Start Industry in Saudi Arabia
The economy is heavily dependent on oil production, which provided over 90% of export value and 75% of government revenues in 2001. The country has the largest reserves of petroleum in the world, 24.9% of the proven total as of the end of 2000, with its northern neighbor, Iraq, holding second place at 10.7%, and two other Arab neighbors, the UAE and Kuwait, third and fourth, at 9.3% and 9.2%, respectively. Rapidly increasing oil income after the first oil shock, 1973–74, led by the Organization of Oil Exporting Countries (OPEC) cartel, were used to increase disposable income, defense expenditures and economic development. OPEC was able to enforce a quadrupling of oil prices (from $2.50/bbl to $10/bbl) largely because of King Faisal's agreement to deploy the oil weapon in conjunction with the Yom Kippur War. Per capita income in current dollars peaked at $15,700 in 1980 after the second oil shock, 1978–79 in conduction with the Iranian Islamic revolution, sent oil prices to all-time highs, peaking at just over $40/bbl. in September 1980 at the start of the Iraq-Iran war. From there, population growth (about 350% 1973 to 2003, from 6.76 million to 24.3 million, including an estimated 5 million non-nationals), a decreasing OPEC share of world oil production (from over 50% in 1973 to less than 30% in 1985 to about 40% in 2003), oil conservation efforts among consumers, and limited success in diversifying the economy have combined to reduce per capita income more than 40% to $6,837 by 2001 (equivalent to $10,600 in purchasing power parity terms according to CIA estimates). The contribution of the oil sector (crude oil and refined products) to the overall GDP, nevertheless, has substantially decreased, from 70% in 1980 to an estimated 40% to 45% during the period 1999 to 2001.
As an oil producer, Sa'udi Arabia's economy has a rentier structure, profiting from oligopolistic ownership of a factor of production. Marginal production costs for a barrel of oil in Sa'udi Arabia are about $1.50, which, since 1973, it has generally been able to sell for between $10/bbl. and $40/bbl. largely because of cooperation within OPEC, an open producers' cartel. After the collapse of world oil prices in 1986, when benchmark Sa'udi light oil, at $28/bbl. in 1985, bottomed out at $8/bbl. (in real terms, lower than 1973 prices), the economy has been more subject to more normal operations of supply and demand. Maintenance of OPEC target prices rests heavily on Sa'udi restraint, often below its official quotas. Sa'udi restraint reduces its oil revenues as the same time that the high price encourages non-OPEC production and cheating by poorer OPEC members, which, in turn, brings down the world price, which also reduces Sa'udi oil revenues.
Although the Sa'udi economy has been virtually synonymous with crude oil, the country is attempting to diversify its manufacturing. Industrial products include cement, steel, glass, metal manufactures, automotive parts
, and building materials, along with petroleum refinery products and petrochemicals (primarily methanol, ethylene, and polypropylene).
Industries producing consumer goods for the local market rely for the most part on imported raw materials. The most notable growth has occurred in food processing
and includes meat-packing plants, flour mills, ice cream, yogurt, other dairy processing plants, and vegetable canneries. Other companies produce canvas cloth, surgical supplies, paper products, plastic pipes, electric appliances, paints
, detergents, and pharmaceuticals