How Discovery of Oil Has Affected State Building of Saudi Arabia - Essay Example

How discovery of oil has affected building of Saudi Arabia The oil discovery in Saudi Arabia contributed greatly to the formation of the state and to the shaping of its economy. Prior to the oil discovery in the Arabian Peninsula, it was difficult to think of a united Saudi Arabian state and economy. Separate regions were dependent on different resources and had differentiated human and economic activities. Hijaz, for instance, depended mainly on long-distance trade, subsistence agriculture, and service provision to travelling pilgrims (Country Studies par 2).

Al Ahsa was well known for plantation agriculture. Permanent homes could be found around water sources like natural springs and travelling was quite difficult due to poor infrastructure. The oil discovery in 1938, (Country Studies par 3) came some years after a major political change in the region: the unification of a number of varied areas of the peninsula into the kingdom of Saudi Arabia under one leader. The post-World War II period of growing demand for cheap and reliable suppliers of oil for rebuilding Europe, was a great boost to the unity of the Saudi Arabian regions, and to the developing oil industry in the state.

The attractive revenues that were realized during the reign of Abd al Aziz Al ibn Abd (1932-1953), strengthened his position and gave him power to exert a higher political and economic influence over his territories (Country Studies par 4). The Saudi state became the pervasive economic change agent, replacing the initially differentiated economy with one that relied entirely upon the state's expenditure. In the 1970s and early 1980s, the rapid increase in oil prices enabled the Saudi state to meet its long-term financial obligations (Country Studies par 9).

The huge oil revenues, in addition to delays in expenditures and the Saudi economy's restricted absorptive capacity, brought about large financial surpluses in the economy. Majority of these surpluses were invested in reputable international financial institutions and securities. The state being one of the leaders in the oil market in the 1990s, found it hard to diversify its economy (Country Studies par 6). This government has however, raised the average living standards of Saudi citizens’ to among the best globally, and established excellent infrastructural facilities and social services for its people.

Being the major source of revenue, the oil industry has been an area of keen interest to the government. Growth of the oil sector was vital to domestic political stability. The kingdom's importance as a leading oil producer, guaranteed its safety during the time of the gulf crisis. References Country Studies. 'Saudi Arabia - The Economy'. N.p., 2014. Web. 27 Sept. 2014. Tucker, Spencer, and Roberts, Priscilla M. The Encyclopedia of the Arab-Israeli Conflict: A Political, Social, and Military History.

Santa Barbara, Calif: ABC-CLIO, 2008. Print.