Saudi Aramco

Introduction

Saudi Aramco is the most influential oil company in the world and the world’s largest producers of oil in the globe; it supplies more than ten percent of the global oil demand. Aramco is charged with the management of 98 percent of Saudi Arabia’s oil reserves which comprise of 25 percent of the total global oil reserve.

In the year 2006, Saudi Aramco extracted 8.9 million barrels of oil in one day. Saudi Aramco manages several refineries, international oil markets and domestic distribution of oil in Saudi Arabia. The company also owns several fleets of oil tankers and it also has distribution network of refineries.

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Saudi Aramco operates ventures in petrochemical industry. The company has its headquarters in Dhahran and supplies natural gas to other Saudi industries. It has been consistently ranked as the number one oil producer since its establishment. This ranking is based on the size of its reserve, its output in terms of oil and natural gas, refining capacity, volume of sales, net income and asset base (Aramco 14).

Since 40 percent of Saudi Arabia’s Gross Domestic Product (GDP) comes from the petroleum sector and that oil accounts for 85 percent of Saudi’s export and 70 percent of the total government revenue, it is evident that the company is the core of Saudi economy. Its importance also emanate from its strong asset base.

The strong size of the company makes it an important asset in Saudi economy and thus it is in a better position to influence the policies and the strategies of Saudi Arabia kingdom. In the development of the company’s corporate plans, it should factor not only its commercial goals but also Saudi’s foreign policy requirements and the economic goals for the kingdom’s economic future (Jaffe and Elass 12).

Saudi Aramco plays an important role in Saudi society. The critical element of its mission is to play a redistributive function in the management of the Kingdoms oil reserves and assets. The company subsidizes the domestic fuel supplies as an act to benefit the consumers and the domestic industries. It is also the main employer and it provides training for the Saudi workers. Saudi Aramco facilitates industrial development (Jaffe and Elass 13).

What they own

Aramco is a government owned company and it is the world’s number one in outputs and management of crude oil reserves. Aramco specializes in exploration, production, and the distribution of crude oil, natural gas and petrochemicals.

The company runs five domestic oil refineries with the capacity to supply and meet the oil consumption demands of the kingdom. In 1993, it acquired the ownership and the interests of the Saudi Arabian Refining and Marketing Company (SAMAREC). Saudi Aramco has ownership control over the chain of hydrocarbon in Saudi Arabia through the transference of Petromin equity in its two lubricant companies.

Consequently, through its majority shares in Petrolube and Luberef, Saudi Aramco is responsible for the production and the distribution of lubricants in the country. Through its subsidiary Aramco Gulf Operations Company, Saudi Aramco took over the off shore oil and gas fields in the neural Zone from Arabian Oil Company of Japan. Saudi Aramco is the major oil supplier to Europe and US and controls Saudi Arabia’s oil and pipeline terminals (Valerie 47).

The company furthermore owns and operates the Master Gas System (MGS) which is instrumental in ensuring that the country is self-sufficient in fuel and gas. MGS is also among the largest exporters of gas liquids in the globe.

The company has substantial stake and interests in refinery and marketing activities in countries like USA, Korea, Japan and china. Consequently, through its affiliate company called Vela International Marine, Saudi Aramco has the ownership and the operation of the world’s largest fleet of tankers (Saudi Aramco World 42).

Position in Global System

Besides its pivotal role in the Saudi economy, Saudi Aramco has a strong influence in the global economy. It is the only oil firm from Saudi Arabia and also in the world that has a global sway in the production of oil.

Its possession of spare crude production capacity in the world gives it leverage over other oil companies and it is argued that it is in a position to replace the oil exports of a medium oil producing nation within few days and can also pull a significant volume of oil from the market to guarantee shortage. Its spare capacity is necessary for Saudi Aramco to assert its role as the global and regional leader and also as a reliable oil producer in the world in times of conflict and instability.

With the ever rising prices of oil and oil being an international commodity, the global influence of Saudi Aramco is at its peak. Consequently, since the company is the biggest oil producer in the world and due to the fact that it equipped with the weapon of spare oil production capacity, the company has an unmatched power in the international energy and financial markets.

This therefore implies that in order to understand the international corporate culture, the process of decision making and future strategies in the international oil market, its imperative for one to analyze the future of the energy market by using Saudi Aramco as a reference point.

For analysts to identify and make an evaluation as to whether or not Saudi Arabia will be in better position to produce oil that will be enough to meet the global needs, the operation and the position of Saudi Aramco must be first evaluated since it plays a critical role in the implementation of oil policies and the expansion of the production capabilities of Saudi Arabia (Mercel 32).

The strategies and the objectives of Saudi Aramco have been intentioned towards meeting the foreign policy requirements of the state. This was evident in the 1980s when the Saudi government and the royal family argued that an oil price war was a requisite for capturing the Saudi market share from emerging oil producers like Norway and United Kingdom.

The royal family also engineered a low price regime during the Iraq and Iran war as a measure of ensuring that the cash strapped Iran could be denied of resources to wage a strong war against Iraq. The politics of oil was also used as a measure to pressurize Soviet Union to stop its forays and influence into Afghanistan (Anderson 67).

Saudi Aramco has been at the apex of Saudi Arabia’s foreign policy priorities. In order to influence its foreign policy towards the United States and to influence the America public opinion regarding the US-Saudi relationship, Saudi Arabia has projected itself as the number one oil supplier to the US.

Furthermore, to assert its role as a strategic ally in the international coalition, through superlative efforts, Saudi Aramco replaced in less than three months the Kuwaiti and Iraqi oil production that was lost in the event of Iraq’s invasion of Kuwait (Saudi Aramco 3).

How they developed

Saudi Aramco developed as one of America’s largest overseas investment. Aramco is the symbols for Arabian American Oil Company and it was fully established as the company that was in charge of Saudi concession. It was founded by two of the world’s biggest oil companies namely the Texaco and Chevron.

After World War II, Aramco was reinforced by two other oil companies, the Exxon and Mobil. At its inception, Aramco was used by the US as an instrument to control oil (Vitalis 9). Saudi Aramco was established in 1933 through a concession with the standard oil cooperation of California. In 1988, the royal king signed a degree that led to the conversion of Aramco to Saudi Aramco and it was fully made a government owned enterprise and for profit.

Their revenues

Saudi Aramco has its own independent operating revenue. Through the kingdom’s ministry of finance, the company is allocated funds for its expansion and investment programs. Revenue wise, Saudi Aramco has retained the top spot and it has experienced an unprecedented profit due to rise in its revenues in the Organization of Islamic Conferences. Their increase in revenue is due to the increased demand of oil especially from the East Asian region (Europa Publications Limited 29).

Where they make their money

Saudi Aramco make their money primarily though the sale of oil and gas. Through their infrastructure, they also make money by drilling and exploration of oil. Saudi Aramco also makes their money through the selling of petroleum products and natural gas in Saudi Arabia and its subsidiaries in the world. The preciousness of oil as an international commodity is enough to generate substantial income for Saudi Aramco (Saudi Aramco 1).

Their activities

Among the activities of Saudi Aramco include exploration of oil, international marine shipping and production of oil. Saudi Aramco is an integrated company with tanker and refinery operations. The company also participates in the marketing of crude oil, natural gas, refined oil products and petrochemicals (Cordesman 468).

In exploration, the company has 104 fields of oil and gas reserve. Drilling is also another activity that is undertaken by Saudi Aramco. In shipping, it has contracted tankers together with their fleet to ship oil to other countries. Saudi Aramco particularly undertakes this activity of shipping through its subsidiary the Vela international marine which is responsible for shipping to North America, Europe and Asia continents where they have markets (Jones 23).

Conclusion

Saudi Aramco is a perfect example of how national oil companies, through their behaviors, objectives and strategies can serve foreign policy roles as well as domestic responsibilities.

Oil being an international commodity, it is indisputable that Saudi Aramco is one of the top ranking company in the globe and the fact that its operations are significant to create an artificial shortage in the international market makes it a critical player and fundamental actor in global affairs and an instrument of foreign policy for the Saudi government. Saudi Aramco undeniably gives leverage to Saudi government and state in the game of international politics.

Works Cited

Anderson, Irvine. Aramco, the United States, and Saudi Arabia a Study in the Dynamics of Foreign Oil Policy. Princeton, N.J: Princeton University Press, 1981. Print.

Aramco. Saudi Aramco World. New York, NY: Cengage Learning, 2000. Print.

Cordesman, Anthony. Saudi Arabia enters the 21st century. New York, NY: Greenwood Publishing Group, 2003. Print.

Europa Publications Limited. The Middle East and North Africa. New York, NY: Routledge, 2003. Print.

Jaffe, Myers and Elass Jareer. Saudi Aramco: national flagship with global responsibilities. RICE University, 2007. Web. 10/10/2011.

Jones, Toby. Desert Kingdom. Cambridge. MA: Harvard University Press, 2010. Print.

Saudi Aramco. Editorial. New York Times, 2011. Print.

Saudi Aramco World.75 facts beginner’s guide to Saudi Aramco”. New York, NY: Saudi Aramco world, 2008. Print.

Valerie, Marcel. Oil Titans. Washington, DC: Brookings, 2006. Print.

Vitalis, Robert. America’s Kingdom. Stanford, CA: Stanford University Press, 2007. Print.

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