The Oil Product - Research Paper Example

The oil product Introduction The discovery of oil in Middle East has been often considered as a key factor for the development of local economies. Through the decades, it has been made clear that the benefits of oil in countries of the particular region have been rather limited, quite lower than those expected. The reasons for this phenomenon are many. The characteristics of oil as a key economic product are presented in this paper. Reference is made specifically to the effects of oil on the economies of countries in the Middle East. At the same time, the common oil products and their development through the years are reviewed. It seems that oil production has been critical for the strengthening of economies of countries of the Middle East. However, the level at which oil production has benefited these countries is not equal among countries of the Middle East, probably because of the lack of oil reserves in certain countries of the above region. Hershlag (1975) has noted that ‘the discrepancies between the oil and non-oil countries’ (Hershlag 80) can be many. For example, in Iran, the production of oil has helped towards ‘the increase of the country’s national product by a percentage of 34%’ (Hershlag 80), as the particular increase was estimated in 1960s (Hershlag 80). It is possible for this reason that the specific country has been depended on oil at such level that ‘the country’s industrial activities that are not based on oil are only a 10.75 of GNP’ (Hershlag 80). The standardization of the benefits of oil for the countries of the Middle East, as also for other countries, could be secured only by developing appropriate policies that would be supported not only by the financial markets but, mainly, by the local political and social networks. 2. How oil discovering improve some poverty countries, such as Middle East countries The discovery of oil in Arab countries has resulted to a series of changes in these countries’ economic and social life. According to Abdallah (21) the production of oil has benefited the Arab countries that are oil-exporters in the following ways: a) through the oil ‘the funds required for the improvement of the foreign policy of these countries have been accumulated’ (Abdallah 21); having the strength to face the challenges of the global market and cover their financial needs, the oil-exporters countries have been able to support their rights as members in the international community and develop effective geo-political strategies (Abdallah 21), b) at the next level, oil has significantly helped the Arab countries involved in the production of oil to develop all sectors of their industries (Abdallah 21); being a key sources of energy for industrial activities, oil helped the Arab countries that had, previously, quite limited financial resources, to develop their industrial activities, increasing their wealth; c) in this way also, the Arab countries that have been rather poor, before their involvement in the production of oil, have become capable to increase the support provided to their citizens, in terms of social services, public safety and education (Abdallah 21). Thus, oil has been a key tool for the economic and social development of the poor Arab countries; it should be noted though that the level of economic development of these countries has not been as high as would be normally expected, a problem rather related to the extensive intervention of foreign enterprises in the management (production and export) of the oil produced in the Arab countries, a phenomenon common also in other oil-producing countries worldwide. Indeed, according to a UN Arab Report of 1998, the GDP of population in the Arab countries, many of which are key oil-exporters, has been estimated to 2% of the global GDP a figure that is rather low if taking into consideration the fact that ‘Arabs form the 6% of the global population’ (Pappe 51). Moreover, the following fact should be highlighted: the distribution of oil reserves in the Greater Gulf Area and the Arab peninsula is not standardized, meaning that there are certain Arab countries that have extensive oil reserves, while others, like Yemen (Pappe 51) which are not involved in oil production. In this way, the Arab countries cannot be equally benefited from oil; in fact, those Arab countries that do not have oil reserves have focused on other economic activities, especially the agriculture, for covering their financial needs (Pappe 51). On the other hand, Alsharhan and Nairn (474) note that the level of oil production currently in progress do not reflect the actual potentials of Arab countries in regard to the specific activity. It is explained that ‘from the 475 oil fields discovered in Arab countries, only half of them have been active’ (Alsharhan and Nairn 474), meaning that the involvement of the rest of these fields in the oil production process is possible anytime. From this point of view, the benefits of oil on poor Arab countries are still not fully revealed; apart from existing benefits of oil for the Arab countries, as also described in this section, additional benefits are expected to appear in the following years, depending on the willingness of local governments and the foreign enterprises involved to expand the level of oil production in the particular region. The specific issue is also highlighted in the study of Shojai (1995). The particular study highlights the following issue: due to the high involvement of technology in the oil production process, the advances of technology used in this sector can highly influence the development of the particular process (Shojai 1995). This means that the production of oil in Arab countries could be highly alternated, either reduced or increased, at any given point of time, under the influence of local and international political and economic interests. For this reason, it seems that it is quite difficult to estimate the potential long – term effects of oil on Arab countries. 3. How oil changed the world The discovery of oil in 1930s in ‘countries of the Arab peninsula, especially Iran and Iraq’ (Pappe 51) transformed the local economy. However, the impact of oil on the revenues of the oil-exporting countries has not been as high as would be normally expected. It should be noted that when first appeared in the greater Gulf Area, oil has promoted mostly the financial interests of foreign companies that had the key responsibility for the oil’s ‘production and export’ (Pappe 51). Also, they were these companies that were benefited from the profits of the oil, leaving to the local countries just a limited share of the oil’s profits (Pappe 51). Still, oil has led to the gradual strengthening of the economies of the oil-exporting countries. In 1960s the oil produced in the Greater Gulf Area, including ‘the countries in the Arab peninsula’ (Pappe 51), represented ‘a percentage of 25% of the global oil reserves’ (Pappe 51). The production of oil in the particular region has influenced the global economy, leading to the concentration of wealth by foreign firms specializing in the production of oil; the economic and social power of these firms has been significantly increased, while the conditions of life of local populations, meaning the populations of the oil-exporting countries, have been only slightly improved, as already explained earlier. Therefore, the production of oil led to the increase of inequality between rich and poor; as a key financial indicator, the production of oil may have benefited the economies of certain countries, that are oil-exporters, but, still the stabilization of these countries’ economies has not been achieved. Instead of being based on agriculture and other similar economic activities, Arab countries that have been involved in the production of oil have been exclusively based on the particular source of energy for supporting their growth. On the other hand, as analyzed before, Arab countries that are not oil-exporters are still based on agriculture and manufacturing for responding to their needs. At this point, the following issues need to be highlighted: the production of oil has led to the radical increase of industrialization worldwide; because of the extended oil reserves, as discovered in the Arab countries, countries worldwide have highly invested on their industrial and technological development, the operations of which are necessarily depended on oil. The above phenomenon can be characterized as expected but the following concern appears: in case of decrease of the oil reserves globally, how the conditions of life of people internationally but also the global financial system will be affected? If such problem appears, the Arab countries that are oil-exporters would have to face the dilemma of re-organizing their economy, emphasizing on activities that are not based on oil, such as agriculture, alternative sources of energy and fishery. The Arab countries that are not oil-exporters would have no such problem to face, a fact that leads to second thoughts in regard to the high promotion of oil as a key source of energy worldwide. The modern style of life, which is mainly based on oil and its products, which can be many as explained in the section that follows, may have to be alternated in the near future due to the limitation of oil reserves and the development of alternative sources of energy. Campbell (2005) presents another aspect of oil; reference is made to the cases of ‘Nigeria and Angola’ (Campbell 207). In these countries, the lack of appropriate political initiatives for the control of oil benefits, has led to the opposite result: in these countries, the living standards of people tend to be worsened, characterized by the increase of diseases, such as ‘AIDS and malaria’ (Campbell 207). By the end of this century these countries’ population is expected to be reduced from ‘733 million to 200 million’ (Campbell 207), under the influences of diseases and mal-nutrition (Campbell 207). The above example proves that the influence of oil on the life of local population is not always positive; rather it seems that oil results to the gradual deterioration of the living standards of people in countries that are oil exporters. Only in regions where the intervention of political power in the control of oil benefits is effective and powerful, like in the case of Middle East, such implications can be avoided. From a similar point of view, Clarke (16) noted that oil has led to the lack of balance in regard to political and economic power globally. This problem has been highly related to the activities of organizations that operate in the particular sector (Clarke 16). Because the terms under which the cooperation of these organizations with the local governments are often not carefully reviewed, important problems are likely to appear while the relevant cooperation is developed in practice. Moreover, the potential threats of oil against the social and economic interests of the countries that are oil – producers are often difficult to be identified early. 4. Products related to the oil The range of products made by oil is quite impressive; according to Ranken Energy, the number of products related to oil can be estimated to 6000 (Ranken Energy 2012). Products of different characteristics are included, such as ‘shoes, paint, fertilizers, curtains and so on’ (Ranken Energy 2012). Oil-products are those products ‘based on oil and produced through distillation, such as ethane, lubricants and white spirit’ (International Energy Agency 2012). Not all oil-based products are equally used in everyday human activities; certain of these products are quite popular while the use of others is rather limited. In graph 1 (Appendix) the market share of refined petroleum products in Canada, for 2011, is presented, as an indicative example of the potential expansion of oil-based products in markets worldwide. According to a report published by the Institute for Energy Research (2012), the use of oil in industrial and daily human activities is extensive, with the key share of oil to be used in transportation, in USA about 71% of oil available in the market is used in the particular sector (Institute for Energy Research 2012); oil is used in transportation in three different forms: ‘as gasoline, diesel or jet fuel’ (Institute for Energy Research 2012). It is noted that the process of oil for developing a series of products has highly contributed in the increase of popularity of oil as a key energy source (Institute for Energy Research 2012). 5. How petroleum products improved from past to present As already explained above, oil-based products are many; in fact, it seems that these products are involved, more or less, in all industrial, economic and social activities, at such level that it would be quite difficult for their replacement to be initiated. At the same time, the level of use of these products in industry and daily human activities is continuously increased; in US, which is considered as ‘the country with the highest consumption in oil refined products’ (Rusco 3), the consumption of these products in 2007 reached the 24% of their global consumption (Rusco 3). The development of petroleum products in countries worldwide has been closely related to the local technology advances (Ausubel 207). Reference is made specifically to the refinery processes used in the process of oil, so that a range of goods is produced. In countries where the technology available for the refinery of oil is advanced, the range of oil-based products and their quality can be higher (Ausubel 207). Countries that do not have such infrastructure can import oil-based products from countries that have developed appropriate technologies (Ausubel 207). Rand (61) notes that oil-based products are continuously developed, both as of their characteristics and as of their number. The increase of investment on the technology used in the process of oil is considered as the key reason for the particular phenomenon (Rand 61). Three are the key areas that are continuously improved contributing in the production of more valuable oil-based products: ‘the process design, the methods of control and the evaluation criteria’ (Rand 61). 6. Conclusion The benefits of oil as a valuable product cannot be ignored. The potentials of oil to transform the economies of countries that are oil-exporters are made clear in the case of Middle East. Since the discovery of oil, the economies of the region’s countries have been highly transformed, as a result of the high volume of funds retrieved through the oil export. A key fact revealed through the literature reviewed in this study is the following one: oil production could not support the economic growth of all Middle East countries since not all of these countries have oil reserves. It has been also made clear that the contribution of oil in the development of economies of countries of Middle East that are oil-exporters has not been equal; in each case, the ability of local political powers to manage the production and the export processes has affected the level of benefits of oil for the country involved. Also, the oil production and oil export processes in Middle East are supervised by foreign firms, which intervene in oil production because of their specialization in the sector, i.e. since they are able to provide the infrastructure required for the completion of the particular process; as a result, the level at which oil production in Middle East countries can support the growth of local economies is differentiated, being influenced by various political and economic interests. In this context, the value of oil as a product cannot be standardized even in countries that have been involved in the oil production process for many decades, such as the countries of the Middle East region. Works Cited Abdallah, Wagdy. Managing Multinationals in the Middle East: Accounting and Tax Issues. Westport: Greenwood Publishing Group, 2001. Alsharhan, A., and Nairn, A. Sedimentary Basins And Petroleum Geology Of The Middle East. Amsterdam: Elsevier, 1997. Ausubel, Jesse. Cities and Their Vital Systems: Infrastructure Past, Present, and Future. Washington: National Academies Press, 1988. Campbell, Colin. Oil Crisis. Essex: Multi-Science Publishing, 2005. Clarke, Duncan. Empires of Oil: Corporate Oil in Barbarian Worlds. London: Profile Books, 2010. Hershlag, Zvi. The Economic Structure of the Middle East. Leiden: Brill Archive, 1975. Institute for Energy Research “Petroleum” 25 May 2012 http://www.instituteforenergyresearch.org/energy-overview/petroleum-oil/ International Energy Agency “Oil products” 25 May 2012 http://www.iea.org/stats/defs/sources/petrol.asp Miller, Tyler, and Spoolman, Scott. Environmental Science. Belmont: Cengage Learning, 2010. Miller, George, and Spoolman, Scott. Sustaining the Earth: An Integrated Approach Cengage Advantage Books. Belmont: Cengage Learning, 2008. National Energy Board of Canada “Crude Oil and Petroleum Products - The Canadian Industry” 10 Apr 2012 NEB 25 May 2012 http://www.neb-one.gc.ca/clf-nsi/rnrgynfmtn/prcng/crdlndptrlmprdcts/cndnndstr-eng.html Pappe, Ilan. The Modern Middle East. London: Routledge, 2005. Rand, Salvatore. Significance of Tests for Petroleum Products. Bridgeport: ASTM International, 2003. Ranken Energy “A partial list of products made from Petroleum (144 of 6000 items)” 25 May 2012 http://www.ranken-energy.com/Products%20from%20Petroleum.htm Rusco, Frank. Strategic Petroleum Reserve: Issues Regarding the Inclusion of Refined Petroleum Products as Part of the Strategic Petroleum Reserve: Congressional Testimony. Darby: DIANE Publishing, 2010. Shojai, Siamack. The New Global Oil Market: Understanding Energy Issues in the World Economy. Westport: Greenwood Publishing Group, 1995. Appendix Graph 1 – Market share of refined petroleum products in Canada for 2011 (Source: National Energy Board of Canada 2011) Read More