The title says it all. Assume we were able to replace that oil from another source or were able to scale back our use so that we didn’t need it.
Their economy would suffer slightly but nothing much. Anyway do you know how much money Saudi Arabia has in reserves?
They’d be able to sell to other countries like China, India, Japan, European Union. And just put the prices up to recover the losses.
Some facts:
purchasing power parity - $310.2 billion (2004 est.)
revenues: $104.8 billion
expenditures: $78.66 billion, including capital expenditures of NA (2004 est.)
Exports - partners:
US 19.3%, Japan 16.4%, South Korea 8.7%, China 5.8%, Singapore 4.5% (2004)
Reserves of foreign exchange and gold:
$23.62 billion (2004 est.)
They’d just sell the oil to someone else. It’s a seller’s market, afterall.
What if we suddenly switched en masse to hydrogen-powererd cars? Then the market would shrink, certainly, but there are a lot of uses for oil besides gasoline, and I presume those would continue.
What if the need for oil disappeared completely? All of the money the Saudi royal family has amassed wouldn’t just disappear, but as you suggest, the economy would take a hit. According to the World Factbook:
That last sentence suggests that they’ve considered your question, too. I do’t know, though. I’m not sure that it’ll be any easier for the Saudis to go oil-free than for the US.
Well oil is completely ‘fungible’ that is to say oil from anywhere is pretty much the same as oil from anywhere else. If the Americans stop buying Saudi oil, other countries (say China) will buy that oil and we will by the oil they would have bought. Nobody would even notice.
Also, as I understand it (correct me if I am wrong*), most of America’s oil comes from the Western Hemisphere. The oil we pump here does not reach the US at all.
*Josef Goebels, the Sportsplatz Speech, 1943
If the Saudis did start feeling the pinch, they’d likely start cashing in the various bonds, T-bill and other property they’ve purchased from the Americans and which they’ve been content thus far to leave in American banks and holding companies. There could be quite a lot of economic instability in the west.
This whole topic is probably best suited for GD, because there is no one real answer. Anyway, the quoted above is a bit simplistic with regard to the bonds and T-bills (I’m not sure by what other property is - real property?).
The Saudi mass selling of bonds and T-bills will play havoc in the secondary market, as other debt holders will undoubtedly follow suit, causing a panic, having the immediate effect of causing the US interest rate to skyrocket. The economy will most likely start slowing down, grinding down because people will put more cash into savings rather than speculating on property. Speaking of which, housing costs will soar because of high interest rates (not the nominal price of the house, but the true cost of home ownership). If anything, this will cause the bubble to finally burst, the highly speculative areas (CA (especially), NY/NJ, parts of the midwest (Chicago, Houston), maybe Florida) will feel the biggest pinch. CA and NY/NJ economies will likely suffer the most, bringing down spending in the US overall. House building will slow, people will turn to renting to properly save for a house, etc. Future speculators, given the track record of the US paying back its debt, will eventually start buying bonds to keep the interest rate from sky rocketing; but, in the meantime, if further left unchecked, the market may very well crash as investors will turn towards safer savings investment, bonds, and CDs, rather than investing in stocks and companies. Banks and financial services companies will retool their employees and base investments on interest rate than gaming the stock market. Companies will spend less because of less available capital from the decrease in investors. The crash will depend on how fast the bonds are unloaded and how fast investors and the market can transition to life with a high interest rate. Retirees would make out like bandits. New/recent college grads, those people with variable interest rate loans, will see their spending drop the most.
Continuing, as US spending decreases, Japan, India, and especially China see its number one market falter. With demand down, prices drop even lower. China and Japan can try to offset all this by buying the Saudi bonds and float the US economy even more, but most likely cannot keep this up. I’m not sure because I didn’t study monetary policy. Also, I’m not sure, because I’m not sure how much debt the Saudis hold and I’m more uncertain at how much money Asia can produce. If I had to guess, I would say that with the market down, Asia won’t have the capital to buy US debt, unless the rest of the world steps up with the buying – which I don’t see happening.
Anyway, I’ll stop with the guessing here. The point is while there is no exact answer, the world economy will likely suffer greatly along with the US. The same thing would happen if China and Japan would start unloading their debt.
Well, we would have to buy our oil from somewhere, probably from others in the middle east. If anything, one of the other petroleum companies will just buy excess oil and sell it to the US.
If the US would reduce its oil consumption in total, the answer may depend on how the reduction was accomplished, but most likely the price of oil will drop. Other industries which use oil for something other than making gas may buy more oil, and if that increased buying can keep up with the lack of demand for gasoline, then the price of oil will stay relatively constant. If not, then the price of oil will drop.
Long term effects? Hard to say really, it depends really on how the reduction was accomplished. More efficient hydrogen fuel cells? Less people around to drive cars? Both scenarios will play out differently.
The Saudi economy will most likely not feel much of anything. The US is in no hurry to buy back debt. The Saudis will sell to other countires/companies. If overall world demand goes down, then the Saudis will most likely limit supply. Popular opinion will undoubtedly fall as demand for labor will drop because of the limit in supply, unless the Saudis have some other economy with which to keep people employed.