OilOilEconomics in the Middle EastEconomics in the Middle East

Executive SummaryExecutive Summary

• Discovery of Oil

• If It Runs, It Runs on Oil

• Co-reliance: Finding a Delicate

Balance

• Economic Failures

• Petroleum 101

Introduction

1. Only a handful of Middle Eastern nations have large oil reserves

2. This PowerPoint explains oil and its role in Middle Eastern and the worlds’ economies

A. Discovery of Oil in the Middle East

1. In 1904, oil was discovered in Iraq; in 1914,the Iraq Petroleum Company was founded ☻

a. In 1908, the Anglo-Persian oil companydiscovered oil in Iran

b. By the end of WWI (1914-1918), worldleaders knew that oil would takecenter stage in world politics movingforward. Why?

2. In 1928, oil was discovered in Bahrain

3. In 1938, major oil fields were discovered inboth Kuwait and Saudi Arabia ☻

4. Bottom Line: some Middle Eastern nationsnow have a chip in the big game. ☻

* What does this mean?

B. If It Runs, It Runs on Oil

* Why are we dependent on oil?

1. Food

a. Tilling and planting

b. Harvesting

c. Transporting to market

d. ¥

2. Heating √

3. National Security ☻

B. If It Runs, It Runs on Oil continued

4. Petroleum-based products

* By the way, petroleum is basically another name for oil (more later)

a. Plastics

b. Asphalt

c. Perfume

d. Chemical fertilizers

e. √

5. Products and their transportation

6. Transportation (cars, rail, air, ship, et cetera)

7. Travel and entertainment industry

8. ☻

9. More parity between Middle East and Europe & U.S.

* Next Page

Kellogg’s plant to make Fruit LoopsKellogg’s plant to make Fruit Loops

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C. Co-reliance: Finding a Delicate Balance1. Today, Europe and the U.S. are heavily

dependent on the Middle East for oil ☻

2. Likewise, the Middle East is dependent on the U.S. and Europe to buy oil

☻

Needs to buy oil Needs to sell oil

C. Co-reliance: Finding a Delicate Balance continued

3. Oil prices need to be stable in order for therelationship to stay in balance

a. Prices get too high

1) ME benefits for awhile

2) US and world economy drops

b. Prices get too low

1) US and world economy rises

2) ME loses important oil revenue

c. Sometimes politics gets in the way of the balance

1) 9/11 hijackers (many were Saudis) ☻

2) U.S. / Israeli relationship ☻

D. The Tables Turn: OPEC

1. The seven sisters (Exxon, Mobil, Chevron, Texaco, Gulf, BP, and Shell) were constantly playing one country off of another

* What does this mean?

2. OPEC

a. In order to get top dollar, oil-producingnations formed a cartel to control pricing

b. In 1960, Saudi Arabia, Iran, Iraq, Kuwait,Qatar, Indonesia, Libya, the U.A.E., Algeria,Venezuela, and Nigeria formed the Organization of the Petroleum ExportingOrganization of the Petroleum ExportingCountriesCountries (OPEC) ☻

c. Negotiated with oil companies as one voice,not eleven

d. Headquartered in Vienna, Austria

D. The Tables Turn: OPEC

3. Using oil as a weapon

* Embargo:Embargo: officially sanctioned withholding of something; in this case oil

a. 1973: Arab Oil Embargo

1) Syria and Egypt invade Israel

2) U.S., Europe, and Japan support Israel with military supplies and money

3) OPEC’s Arab members, OAPEC, cut off oil

supplies to the aforementioned areas

4) The result ☻

D. The Tables Turn: OPEC

b. Iran-Iraq War (1980-1988)

1) Two OPEC countries

2) Supply disruptions

a) Less supply, higher price

b) More supply, lower price

3) ☻

E. Economic Failures

1. Failed Strategies

a. Have failed to diversify

1) If oil market tanks, whole economies, and countries, will go with it

2) UAE is trying to be an exception ☻

b. Attempt to “buy-off” populations

2. Failure to modernize

3. Population growth

4. Unequal distribution of wealth and resources

* What makes this so important?

The End

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Per Capita GDPPer Capita GDP

Egypt = $5,000 per personEgypt = $5,000 per person

Saudi Arabia = $19,800 per personSaudi Arabia = $19,800 per person

Israel = $26,600 per personIsrael = $26,600 per person

UAE = $36,000 per personUAE = $36,000 per person