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

Baikalizadeh, Behrooz; Derakhshan, Masoud; Momeni, Farshad; Taklif, Atefeh; Daneshjafari, Davood; Javan, Afshin

doi:10.22075/ijnaa.2023.29789.4263

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

Document Type : Research Paper

Authors

Behrooz Baikalizadeh ¹

Masoud Derakhshan ¹

Farshad Momeni ¹

Atefeh Taklif ¹

Davood Daneshjafari ¹

Afshin Javan ²

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

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

10.22075/ijnaa.2023.29789.4263

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

economic transformation

oil politics

world oil market

Saudi Arabia

OPEC

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