Like putting a lock on the refigerator
Posted by aogTuesday, 23 January 2007 at 09:43 TrackBack Ping URL

This post at Brothers Judd about the Saudi Entity trying to fine tune oil prices made me think that the Saudis are only grasping half the picture.

Here’s the money quote —

Adel al-Jubeir, foreign policy adviser to Saudi Crown Prince Abdullah, offered this frank assessment to The Wall Street Journal in 2004, just as oil prices began to increase sharply: “We’ve got almost 30 percent of the world’s oil. For us, the objective is to assure that oil remains an economically competitive source of energy. Oil prices that are too high reduce demand growth for oil and encourage the development of alternative energy sources.”

That’s a good analysis of long term issues in being an oil producer. You want the price high enough to bring in a good revenue stream, but not so high that people actively look for alternatives to your production.

On the other hand, it made me think of this earlier post of mine, about the music industry clinging to their profits from selling content. In many ways, the situations are similar, although the Saudis come off smarter1. But that leads me to wonder why the Saudis don’t try what I recommend for Sony et. al., that of maximimizing short term profits which are then re-invested. Do the Saudis simply not realize this, or do they believe that they are incapable of successfully investing the money? If the latter, that would be an implicit admission that their government and/or society is doomed to collapse and the best they can do is put off that day by fine tuning oil prices.

1 Except for Apple, who seem to have grasped this point, that there is a sweet spot between leaving too much money on the table and convincing your customers to go someplace else.

Comments — Formatting by Textile
Michael Herdegen Tuesday, 23 January 2007 at 10:31

I recall reading over a decade ago that the House of Saud well realizes that the oil is finite, and that they were going to attempt to diversify their economy, so that they’d have a fallback. However, that hasn’t happened in any meaningful way yet, despite the examples of Qatar and the UAE, which suggests that perhaps it is the latter.

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