Anton Nakov thanks the European Central Bank for its hospitality during the first drafts of this article. The views expressed here are those of the authors and do not necessarily coincide with the views of the the Eurosystem or the Federal Reserve System. We have benefited from comments and suggestions by Dirk Krueger, Lutz Kilian, Rafael Domenech, Alessia Campolmi and conference participants at ESSIM, Computing in Economics and Finance, Dynare, and seminar participants at Milano-Bicocca, ECB and BBVA.
Saudi Arabia and the Oil Market
Article first published online: 3 JUN 2013
© 2013 The Author(s). The Economic Journal © 2013 Royal Economic Society
The Economic Journal
Volume 123, Issue 573, pages 1333–1362, December 2013
How to Cite
Nakov, A. and Nuño, G. (2013), Saudi Arabia and the Oil Market. The Economic Journal, 123: 1333–1362. doi: 10.1111/ecoj.12031
- Issue published online: 13 DEC 2013
- Article first published online: 3 JUN 2013
- Accepted manuscript online: 7 MAR 2013 01:27PM EST
- Manuscript Received: 3 APR 2013
- Manuscript Accepted: 14 DEC 2012
In this study, we document two features that have made Saudi Arabia different from other oil producers. First, it has typically maintained ample spare capacity. Second, its production has been quite volatile even though it has witnessed few domestic shocks. These features can be rationalised in a general equilibrium model in which the oil market is modelled as a dominant producer with a competitive fringe. We show that the net welfare effect of oil tariffs on consumers is null. The reason is that Saudi Arabia's monopolistic rents fall entirely on fringe producers.