The Oz-onomics Podcast

Oily Problems

January 14, 2020

Iran's attack on Saudi Arabia's Aramco oil production. The damage it did and what it means to us (the United States ) and what it means to Saudi Arabia. This effects more than one economy. It will be a mission to get things back up and running and it is still unsure how they will recover from this major loss. They were already empiercing a lot of changes that was leading to economic fragility, this was just the feather on the camels back.

Podcast: by Shanette Lee

Transcript

[MUSIC]

Kate: Hey everyone. Welcome to Oz-onomics, a podcast created for and by students in introductory economics classes at SUNY Oswego.

GABRIELLA: In this series, we'll have discussions about various economic principles and how they apply to our day to day lives.

KATE: Are you ready?

GABRIELLA: Let's go.

[MUSIC]

Hi, my name is Shanette Lee and today I'll be talking about the oil attacks on Saudi Arabia. September 14 at around 4:00 AM Saudi Arabia's kingdom's crown jewel was attacked and on September 18th the Saudi defense ministry declared that the attack was unquestionably sponsored by Terryn due to the fact that they put on a display of drones also cruise missiles to demonstrate that they were of Iranian origin. The attack on Saudi Arabia's oil facilities knocked out 5% of global oil supply and sent oil prices soaring. Saudi Arabia is the 12th largest country, but that 5% was very detrimental to Saudi Arabia. The Pentagon has announced the deployment of thousands of additional troops to enhance the defense of Saudi Arabia. We were affected by this attack, but not too much because we have other people that we get our oil from. We have other affiliations. About 5.7 barrels per day amounts to the 5% of global oil supply, which means that they definitely knocked out half of the countries or productions and it could take months before Aramco, which is the name of them could fix the damage. This attack caused a shift in the supply curve to the left, it has caused prices to surge. The attacks on Saudi Arabia's oil facilities delivered a shock to the kingdom at the moment of economic fragility. They are experiencing economic fragility because of their attempt to jumpstart non oil industries. They were Struggling and foreign investments were down as well. Saudi customers who benefit from government jobs and other perks fueled by the wealth from the oil Sales were also struggling to absorb the introduction of sales tax and the reduction subsidies in electricity, water, and fuel. So this happened at the worst possible time. Not that anytime is good, but there was already much going on that had to be fixed. Economists had downgraded the country's economic growth on lower oil prices this year as a country needs prices above $80 a barrel to balance their budget. A sunk cost situation definitely occured. All the oil loss and damage that was done cannot be undone. Therefore, it is a major loss. There are certain things that can happen that you can repair or at least find a way to catch up, but these are not. This is not one of those things. A lot of damage was done. A sunk cost is the money that has already been spent in which cannot be recovered. Some costs are excluded from future business decisions because the costs will remain the same regardless of the outcome of the decision. Meanwhile, the energy price shock resonated through global markets. It drove up the shares and energy companies on the prospect of higher profits. While stock exchanges across Europe plunged into the red as the inventors took fright over rising geopolitical tensions, the Saudi oil techs have triggered the steepest crude market price surge in 30 years and this inflicted fear for the global economy. So this means that not only do they will have to deal with this, but it is affecting a bigger economy than just their own. This led to the biggest jump in global prices since 1988 by wiping out 5.7 million barrels, oil market analysts claim prices concerted towards $100 a barrel in the coming weeks if and when the middle East, tensions lead to renewed disruption in the “strait of Hormuz” which is a transit route for the world's oil tinkers, so this also would affect us even though we are in communication with other oil suppliers. A lot of them take this route to get the oil to us. There's no doubt that the result in price increase will be a boost for any oil producers, particularly for the United States shale producers who have been one of the worst performing sectors and the S and P 500 and are under the microscope .It's still too early to tell what the credit impact will be and it will largely depend on how long and how much all production is down and off the market. Closing prices have an effect as well too. It's crazy to think that all the Wars and problems in the middle East have been about the same thing and lasted for so many decades.

[MUSIC]

MICHAEL: There you have a folks on another edition of Oz-onomics, where economics becomes easier for Oswego students to understand where you get your money that you pay for your tuition worth. If you feel like being ahead of the curve, grab a seat, grab your phone, shift your fingers left and right. And download Oz-onomics on the podcast app. See you later.

The introduction to this podcast was provided by Kate Soanes and Gabriella Schaff. Michael Kolawale provided the outro. Music by Lobo Loco.

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