Middle East: A Boom in Wealth Creation Due to Oil Discovery - Essay Sample

Introduction

The middle East was historically largely an agricultural region and exhibited minimal economic development (Ross, 2013). However, in the early 1920s, vast oil reserves got discovered in the area, beginning a dramatic boom in wealth creation for the countries. To date, the economies rely on oil exportation for revenue, which accounts for averagely 80% of the countries' total exports (Devlin and Ebrary, 2010). As a circumstance of this dependence, the countries' economic performances correlate to the prices of oil per barrel, and negative variations are always detrimental. But the richness that oil brings is not equally distributed in these nations. There are challenges, called "the oil curse," which may lead to corruption and poor governance (Jalilvand & Westphal 2018). This paper details the impacts of oil in the Middle East and North African (MENA)countries.

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Political Factors

Oil powers the world and keeps it moving. Oil-rich nations automatically became important economic destinations for western leaders in the 20th century (Jalilvand & Westphal 2018). Since oil is a highly-demanded resource in the world, the region's political importance improved, earning them a seat as the world leaders' table. The world's biggest oil producer is Saudi Arabia, and it is the best reference when discussing the impacts of oil on politics. The country gets 85% of its GDP and 31 % of its earnings from oil (Devlin and Ebrary, 2010). So, it is acceptable to say the country depends nearly entirely on the prices of oil because the government is the biggest employer and provider on a country.

The effect is that to continue the smooth running of the country without unrest, the royal family must ensure that oil prices remain high to raise their income and offer more employment and attractive lifestyles for employed citizens. This gives them the power to run the government with authoritarianism with good oil income as a rationalization. Similarly, the country can also run its foreign family ambitions, like managing Iran's power across the region (Ross, 2013). When the price of oil dwindles between 2014-2015, Saudi faced budget deficits, increased borrowing, and a reduction in currency reserves. As the prices of oil continue to drop, the royal family is getting more worried about the longevity of their autocratic control.

They have had to conjure up measures to curb the stress, outlined in their Vision 2030. In the proposal, the country aims to increase their non-oil exports to 50% from 16%, raise the contribution of the private sector to GDP from 40% to 50%, to start a sovereign wealth fund to boost investments in other sectors in the economies, among other interventions (Devlin and Ebrary, 2010). They are also keen on reducing government spending by lowering subsidies for water, electricity, and gasoline, and taxing drinks and luxury goods. These measures are not welcome by all, and clerics and some citizens have openly opposed some portions of the proposals (Devlin and Ebrary, 2010). Ultimately, a shift in oil prices may set the country in a cascade of chaos, political unrest, and panic, and may lead to situations like the Arab Spring.

Because of oil, the USA has maintained close ties with Saudi Arabia, until the recent rise of US shale producers. Political disturbances have usually occurred in oil-rich countries such as Sudan, Libya, Iran, and Iraq (Ross, 2013). But despite the turbulences, the political statures and positions of the nations in the global table remain strong.

Effects on Economic Development

Oil-producing countries earn from exporting oil to other countries, and the income is called "oil rent." The nations have industrialized through value addition to crude oil, and advancing energy-intensive industries such as petrochemical and refining sectors (Jalilvand & Westphal 2018). The mutual trade ambitions have led to the signing of many treaties and trade agreements in the MENA regions. There is the Organization of Petroleum Exporting Countries (OPEC), established in 1960, which consists of 14 of the world's biggest oil-exporting countries. It balances oil production and supply to maintain global oil prices (Devlin and Ebrary, 2010). It's power, however, was limited when US shale producers joined the oil market.

There is also the (GAFTA) Grain and Feed Trade Association, formed in 1997, which works to ensure the maintenance of good quality and standards of products, fair terms of payment, standardization of weighting rules, analysis, sampling, and delivery conditions (Devlin and Ebrary, 2010). Another organization was the GCC (Gulf Cooperation Council), which has four members. It aimed at creating a common market for oil among them but failed because the countries are not close together (Ross, 2013). Efforts to enhance trade liberalization among oil producers and with other countries are still ongoing, with promising economic benefits. Labor, merchandise, and capital has extensively been exchanged between the nations (Jalilvand & Westphal 2018).

For Iran, the world's second-largest oil producer, economic effects have been adverse since 1979. The USA has always wanted maximally benefit from Iran's oil, and any leader who opposed that exposes the country to sections, which have been in place since 1979. Iran's nuclear programs also cause more sanctions, making the country to forego billions in oil revenue. With the recent trade agreements and the nuclear deal with the US, Iran's economy is on the rise again, recording 4.3% growth in 2014, and they sold 3.8 million barrels of oil per day (Jalilvand & Westphal 2018).

Conclusion

The advent of oil has led to prosperity in the MENA region, but not without challenges. The encounters have led to spectacular evolutions in the region's political patters, with the effect of making the countries more powerful and recognizable in global trade and politics. As the economies grew in double digits, corruption and poor governance proved to be big drawbacks. The countries continue to work on these trials, and as the dynamics of global oil prices become more unpredictable, more growth and diversification of their economies is expected (Ross, 2013). Overall, oil has been a revolutionary resource for them and will remain so at least in the foreseeable future.

References

Devlin, J., & Ebrary, Inc. (2010). Challenges of economic development in the Middle East and North Africa region. Singapore: World Scientific.

Jalilvand, D. R., & Westphal, K. (2018). The political and economic challenges of energy in the Middle East and North Africa.

Ross, M. L. (2013). Oil curse - how petroleum wealth shapes the development of nations.