The oil market is a very complex and unique market in which oil companies and oil producing countries take certain strategies to win the competition in the market. Saudi Arabia, as one of the top oil producers, plays an important role in this market. Saudi oil strategy can affect the oil price in the world.
How Saudi Oil Strategy Affects the Oil Price
In the history of oil price, Saudi Arabia has taken various measures or strategies to gain profit and dominate the oil market. This country has two main strategies related to the oil industry.
Flooding the Oil Market
Saudi Arabia has flooded the oil market several times in its history. The latest one was in early 2020, in response to Russia’s refusal to cut oil production during an OPEC meeting in order to stabilize the oil price.
When this country floods the oil market, it increases its oil production and sells the oil at lower prices. The objective of this measure is to dominate the oil market in response to a conflict on oil price and production. This strategy will cause the oil price in the world to decline.
When Saudi is flooding the oil market with oil at low price, it targets big oil refiners in the world. As a result, those who don’t usually purchase oil from Saudi will be attracted to purchase oil from this country and other oil producing countries have less share in the market due to the lower demand.
However, this type of strategy cost too much. In addition, it is not always considered as the right move to do. In 1997, for example, Saudi flooded the oil market, but the demand for oil collapsed because of a warm winter and the emerging-markets crisis.
Cutting the Oil Production
Another Saudi oil strategy is cutting the oil production. The country has taken this measure several times and aimed to stabilize the oil price. After the oil price war with Russia, finally this country decided to cut its oil production.
This strategy allows Russia to have more shares in the market. However, it is considered as the best solution for the conflict between both countries. Because of this new strategy, the oil price increases several points.
Impact of the Oil Strategy on Saudi’s Economy
Foreign business owners and investors who want to expand their business in Saudi need to be aware of the oil strategy taken by this country and the oil price. Both the strategy and the price have a significant impact on Saudi’s economy.
For example, when Saudi was flooding the oil market in March 2020, it caused the country to have lower income from oil export earnings. It also caused the government to increase the debt ceiling. The rise and fall of the oil price will likely affect the non-oil industry.
Therefore, it is essential for investors and business owners to seek assistance from Saudi Market Strategy Agency. This agency assists its clients who are planning to enter Saudi Market. It provides global business players with all the data they need to expand their business successfully in this country.
The oil strategy of Saudi Arabia is not only affecting the oil price, but it also affects the country’s economy and other industries in this country. Therefore, foreign business players must consider this strategy before deciding on what to do to expand their businesses.