OPINION: Oil Futures

Petrostates such as Saudi Arabia and Iraq use their considerable oil revenues to fund their states and government services. Yet the relatively low price of crude oil worldwide, noted by Macrotrends, has put such petrostates on notice. Saudi Arabia, for example, is scrambling to diversify the sources of their wealth. 

Using oil-backed government investment portfolios, they have attempted to invest in enterprises that promise profits independent of “black gold.” The Gulf Kingdom requires oil prices to stay high—their diversification plans founder at any inability to reap adequate rents from their primary resource.

Saudi Arabia’s Vision 2030 plan touts a developed, less petroleum-dependent state, its significant wealth invested in diverse businesses. With ten years to go, however, Saudi Arabian investment in small- and medium-sized enterprises, the intended backbone of their desired economy, remains low, according to the Financial Times.

As the de facto leader of the multinational oil supply cartel Organization of Petroleum Exporting Countries (OPEC), the Kingdom has a vested interest in making sure oil prices stabilize️ at profit-turning prices. Unexpectedly, Saudi Arabia must now also worry about an OPEC partner, Iraq, whose oil production threatens to further depress the profits so essential to their new economic plan.

Even as protests rock the nation, Iraq has begun pumping oil in record quantities, defying OPEC quotas and claiming significant market share, according to both the Financial Tribune and CNBC. When Iraqi youth unemployment sits above 25 percent, according to the Atlantic Council, the benefits of oil extraction clearly do not reach the dispossessed. Despite the boom, a better future is objectively difficult to achieve.

While Iraq is a thorn in a cash-strapped Saudi Arabia’s side, both nations face a similar challenge: the inability, so far, to translate oil wealth into meaningful economic and societal change. Neither nation seems ready or able to commit its wealth toward long-term economic improvements. Both their economic futures hinge on oil—yet, with Iraq defying OPEC, neither country’s future is secure.