Federal Reserve Bank of Kansas City Econ.Rev. 2 (1990), 19–32.
[15] M. Kumhof and D. Muir, Oil and the world economy: some possible futures, Phil. Trans. Royal Soc. A: Math. Phys. Eng. Sci. 372 (2014), no. 2006, p. 20120327.
[16] A.A. Losanez, C.B. Garate, and A.G. Lebrero, Application of game theory to oil producing countries, Res. Paper, Academic Year 2017–2018, HEC Paris, 2018.
[17] L. Mahadeva and P. Robinson, Unit root testing to help model building, London: Centre for Central Banking Studies, Bank of England, 2004.
[18] B. Manama, Economic diversification in oil-exporting Arab countries, Ann. Meet. Arab Ministers of Finance, Int. Monetary Fund Washington, DC, USA, 2016.
[19] A. Marshall and C.W. Guillebaud, Principles of Economics: An Introductory Volume, London: Macmillan, 1961.
[20] K.A. Mork, Business cycles and the oil market, Energy J. 15 (1994), no. 1 suppl, 15–38.
[21] J.F. Mory, Oil prices and economic activity: is the relationship symmetric?, Energy J. 14 (1993), no. 4, 151–161.
[22] A. Nove, Z. Matthews, S. Neal, and A.V. Camacho, Maternal mortality in adolescents compared with women of other ages: evidence from 144 countries, Lancet Glob. Health 2 (2014), no. 3, e155–e164.
[23] C.C. Onyemelukwe, The Science of economic Development and Growth: The Theory of Factor Proportions, Routledge, 2016.
[24] J.A. Reneke, A game theory formulation of decision making under conditions of uncertainty and risk, Nonlinear Anal.: Theory Meth. Appl. 71 (2009), no. 12, e1239–e1246.
[25] B.J. Willigers, K. Hausken, and R. Bratvold, Uncertainty and preferences in a joint E&P development program analyzed in a game-theoretic framework, J. Petrol. Sci. Eng. 74 (2010), no. 1–2, 88–98.
[26] M.-H. Wu and Y.-S. Ni, The effects of oil prices on inflation, interest rates and money, Energy 36 (2011), no. 7, 4158–4164.
International Journal of Nonlinear Analysis and Applications

Articles in Press, Corrected Proof
Available Online from 25 May 2025
  • Receive Date: 01 December 2022
  • Accept Date: 02 February 2023