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While Saudi Arabia seeks to diversify its economy, the Saudi economy is dominated by the petroleum sector. In addition, the Saudi Arabian Riyal (SAR) is pegged to the U.S. Dollar.
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Running head: WORLD OIL PRICE FLUCTUATIONS
World Oil Price Fluctuations
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WORLD OIL PRICE FLUCTUATIONS
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World Oil Price Fluctuations
The world oil price is of critical importance both to the exporters’ economy and importers'
economy, considering that the oil is the most extensive traded product internationally. Changes in
oil prices affect all other energy-intensive goods and services. To some extent, the prices are also
linked to fuel costs. Therefore dramatic changes in oil prices have a wide range of consequences
for both oil-consuming countries and oil-producing countries. This critical essay is meant to
analyze the primary considerations Saudi Arabia faces from a currency perspective due to a
dramatic increase and decrease in world oil prices. The objective of the analysis is to assess the
expected outcomes that come as a result of the attention that KSA faces under changes in oil
products and to shed light on how the Saudi economy can get diversified.
Saudi Arabia's primary attention in the face of changes in oil prices is to save its economy. Oil is
the main export in the Kingdom of Saudi Arabia (KSA), and therefore, the country should be
vigilant with any strategy that can optimize the economy through product export. Among the
considerations that the Kingdom faces lies in its currency values. Its currency is more valuable
compared to other oil-producing countries hence a competitive advantage in times of oil price
changes. A decline in world oil prices tends to lower profit to most producing countries. However,
being the largest producer of oil, oil price declines are advantageous to Saudi Arabia as they
increase their supplies. Its favorable currency value enables the country to supply the product at
lower prices even in times of declined oil prices hence advantageous to its economy (Rees &
Althakhri, 2008).
Another consideration lies in the count...