Critical Factors Affecting Saudi Arabia's Oil Decisions

ID-78-32: Published: May 12, 1978. Publicly Released: May 12, 1978.

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Saudi Arabia has a vital role in meeting world energy needs because it has over 25 percent of the free world's known oil reserves and the ability to increase or decrease oil production. Various studies on the world energy outlook conclude that before the end of this century world oil supplies will be insufficient to meet demand under an orderly marketing system. Factors affecting the ability and willingness of Saudi Arabia to expand future petroleum production to meet incremental world demand were examined.

Continued increases in Saudi Arabian oil production to meet world demand cannot be taken for granted. Saudi Arabia's capability and willingness to increase its petroleum production is dependent on many interrelated technical, operational, political, and economic factors. Although there are no insurmountable technical problems which would prevent a large increase in productive capacity, other operating and management considerations affecting petroleum operations include: (1) the future role of the Arabian-American Oil Company; (2) the security of oil operations; (3) increased management burden stemming from the size of expansion plans; (4) logistical and social problems associated with a surge in the number of foreign employees; (5) unforeseen emergencies impairing the petroleum system; and (6) a desire to broaden the domestic industrial base. Saudi officials are concerned about U.S. willingness to use influence with Israel to bring about lasting peace in the Middle East and to approve their request for F-15 aircraft. Saudi Arabia's ability to use effectively its mounting oil revenues could be an important factor in future oil decisions. It is obvious that U.S. energy policy must emphasize reducing dependence on foreign oil.

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