Saudi Arabia and US Relations: A Mediating Role of Oil - Literature review Example

?Saudi Arabia and US Relations: A Mediating Role of Oil Saudi Arabia and US Relations: A Mediating Role of Oil Introduction The oil based global economy has its advantages and disadvantages. The companies that are operating around the world are considered major consumers of oil products on an international level. The countries are identified as facilitators for multinational corporations and therefore, the latter mentioned entities have significant and notable level of influence on international relations and politics (Globerman & Shapiro 1999). The countries around the world are well aware of the fact that they have and ought to follow resource dependency theory in order to survive in the changing and dynamic world of the 21st century (Chase-Dunn 1975). However, the American nation is taken as the most oil dependent economic system of the world and because of this reason; she has to keep her international relations with the major oil producing country steady (Parry & Darmstadter 2003). But, the counter-Muslim wars sponsored and initiated by the US played a significant role in deteriorating the bilateral relationship between the two featured and important nations of the world. Still, the corporate relationships between the two nations continued and prevailed during the testing times as well (Nordhaus, 2002). The approach of this paper will be based on critically reviewing the existing literature of the topic whereas initially it is believed that the two nations were forced towards engaging in bilateral trade because of changing economic realities. Literature Review The concept of economic rationality helped both the nations to understand and comprehend each other’s importance, as Arabia is the most significantly known oil-business partner of the US, when it comes to oil trade volume. Arabia and the US considered their relationship valuable because the former economy is supplying oil for major lubricate operations of the latter one. The trade ties between the nations are also historical in nature and therefore, both of the parties are accustomed and habitual of dealing with each other. According to modern economics, the nations have to do resource endowment in an economic area where they can attain economies of scale and resultant cost related benefits as well (Levy 1997). The US majorly specializes in industrialization and consumer products while its abovementioned trading partner provides state of the art oil related products and services (Sachs & Warner, 2001). Nevertheless, the economic situation of both the countries pushed them towards collaborating with each other. The economic interests have always played a due role of a bridge between the two precious economies of the world. The foreign policies of Saudi-Arab and America remained considerably friendly and polite towards each other from the beginning of political ties (Dalacoura, 2012). The major credit goes to oil trade, which compelled the governments to pursue peaceful relations. The international relationships took a notable and major level of tilt when Saudi governmental departments initiated to take-over management of main oil extraction and purification operations. Currently, Saudi government is believed to be a major stakeholder in every oil related operations that are taking place locally (Smith, 2009). The above-stated change forced the US government and international companies to divert special attention towards maintaining productive relations with the Saudi government. In the past however, the American multinationals were operating in order to extract oil from the Arabian country. But, with the passage of time, when the political leadership of the country decided to increase its stake in the most important industry then, the living got tough for the American based multinationals. The American companies had to divest from the local economy of Saudi-Arabia because of rising and unbearable taxation and regulatory requirements. The Americans decided to evade other oil producing nations in the name of terrorism after experiencing a painful and demoralizing shut out from Saudi-Arab. Soon after, the Americans found out that the oil production costs in Iraq are much higher because there is no proper industrial infrastructure available. The US government was therefore, compelled to reopen trade relationships with an old Muslim friend. The era of American global dominance is apparently ending and therefore, the nation is looking to gather resource level synergies with other nations (Guriev, Kolotilin, & Sonin, 2011). The nation is particularly focusing on scientific research and development, weaponry and even biological research. The American local economy is rapidly transforming into a knowledge-based community and because of this reason, her focus has recently shifted from industrialized services to information- based ones. But, as the country as a whole became committed toward gathering knowledge and applying it, the America’s local ability to produce oil diminished (Peters, 2001). Consequently, the country had to revitalize its trade relationships with an old friend. The lack of infrastructure and system in Iraq did not help the land of opportunities to gather significant levels of economic benefits from troubled and so-called terrorist state. The American companies attempted to extract and purify the Iraqi oil but failed in their sole and whole purpose of attaining cost benefit. The American nation then, had to decide to outsource the important function of oil purification and extraction. Nonetheless, the international community has recently admitted the fact that Saudi Arabia’s infrastructure of oil processing is currently unmatched in the world of commerce. The nation has resource endowed in major economic area and initially outsourced the oil related operations because they never had sophisticated technology needed to perform such a vast scale operation (Wright, 2011). But, with the passage of time, the oil extraction and purification industry flourished and its culture and organizational setup developed and grew. In past number of decades, the oil related industry of Arab remained in tight control of European and American firms and the outsourcers were able to provide cost benefits to their home countries as they had the luxury to elude local and indigenous taxation system. Additionally, the local residents of the host country did not have the foggiest idea about the important industry’s working and operations. As the time passed, the world became a global village and therefore, the information asymmetries vanished and people of Arab initiated to understand and comprehend the filthy practices of the corporate giants. When society gathered more information then, consumer pressure groups started to raise voice about environmental degradation and geo-thermal disturbances caused by massive industrial operations. The local educational institutions commenced research on the most significant social issues and as a result suggested the government to raise and tight rate of taxation and tax system respectively. As the suggestions were practically implemented, the profitability of foreign subsidiaries responded by showing a notable decline (Chase-Dunn, 1975). The major companies such as Total, Caltex and others had to shrink their operations in the Arabian territory while many of the foreign contractors had to entirely abandon their operations, as they grew highly unprofitable. In present times, the American government has to deal with Arabian one in order to procure oil products. The American authorities are well aware of the fact that Saudis have the ability to provide economical oil products to them whereas, the Saudis are awake to the reality that American society is literally a dump-yard for their oil for past number of decades. It is also important to note that the trading and political relations between the two nations initiated in order to acquire oil. The oil is therefore, the main and major binding force that kept relationships steady and strong. However, when the US forces invaded the Iraqi soil then, in response the Saudi government reacted with furious statements and threats. But, unluckily the US-Arab trade continued under the carpet and there was no appreciable level of change in its volume as well. Few of the research expeditions extrapolated and negated the possibility that Saudi government was not contented with US invasion of Iraq because of humane concern or even holistic concept of Islamic goodwill. But, they argued that Arabia as a major oil producer had to face competition from Iraq as US was looking to initiate similar oil related operations in the occupied territory. The Arabian government attempted to intervene in US incursion in Iraq in order to protect its economic and fiscal interests. The US government was indeed planning to increase competition in global oil market by strengthening the infrastructure in Iraq and the challenge was posed in front of the contractors that were operating in Arab (Parry & Darmstadter, 2003). Arab is still significantly dependent on foreign contractors and therefore, the government had to listen and implement their suggestions regarding strengthening the bilateral trade by the most oil consuming economy of the world. The US government faced a dilemma in strengthening the oil-producing infrastructure in Iraq and the Arabian government was faced with a challenge of dumping its extra oil production that was expected to grow in volume because of US decision of switching to Iraqi oil fields (Ederington, 2001). The economic resource dependency forced both the nations to collaborate in terms of trade. The trade is considered important in terms of maintaining an adequate level of living standards by both the featured governments. The Arabian government is interested in getting consumer goods and technological equipment from the US whereas the US is more than interested in buying out fuel for its stagnant industrial sector. Thusly, the idea of economic growth forced the nations that are religiously and culturally different from each other, towards joint venturing. The whole document presented the power of trade that has the tendency to join the two odd individuals into a corporate marriage. If US and Saudi-Arabia can forget their differences in order to jointly attain economic growth then, why can’t others? The journey towards global citizenship has already started and therefore, the featured enlightened nations have been working to set aside racism and religion so that they have the luxury to achieve economical growth in a participative manner (Guriev, Kolotilin, & Sonin, 2011). If one changes the lens and analyze the relation between the US and Arabia then, it can be found that US citizens have necessary technological skills that they are using in order to create and market technological equipment and products. The Arabia is blessed with natural deposits of oil and therefore, the economic growth of the area is tightly correlated with oil trade. Finally, we are living in a world where economic rationality and need to grasp fiscal growth is much more valued than any other abstract in the world of perception and reality (Ederington, 2001). Conclusion This paper reviewed and analyzed trade relationship between US and Arabia. The featured nations have been famous for joint venturing in oil extraction and purification industry. Still, the US recently attempted to back out from the historical agreement because the local operations in Arab were becoming increasingly unprofitable. The US government decided to invade Iraq in the name of terrorism but its real purpose was to occupy local oil fields in the country. Yet, the American plan failed, as it was extremely expensive and difficult to develop infrastructure in the war-hit area of Iraq and therefore, the land of opportunities decided to take oil supplies from an old friend again. References Chase-Dunn, C. (1975). The Effects of International Economic Dependence on Development and Inequality: A Cross-National Study. American Sociological Review Vol 40 no.6 , 720-738. Dalacoura, K. (2012). The 2011 uprisings in the Arab Middle East: political change and geopolitical implications. International Affairs Vol 88 (1) , pp.63–79. Ederington, J. (2001). International Coordination of Trade and Domestic Policies. The American Economic Review Vol 91 no. 5 , 1580-1593. Globerman, S., & Shapiro, D. (1999). The Impact of Government Policies on Foreign Direct Investment: The Canadian Experience. 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