Question

Which statement explains why oil is important to the economies of Saudi Arabia and Iran?

Answer 1

Answer:

The early 20th century was a crucial point for the development of the Middle East. Prior to 1950, the region exhibited low levels of socioeconomic development; however, the discovery of vast oil reserves catalyzed the rapid creation of wealth. In particular, the economies of oil-rich countries were transformed from largely agricultural to rentier economies. Rentier economies derive a substantial part of their revenue from the outside world, and the accruing of external revenues (also called rents) are allocated and redistributed.

Since then, modern Arab oil-exporting economies have become heavily dependent on oil. Hydrocarbon and government activities account for the majority of total GDP in nearly every Middle Eastern country. In Libya, for instance, non-oil and non-governmental activities account for just over 0.16% of the GDP. Likewise, oil accounts for 80% of total exports in half of the oil-exporting economies. [1]

Given this dependence, it’s not surprising that the economies of these oil exporting countries are significantly tied to the price of oil itself. Between 2014 and 2015, caused by a combination of declining global demand and a rapid increase in the production of American shale oil, the price of oil collapsed.This piece explores how the dramatic reduction in oil prices affected the economic and political structures within the Middle East. To do so, this piece will analyze the effects of the 2014-2015 reduction in three countries: Saudi Arabia, Iran, and Iraq. In particular, the analysis will explore the pre-2014 economic conditions, how the economies were affected during the period of low oil prices, and what political and economic changes have occurred since.Saudi Arabia, the world’s largest petroleum exporter and home of 18 percent of the world’s oil reserves, depends greatly on the price of oil. [3] Its economic, domestic, and foreign policies are all intimately connected with petroleum, and the drastic decrease in the price of oil in 2014-2015 has had significant effects on the country’s domestic policies, as well as the future implications for regional politics and markets.

Explanation: