Lower Oil Prices’ Effects in Saudi Arabia

Introduction

Saudi Arabia has experienced economic development, but also many challenges due to oil price volatility. In mid-2014, oil prices declined, impacting the country’s economy despite the government’s earlier diversification strategies. The government roadmap for development, Vision 2030, envisioned a bright future for Saudi Arabia in terms of full progress against a backdrop of sustainable development. All resources and agencies of the government were mandated to align their programs with this project. The recent price rollback affected programs, and with them, the country’s hopes for a brighter future, particularly in the context of organizational behavior.

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Saudi Arabia has a relatively large oil production capacity that has made its economy potentially vulnerable to world oil price fluctuations. It is the objective of this study to investigate the role of world oil price fluctuations on organizational behavior in Saudi Arabia. Saudi Arabia is a member of the Organization of Petroleum Exporting Countries (OPEC) and has a key role in decision making concerning oil production and prices. This dissertation will delve into the negative impact of the fall of oil prices on organizational behavior.

This essay will answer the question: Do lower oil prices adversely affect organizational behavior in Saudi Arabia? The research will employ a qualitative study by focusing on Saudi Arabian oil production and oil price volatility, and how these have affected the Saudi economy. We used qualitative data taken from journals, and articles sourced from online databases, e.g., EBSCOHOST and ProQuest.

Literature Review

Background

Saudi Arabia’s economy is considered the sixth largest in Asia and contributes one-fifth of the total Gross Domestic Product of the Middle East region (Ministry of Petroleum of Saudi Arabia as cited in Alkhail, 2007). Saudi Arabia is also involved in international trade, mostly with developed countries such as the United States and countries in Europe.

This means Saudi Arabia’s economy may be more responsive to business cycles initiated in other countries. One factor for this concern is that, as an economy becomes more integrated with other world economies, a recession or boom cycle that starts in other countries negatively impacts developing countries. This is especially true for those countries with few export choices, and those that depend greatly on a small range of raw materials.

Saudi Arabia became an oil state when “black gold” was discovered in 1923. Several factors triggered the search for oil in the Arabian Peninsula. Oil was discovered by the Anglo-Persian Oil Company in the mountains of northwestern Persia in 1908. While most geological census reports agreed that there was no oil in the Arabian Peninsula, the discovery in Persia prompted additional research. Several theories postulating the existence of oil in the Arabian Peninsula asserted that oil fields would most likely be found in the Eastern province city of Al-Qatif (Morton as cited in AlMusehel, 2015).

Another factor was that the stability achieved by King Abdul-Aziz allowed for ease of exploration, in contrast to neighboring countries such as Yemen and Oman. Additionally, the Saudi Arabian government wanted to find alternative means of income in the face of the Great Depression. Grutz (as cited in AlMusehel, 2015) noted the main income for the Hijaz region, which by the 1930s had become part of Saudi Arabia, was provided by taxes and commerce fees paid by pilgrims making their way to Makkah and Al-Madina.

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During the Great Depression, this number fell from 100,000 to under 40,000 annually. King Abdul-Aziz then permitted digging for more potential sources of revenue, including oil exploration. Finally, the demand for oil during the First World War triggered a desperate need to secure an oil supply for production and industry.

This became more evident when Germany’s shortage of oil supplies led to a decline in that country’s ability to produce war machines; in turn, the allies anticipated the need for oil and began a thorough search for oil fields all across the globe (Grutz as cited in AlMusehel, 2015). With the government supporting exploration, U.S.-based companies began to search for precious oil.

Exploration was first made by a British company, the Eastern and General Syndicates, which later halted its efforts in 1928 and was replaced by an American company, Standard Oil of California (Alkhail, 2007). The contract gave the company an oil concession for sixty years and allowed them to begin exploring for oil on the eastern side of the country.

After that, the company became known as the California Arabian Standard Oil Company (CASOC). The first oil well was drilled in 1935 in the field of Dammam and was named Oil Well One. A year later, CASOC signed a cooperation agreement with Texas Oil, extending the oil concession in Saudi Arabia for up to 66 years. Saudi Arabia began exporting oil to international markets in 1938.

Today, Saudi Arabia is an important component of the international oil market in terms of its relatively large production capacity, vast oil reserves, and discrete position in OPEC. However, because of the enormity of the oil market and vast differences in forecasting price, Saudi Arabia has had negative experiences when it comes to oil prices (Alkhail, 2007).

Currently, Saudi Arabia’s value of petroleum exports is estimated at US$336.12 billion, and crude oil production is estimated at 9.763 million BPD (barrels per day). The refinery can produce as much as 2.107 million BPD, while its internal need is 2.873 million BPD and crude oil exports are 7.557 million BPD (AlMusehel, 2015).

The development of control over revenue sources had a slow start in Saudi Arabia. It was not until the early 1980s that the country assumed full control of its oil resources. Specifically, between 1959 and 1982, oil revenue constituted an average of 23.5% of the total revenue (AlMusehel, 2015). Starting from 1983 onward, the average share of oil revenue has more than tripled, to reach 75.42% of government revenue (AlMusehel, 2015).

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The oil price shock

The sudden sharp increase in world oil prices in 1979, as an outcome of the Iranian revolution, had a positive impact on some oil-exporting countries; however, the 1986 oil price decline also significantly affected developing countries (Dibooglu & Aleisa, 2004). In mid-2014, there was again a price decline; prices are forecast to gradually rise a little until 2016.

Oil price fluctuations and exchange rates are influenced by several factors. This can be clearly understood by tracing the role of oil revenue in the Saudi Arabian GDP, which has registered to be nearly 37%, contributing about 1/8 of the world’s crude oil (Dibooglu & Aleisa, 2004, p. 51). Though the country experienced steady growth in the 1990s, it enjoyed a respectable growth because of increased oil production, and the country registered modest inflation (Dibooglu & Aleisa, 2004).

During the second Gulf war, Saudi oil production was steady, while international prices fluctuated and showed a significant increase. In 2004, real oil prices started to increase, reaching 6.8 dollars per barrel, compared to about 5.44 dollars per barrel in previous years. During recent decades, real oil prices increased greatly in 2004, while the lowest increase was in 1998 (SAMA as cited in Alkhail, 2007).

Saudi Arabia’s economic activities affect international markets. Rosser and Sheehan state that (as cited in Aleisa, 2002), “Saudi oil policy, driven by internal factors, influenced world inflation, and that in turn the open Saudi economy was significantly influenced by world inflation as well as by its oil policy” (p. 2).

Since Saudi Arabia’s oil policy can influence world oil prices, and the country mostly depends on the importation of goods to meet domestic needs, a rise in world inflation will affect the Saudi economy through the cost of imported goods. This makes the domestic market vulnerable to external shocks. Fiscal and monetary policy, concerning oil policy, is also a factor (Rosser & Sheehan as cited in Aleisa, 2002).

An example of this scenario is when oil price shocks affected the economy in 1973. Before this, the Saudi economy experienced stable prices and low inflation. In the years following the oil price shocks, the economy suffered high inflation during 1975 and 1980. This means that after the 1973 oil price hike, revenue generated from the export of oil increased tremendously. The Saudi government, as the main beneficiary of oil revenue, transferred some of this wealth to the citizenry, which action then enhanced the economy through improved infrastructure and a suitable environment for economic development (Aleisa, 2002).

During the 1970s, the Saudi government established several funds with the prospect of creating an industrial-based economy, transferring technology and creating a suitable environment to establish and protect the new industry. The Agricultural Bank was created to provide interest-free loans to farmers to buy machinery, develop the land, and purchase livestock and fertilizers. The public investment fund was set up to provide loans to firms to drive the economy within the domestic market.

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This was one of the major sources that established the Saudi Arabian Basic Industries Corporation (SABIC). SABIC has gained market share in about 90 countries (SAMA as cited in Aleisa, 2002). Moreover, the Saudi industrial development fund was created to support small investors with interest-free loans to finance investment projects. The goal of the real estate development fund was to provide long-term, interest-free loans to build family houses for Saudis. Then, the Saudi Credit Bank was formed to help low-income Saudis.

The massive government expenditure within a short time dramatically transformed the economy to a contemporary one, by implementing extensive development programs, social services, infrastructure, and basic industries development. These developments came at a high cost to economic stability; inflation started to rise, reaching 34 percent in 1975.

The causes of inflation may be attributed to the bottlenecks of increased imports and the massive growth of liquidity to finance government expenditures. Due to the high increase in oil revenue, approximately 82 percent of the rise in gross liquidity was associated with government expenditures (Aleisa, 2002). More than 90 percent of the liquidity injected into the economy in the late 1970s and early 1980s came from government sources (Banafe, 1999).

Effects of oil price decline on Saudi Arabia

Fostering and promoting the oil and gas industry in Saudi Arabia was the first major government program for King Abdul-Aziz and his successors. It represents the lifeline that keeps Saudi Arabia functioning, providing capital for development, defense, and investments. While the concept of diversification of revenue came with the new generation of kings in the 1970s, King Abdul-Aziz’s main objective was to find and benefit from a stable revenue source.

However, the king realized that dependence on pilgrimage revenue was not enough to sustain the kingdom’s capital needs. First, there was a religious morality issue that restricted any increase in revenue due to higher prices. While a source of capital for Saudi Arabia, pilgrimage was still a holy journey, and any materialistic interest would conflict with the concept of housing the two holy shrines of Islam (AlMusehel, 2015).

Saudi Arabia is heavily engaged in foreign direct investment and private enterprise but is also dependent on state-directed activities. This dependence impacts not only budget policies, but state companies like Saudi ARAMCO, Saudi Arabian Telecom Corporation, and Saudi Arabian Airlines. Because of these situations, Saudi Arabia is involved in state capitalism in conducting its economic activity (AlMusehel, 2015).

In short, this restricts economic growth, and the negative factors that impact the economy vis-à-vis Saudi oil might also impact state-run enterprises. A likely result would be Saudi Arabia experiencing a case of restricted growth caused by inefficiencies that result from state and not private ownership, and the inevitable oil price shocks.

A tremendous impact could be felt in the government’s investment programs, such as those in education, human capital development, military defense programs, and infrastructure, which depended tremendously on oil production, as it represented a large share of government revenue. With its status as a rentier state, the Kingdom’s economic health is sensitive to the dynamics of the energy markets.

According to AlMusehel (2015), fluctuations in oil prices would affect the revenue stream of the government, and in turn, would dictate the feasible shares of budgetary spending on local developments that are linked to economic indicators. Although the Saudi government has made efforts toward diversification such as large investments in non-oil dependent economic activity, Saudi Arabia remains a net oil-exporting country and heavily dependent on its oil and gas production as the main source of government revenue.

Ramady (2010) argues that several challenges for the Saudi Arabian economy remain despite diversification efforts. Under the planned output of 12.5 million BPD, theoretically, Saudi Arabia would cease to export in the coming decades if global oil demand continues to grow on a linear trajectory. The feasible solutions to such problems include notable growth in the diversification of production and income, as well as inter-sectoral, regional, and global economic integration (AlMusehel, 2015).

Saudi Arabia is dependent on oil revenue to finance non-oil industries in the form of subsidies, government aid, Specialized Government Lending Institutions, and government spending. However, it will take time before the non-oil sector achieves a self-sustaining source of revenue. Until then, it is dependent on oil production as the main source of its economic growth.

The advancements made were possible due to a stable macroeconomic environment, and continuous economic support backed by large oil revenue. Shocks to any of these factors can create a ripple effect and will propagate through these projects and non-oil sector development. It becomes a greater problem if we assume that such programs are sticky, as is the case when considering government expenditures and public expectations. If the non-oil sector is reliant on government aid and similar capital provisions, then in the face of persistently negative oil price shocks, they are doomed to failure.

For example, the 1980s oil glut featured a significant drop in oil prices. A surplus of crude oil occurred because of falling demand following the Arab oil embargo of the 1970s. In real 2004 US dollars, the price of oil fell from $78 in 1981 to slightly more than $26 per barrel in 1986 or a 66% decline in less than five years. Oil prices also declined in the early 1990s as OPEC increased production. A continuing surplus impacted oil producers, with unsold oil estimated at 90 million barrels in 1991 (AlMusehel, 2015).

Recently, the United States has overtaken Saudi Arabia and Russia to become the world’s largest oil producer in 2014 (Smith, 2014). Increased production would lower the price of oil, in addition to the United States’ reduced dependence on Middle Eastern oil. Macalister (as cited in AlMusehel, 2015) reported that oil prices have declined by more than 25% since June of 2014, ending in the range of $83 to $85 per barrel. OPEC, which holds 60% of global reserves and provides 30% of demand, is facing a power struggle to reassert its dominance.

Effect on organizations

Lower oil prices can trigger economic growth. The effect of lower prices will rely on the fundamental causes of the price decline, the impact on households and business organizations, and policies issued by the government. Higher oil production can result in lower prices. Non-OPEC countries may produce more, and so demand is weaker than supply.

This was felt in 2014 to 2015 when demand fell. Weaker demand triggered a decline in the prices of other energy commodities (Husain et al., 2015). Predictions with statistics suggest that Brent oil prices (a crude oil classification, used as a benchmark for oil prices and described as light and sweet due to lower sulfur content) will rise to as much as $75/barrel by 2020, making this sector truly volatile (Husain et al., 2015).

At the close of 2014, retail oil prices went down gradually, with Middle Eastern oil being the lowest, impacting fiscal costs as domestic prices also went down while fuel taxes increased, giving “quasi-fiscal benefits” (Husain et al., 2015). Lower oil prices also redounded to increased global growth by approximately half a percent this year (2016), although this may be offset by other price shocks.

Oil-importing countries may suffer because of “exchange rate depreciation,” coupled with a fall in “non-oil commodity prices” (Husain et al., 2015). This might be exacerbated by the low remittances of foreign workers working in oil-rich countries such as Saudi Arabia, Iraq, and other countries in the Middle East. Foreign aid will also suffer. Medium-term growth, however, will benefit, since lower prices will have a positive impact on balance sheets of both the public and private sectors (Husain et al., 2015).

Energy firms had increased debts during times of high oil prices; subsequently, when fuel prices went down, they had no money to pay their loans. This had market repercussions as money (wealth) had a redistributive effect; this means there was a redistribution of wealth among investors in the oil- and non-oil sectors (Husain et al., 2015).

Due to lower oil prices, global economic activity this year (2016) will increase the benefit to organizations, but the actual benefit would depend on the kind of organization. Those in oil-exporting countries will be negatively affected. The 2014-2015 price drop is comparable to the unexpected 2008-2009 fall, which hurt the cost of living but was positive in terms of real income for people in areas where lower oil prices were passed on to the consumers (Husain et al., 2015).

In some analyses conducted by researchers, it has been observed that the recent oil price decline will be prolonged (Smith, 2014). This means that organizations and international oil exporters will have to be prepared. There will be a series of downsizings and restructuring that will greatly affect the workforce and performance of these organizations.

Job Displacements

Job displacement could result in a loss in bargaining power for workers (Kosovich, 2005). Compared to their employed counterparts, displaced workers may initially accept a lower wage upon reemployment, since firms understand that these workers’ job searches may be undertaken with more urgency.

Theoretical research in job displacement literature discusses job loss regarding human capital theory. Kletzer (as cited in Kosovich, 2005) frames the issue in terms of firm-specific human capital. If skills are not fully transferable across employers, workers will no longer receive returns to some firm or industry-specific human capital upon displacement.

An organization obtains human capital by finding qualified individuals in the workforce and develops it by providing relevant employment experience and training. From an individual employee perspective, the portion of an employee’s firm-specific skill set that is not transferable to another organization represents lost value to the worker if he/she changes employment. From an organization’s perspective, employees with a specific skill set present a unique advantage to the organization (Chhinzer, 2007).

An explanation for differences in the cost of displacement by type of job loss is the possibility that firms use the type of job displacement as an indicator of worker productivity. In job displacement literature this result is termed the “stigma effect” (Kosovich, 2005). The term “stigma” refers to undeserved or unearned consequences outside the control of an individual.

Hiring firms do not observe ability, but they may have other indicators of worker productivity. For example, Spence’s model allows for a worker’s education to act as a sign of ability. Waldman (as cited in Kosovich, 2005) develops a model in which a firm uses competing employers’ job assignments and wages as signals of ability for the firm’s workers. In particular, Waldman argues that even when only the employing firm is aware of productive ability, a worker’s position and wage can provide a signal of quality to outside firms.

Gibbons and Katz (as cited in Kosovich, 2005) argue that layoffs can also communicate the ability to hire firms. Their model assumes a worker’s current employer has access to information concerning a worker’s productivity that other potential employers do not. A hiring firm may be able to use how a worker is discharged from the firm as an informative signal that can help to hire firms to overcome the lemons problem.

Gibbon and Katz (as cited in Kosovich, 2005) do not consider the role of market conditions surrounding job loss. There are several methods by which labor market conditions can be incorporated into the model. One approach is to model area-specific demand shocks. Each firm now faces a different economic shock to its production process.

If a firm’s demand shock is more negative than that of other firms in the market, it will lay off a larger percentage of its workforce. Both theoretical and empirical research studies support the modeling of weak labor markets as an increase in the variance of shocks to various sectors or areas in the economy (Lilien as cited in Kosovich, 2005). One way of thinking about the different labor markets is local labor markets. Each market experiences a different variance associated with economic shock.

Organizational behavior

Organizational behavior (OB) became popular after World War II when human relations were becoming outdated. OB has some parallel studies in sociology and psychology, including economics, political science, and other similar disciplines (Warner, 1994). Organizational behavior is a multidisciplinary area of study that focuses on behavior in an organizational context, with emphasis on individuals and groups in an organization (Greenberg as cited in Delich, 2015). According to Robbins (2001), organizational behavior is “a distinct area of expertise with a common body of knowledge” (p. 6).

This means it focuses on three bases of behavior in the work environment: “individuals, groups, and structure” (Robbins, 2001, p. 6). OB emphasizes knowledge about individuals and people and the influence of structure to make the organization effective. Several disciplines contribute to OB as applied behavioral science, and this includes psychology, sociology, and also political science.

In the early years of the twenty-first century, organizations have been challenged by work diversity. This refers to the heterogeneity of the workforce in gender, age, and cultural factors. Multi-cultural factors can be attributed to one organization or several organizations.

Saudi Arabia’s work environment is comprised of a multi-cultural workforce. Migrant workers come from different parts of Asia, Africa, Europe, and North America. Migrant workers face psychological and physiological illnesses in the face of plans for restructuring and downsizing. Layoffs are a form of turnover negatively impacting workers’ performance.

As an organization downsizes, the number of people the firm employs has to be reduced. Employees must be reassigned to other tasks, but others have to be terminated. Termination is synonymous with dismissal. Organizations have to properly deal with this redundancy activity to prevent psychological outcomes on the part of employees who will be subjected to redundancy. Other companies simply go through the process without considering the employees’ welfare.

The relationship between job performance and turnover is a growing area of concern. From an organization’s perspective, success is pinned to the potential job performance of the employees who remain employed following a layoff. From an employee’s perspective, employees surviving layoffs face an expectation of higher performance, given that there are now fewer employees to complete the same amount of work as before the layoff (London as cited in Chhinzer, 2007).

A meta-analysis conducted by Chhinzer (2007) examined the nature of the performance and turnover relationship, controlling for whether the turnover was voluntary (quitting) or involuntary (layoff or dismissal). The relationship between involuntary turnover and performance was consistently negative. High performers were least likely to leave an organization, and low performers were most likely to leave.

In the layoff context, from the individual employee’s perspective, high performers might perceive their options in the labor market to be favorable, while low performers might view their potential for reemployment to be unfavorable. When management allows individual employees to volunteer for layoffs, low performers might not volunteer, because they perceive that they won’t be forced into unemployment if they do not volunteer for a layoff.

Job satisfaction reflects how content an employee is with his or her current job (Spector, 2009). It is the affective attachment that an individual has to his or her job, either on an overall level or regarding a particular facet. High levels of job satisfaction can result in positive work behaviors, and job dissatisfaction can generate negative work behaviors (Spector, 2009).

Tett and Meyer (as cited in Chhinzer, 2007) used meta-analytical procedures to examine the relationship between job satisfaction and withdrawal. Job satisfaction is the strongest predictor of an employee’s intent to leave an organization (stronger than organizational commitment or job performance). Similarly, a meta-analysis of turnover predictors provided empirical evidence that overall job satisfaction is a statistically significant predictor of turnover intentions (Hom et al. as cited in Chhinzer, 2007).

The question of organizational commitment is also raised once downsizing or restructuring is in the offing. Organizational commitment is defined as employee attitudes, or more specifically, a set of behavioral intentions toward the organization, such as the desire to remain with the organization, intention to exercise high levels of effort on behalf of the organization, and identification with the organization’s objectives (Porter et al. as cited in Chhinzer, 2007).

An individual’s commitment to an organization can be perceived in three aspects: affective, continuance, and normative (Cohen; Meyer & Allen as cited in Chhinzer, 2007). Affective commitment refers to the emotional attachment to the organization. Continuance commitment is seen when an individual stays with the organization due to his or her analysis of opportunities outside of the organization. Normative commitment occurs when an employee stays with an organization based on his or her perceived moral obligations to the firm (Herscovitch & Meyer; Meyer et al. as cited in Chhinzer, 2007).

Several studies have shown that organizational commitment is a precursor of turnover. However, empirical studies on the relationship between organizational commitment and turnover have produced a limited relationship between the two. To strengthen the relationship, some authors have proposed testing moderators between organizational commitment and turnover. However, because the nature of turnover can vary (employee-initiated versus employer initiated), the relationship between organizational commitment and layoffs is unknown (Chhinzer, 2007).

Impact of job layoffs

Additionally, Saudi Arabia can have problems with its workforce, which is comprised in part by migrant workers (Al-Moammar, 2003). Quantitative job insecurity (the threat of losing a job) and qualitative job insecurity (career problems and salary development) are some of the impacts of job layoffs. Qualitative job insecurity can affect performance at work; it has significant consequences concerning employees’ stress and can lead to dilemmas or resignation (De Witte et al. as cited in Elst et al., 2014).

Perceived control can provide explanatory theory on qualitative job insecurity. Perceived control is defined as the employee’s “power,” or more specifically mediator, to control the threat in the forthcoming job loss. If the laid-off employee can control the situation, job strain can be minimal and avoided. The studies by Bordia et al. (as cited in Elst et al., 2014) and Paulsen et al. (as cited in Elst et al., 2014) on job insecurity relative to job uncertainty and strain focused on perceived control as a mediator, but they only focused on short-term effects and not on longitudinal design.

Stress outcomes were classified in the studies of Taris, Schreurs, and Van Iersel-Van Silfhout (as cited in Elst et al., 2014) as mental and physical health effects, also known as “job strain,” and withdrawal, which is a negative attitude toward the job and the organization. In the latter, the attitude is focused on reducing the effects by withdrawing or resigning from the organization (Elst et al., 2014).

The “Cognitive Theory of Stress and Coping of Lazarus and Folkman” (as cited in Elst et al., 2014) can be used to determine the mediating factor of perceived control in finding the effects of job insecurity. This theory explains that individuals consider situations as insignificant, “benign-positive or stressful.” A situation that the individual perceives as stressful can be considered “harmful,” or “challenging,” or “threatening” (Elst et al., 2014).

For example, when individuals see a threat, they tend to assess their “physical, social, psychological” well-being and resources to help them to be prepared for a forthcoming situation and so that they can control the situation. These scenarios can be called “situational appraisals of control” that help in individuals’ ability to function in particular situations.

Downsizing has been called “a constellation of stressor events” (Shaw & Berrett-Power as cited in Chhinzer, 2007). In layoff literature, stress is assessed from the leaver’s perspective (coping with job loss) or the survivor’s perspective (stress appraisal) (Armstrong-Stassen as cited in Chhinzer, 2007). However, stress is yet to be linked with turnover decisions during a type of layoffs.

Stress is defined as a psychological reaction from stressors that could include depression, anxiety, frustration, and other physical symptoms (Beehr as cited in Chhinzer, 2007). Many studies regarding turnover indicate that an individual’s level of job stress is consistently and significantly related to turnover intentions. Job stressors and the resulting strains are major contributors to voluntary turnover (Beehr as cited in Chhinzer, 2007). Research has shown that these stressors hurt the individual, and a toxic effect on the organization (Cropanzano et al. as cited in Chhinzer, 2007).

From an individual employee’s perspective, when an organization announces layoffs, the employee could perceive high levels of stress. The opportunity to escape from job-related stress associated with layoffs might be seen as favorable by the employee (Sheridan & Abelson as cited in Chhinzer, 2007).

Chapter 3 Methodology

The first question this essay had to answer was whether declining oil prices in mid-2014 affected Saudi Arabia; if this situation affected that country, it follows that it might affect organizations and, in turn, affect organizational behavior. Based on the literature, oil price volatility affected Saudi Arabia as an exporting country, which in turn affected organizations and hurt organizational behavior.

In this study, we used a literature review in constructing arguments concerning the relationship between oil price decline and organizational behavior. At this point, there exists little published material concerning empirical studies examining the relationship of organizational behavior and oil price decline within Saudi Arabia.

Therefore, the task of this research was to relate oil price shocks or volatility with Saudi Arabia’s economy. We attempted to establish this relationship by examining the data on price shocks and how these affected Saudi Arabia and then described the outcomes to organizations in the country. The established relation proved the implied hypothesis that oil price decline—and volatility—hurt organizational behavior.

Chapter 4 Discussion

A declining oil price can be attributed to several factors, such as oversupply when OPEC raised its production quota, weather conditions (colder winter in the northern hemisphere), increased oil exports from Iraq and other oil-exporting countries, and lower oil demand due to economic crisis in Asia (Mathew, 2004).

A sharp decline in oil prices can lead to lower production and a series of minor impacts, such as nonpayment of debts, unemployment, the downfall of oil-exporting countries, bank losses, and so forth (Tverberg, 2014). One adverse effect of low oil prices is debt defaults, which, when the phenomenon becomes widespread, can hurt bank deposits (Tverberg, 2014).

International oil companies might have to resort to downsizing and restructuring (Stevens, 2016), further leading to job layoffs or redundancies. Unemployment slows down the rate of growth (Barnett Shale Energy Education Council, n.d.). Organizational change in the form of restructuring due to oil price shocks can affect the psychological and physiological well-being of workers. This strongly affects organizational behavior.

Chapter 5 Conclusion/Recommendations

We have discussed, as found in the literature, the relationship between oil price decline and organizational behavior. Lower oil prices can result in downsizing and restructuring in Saudi Arabian oil organizations. To deal with oil price volatility, Saudi Arabia has diversified its economy; still, the majority of its investments in different areas rely on oil revenue. This means that any decline in oil prices greatly affects the GDP and the country’s economic development.

In the last few decades, oil prices have been volatile. Hence, to maintain economic stability, authorities in oil-exporting countries have attempted to implement policies that reduce their countries’ exposure to world oil price swings that often result from price shocks associated with oil demand in other parts of the world, especially industrial countries that import large amounts of crude oil (Dibooglu & Aleisa, 2004).

Oil price fluctuations can adversely affect government spending, and domestic spending as well. Since the private sector is small compared to the public sector, any adjustment of government spending affects domestic economic activities, positively if oil revenue increases and negatively if oil revenue decreases (Aleisa, 2002). In other words, domestic spending has an immediate impact on the money supply in the economy. In 1988, Saudi production and world prices moved like partners, i.e., they moved in the same direction.

Oil price decline can put international oil companies (IOCs) into financial difficulty, which in turn can result in organizational failures, downsizing, and collapse in employee performance. This impacts organizational behavior, which in the case of Saudi Arabia, mostly affected state organizations. As noted in the literature, the Saudi Arabian workforce is comprised of local and foreign workers who come from different parts of Asia, Europe, and North America.

References

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