Sample Solution

Countless times over, we have seen incidents regarding the rise and fall of countries that base their economy, as well as domestic currency, on oil: Algeria, Venezuela, Nigeria, Iran, Indonesia, and many more. Most countries such as these, after resource booms, cannot stabilize their economy, and fall victim to Dutch Disease. The sheer appreciation of wages and domestic currency yields a field in which exports become uncompetitive and cause damage to other industries such as agriculture and manufacturing; this renders countries de-industrialized (Mohamed). Countries with exceptionally large oil exports can rarely escape this curse of plenty. They fail to make steps to reform their oil dependence, and instead, plunge headfirst into a sudden (yet predictable) violent political, economic, and social upheaval, as seen currently in Venezuela. However, one country within OPEC has managed to keep its head above the oil. Despite oil prices plummeting, poor national perception regarding Yemen, as well as the murder of Jamal Khashoggi, Saudi Arabia still makes and maintains massive profit margins as it only costs them $9 USD to produce a single barrel (WSJ News Graphics). This begs the question: What makes Saudi Arabia any different than these other countries, who have seemingly doused their economies, citizens, governments, and domestic currency in crude oil, lit a match, and set themselves ablaze? Why is it that now, in a time when oil prices are steadily dropping, Saudi Arabia can function with oil prices so low, and how does the volatility of oil affect Saudi Arabia’s environment domestically and geopolitically?

Oil prices have been dropping in response to a large production output and a weaker global demand (International Energy Agency). However, this is not the sole reason; oil has also been known to drop in response to political climates as well. With regards to exports, Yemen should not be someone of unique importance on a global oil scale; Yemen only produces 133,000 barrels of oil a day which is 0.1% of global generation (Johnston). However, Yemen is geographically positioned in a way that exerts power with regard to the very core of the industry of oil. Neighboring Yemen’s southern coastal city, Aden, is Bab el-Mandeb. These straits, of which are located at the opening of the Red Sea, are known to be fourth in the world as one of the busiest and most crucial petroleum choke points (Johnston