Econonomics of Energy and Environmental Policy

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New Alignments? The Geopolitics of Gas and Oil Cartels and the Changing Middle East

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The ongoing democratic movements and civil wars in the Middle East have challenged the stability of regimes across the region. On the other hand, the commercial exploitation of large reserves of unconventional oil and gas in the United States is poised to significantly change the current equilibrium in energy markets. What are the implications of these developments on Saudi Arabia's energy policy? Will the long-standing U.S.-Saudi alliance remain the cornerstone of the kingdom's relationship with the outside world? We study these questions using a game-theoretic approach. Specifically, we investigate whether the new political and economic trends may warm the Saudi regime to a workable energy cartel with Russia. We analyze the outcomes from different coalitions that could form among major energy suppliers and show that this is indeed a possibility. We discuss the implications of our results for U.S. policy toward Saudi Arabia.
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JEL Codes:Q35: Hydrocarbon Resources, P48: Other Economic Systems: Political Economy; Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies, R58: Regional Development Planning and Policy

Keywords: Geopolitics, Gas and oil cartels, Middle East

DOI: 10.5547/2160-5890.3.1.sfan

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Published in Volume 3, Number 1 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.


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