Oil Prices Turn-down and its Effects on Global Economy: A Descriptive Study of Saudi Arabia

Abstract

This paper highlights oil prices turndown and its effect on the global economy in a descriptive study of Saudi Arabia. The reasons, consequences and an adaptation approach for the current oil crisis in Saudi Arabia have been addressed. Oil prices will most likely maintain the current low prices for at least the next two years as OPEC has not succeeded to offset oil supplies.   Reasons of the oil price turndown were found to be merely politically motivated than purely economic. However, both aspects will negatively affect the oil price and the crude oil sales volume. Consequences of oil price turndown manifest itself in reducing the levels of the currency valuation, business survival, and social standards. As a result, governmental subsides in fuel, water, and electricity will be revised. This will lead to several aggressive decision to stall or completely eliminate costly projects. The consequences are that private industries relying heavily on business with the public sector will be badly impacted, leading to significant layoffs.  Unemployment rate will, therefore, sharply increase, affecting the “Saudization” program.  Inflation would in turn increase and the economic growth decreased. To rectify the oil price crisis, a comprehensive approach has to be taken into consideration. The most important of which is to adopt a sustainable economy approach where dependence on oil export be alleviated.

Keywords: OPEC, Oil, Turn-down, Global economy