RIYADH: Saudi exports to the US have witnessed a substantial increase (due to the appreciation of oil prices) over the past year. Total exports in 2007 are estimated at SR141.3 billion ($37.68 billion). Saudi Arabia’s exports to the US have also changed direction over the years. In 2000, 20 percent of Saudi exports (mostly oil-based) went to the US, and by 2007 that figure had fallen to an estimated 15 percent.
In 2006 and 2007, Saudi Arabia exported an average of 1.46 and 1.49 million barrels per day of crude respectively to the US, accounting for 12 percent of oil imports. During this period, the Kingdom ranked third (after Canada and Mexico) as a source of oil imports to the US. This is because the bulk of Saudi Arabia’s oil and refined exports are no longer destined for North America and Europe, but for Asia.
In 2007, the Asian region accounted for 52 percent of Saudi Arabia’s total oil exports and 54 percent of its total exports of refined products. The US accounted for 21 percent of the Kingdom’s total oil exports, followed by the Mediterranean at 8 percent and Europe at 5 percent.
The riyal is pegged to the dollar. The greenback weakens Saudi Arabia’s terms of trade, which in turn impacts on imports and exports as well as inflationary patterns. Monetary tools applied in the US impact on the dollar as much as on the general direction of monetary policy (although that is not always so). A case in point is how the Saudi authorities, including the SAMA Gov. Muhammad Al-Jasser, have strived to increase confidence in the future direction of the US economy and the dollar. Al-Jasser said, “In relative terms, it is not a clear-cut case that the dollar alone is in trouble and that people should be looking for lifeboats out of the dollar.” Moreover, the Governor of SAMA stated that, “If you’re worried about the dollar, where else do you go? When you look at other currencies, they reflect the fundamentals of their economies. And the other major economies are not doing particularly well.”
Meanwhile, many countries — including China — have voiced concern about the dollar’s ability to maintain its reserve currency status. The maintenance of the riyal peg to the dollar will provide a degree of confidence in the greenback, as it is supported by the most important global oil producer — which should not be underestimated. Moreover, Saudi Arabia has played a role in buying US government debt by placing the majority of its foreign assets in US treasuries. That has benefited both countries. Debt created by one has been bought by the other and the security and soundness of Saudi Arabia’s foreign assets have been secured as long as the US economy performs. It is highly speculative to predict the future direction that Saudi Arabia would take in the event of an increasingly weak dollar and depreciating US asset prices.
The lack of trust between producing and consuming countries needs to be addressed. Producer countries need insights into the impact of alternative fuels, despite the uncertainties surrounding the breakthrough technologies that are built into the plans of consuming countries. Consuming nations also need to create a platform that addresses the burning question of oil and commodity speculation.
Consumers need to adjust their consumption expectations and some, if not all, have to curtail demand. Saudi Arabia’s position on alternative or “supplemental” energies (solar, wind, and hydrothermal) is clear: Developing alternatives is important but not to the detriment or crowding-out of investment in the oil sector.
Lack of investment in oil could spike prices again, which would be anathema to global economic recovery efforts. If prices do spike, the world should not simply point fingers at Saudi Arabia, but should direct its questions to the speculators who remain untamed. There have been no effective measures put in place to contain speculation in financial markets.
Moreover, the world needs to acknowledge that producing countries should receive a fair price for their oil — which Saudi Arabia believes is around $75-$80 per barrel.
Going forward, the Saudi-US economic relationship will continue to strengthen. Trade will play a pivotal role in the relationship between the two. The US, given its high-value, high-tech products should continue to maintain its niche position in the Saudi market for many years to come, but the nature of the trade relationship will evolve as global trends change and new competitors emerge. The sheer fact that visa reciprocity has been a boon for both countries, with more than 26,000 Saudis receiving higher education in the US, helps ensure the relationship will be even more lasting and symbiotic.
(Concluded)
(John Sfakianakis is chief economist at SABB, Riyadh)