Essays in oil, conflict, and the development of resource-rich countries

Abstract

This thesis examines three topics in the political economy of global oil markets and the development of resource-rich countries. The first chapter examines the effect of Saudi Arabia's crude pricing policies on the political behavior of U.S. firms. Between 1991 and 2003, Saudi Aramco sold its crude to U.S. refineries at a substantial discount relative to Asian refineries at a total cost of approximately 8.5 billion dollars. Using variation in discount receipts across refineries over time, I find that the discount rents were entirely captured by refiners as profits and were not passed through to consumers in the form of lower retail gasoline prices. There is also evidence that the discount policy affected refiners' political action. In particular, I find that discount receipts are associated with an increase in refiners' overall political donations, and that other types of profit shocks were not associated with changes in political giving. This suggests that the effect of the discount was not simply a consequence of the increase in refining profits. Finally, I show that the discount resulted in a reallocation of contributions toward members of congressional committees that reviewed bills of interest to Saudi Arabia and away from those who received donations from pro-Israel interest groups. In the second chapter, I assess the impact of a nationalization quota policy in Saudi Arabia on workers and private-sector firms. In the past two years, Saudi Arabia has dramatically extended its active labor market policies in order to address the issue of growing youth unemployment and low Saudi participation in the private sector workforce. This paper studies the 2011 introduction of the Nitaqat program, which imposed a quota system for Saudi hiring at private firms. The analysis uses a unique dataset from the Saudi Ministry of Labor on the full universe of Saudi private-sector firms and exploits kinks in firm incentives generated by the program to examine the effects of this quota policy on nationalization, firm size, and firm exit. I complement the regression kink results with a differences-in-differences approach to estimate the overall effects of the program. The analysis finds that the program succeeded in increasing native employment but also had significant negative effects on firms. Program compliance rates were high, with firms increasing their Saudization rate by 0.2 percentage points on average for every percentage point increase required by the quota. Quota compliance was primarily accomplished by hiring Saudis, and Nitaqat was responsible for the addition of an estimated 52,000 Saudi workers to the private sector workforce over the 16 month period. There were also significant costs, however, and the program caused approximately 11,000 firms to shut down, raising exit rates by nearly 50%. Among surviving firms, the program decreased total employment by 198,000 workers. The third chapter investigates the direct effect of conflict-related supply disruptions on the downstream U.S. oil industry. The security of petroleum supplies is a major issue in U.S. domestic and foreign policy. Although conflict in oil-exporting countries affects the entire global downstream industry, supply disruptions may also have an additional effect on refiners who are dependent on these crude streams. This study uses variation in the sources of oil supplies across refineries to estimate the effect of conflict-related supply disruptions on refiner profits and local retail gasoline prices. The analysis shows that while conflicts do cause supply interruptions, these shortfalls have little effect on the refiners and markets exposed to these disruptions. On average, then, refineries appear to adjust quickly to unexpected changes in their supplies without significant increases in their input costs.