Economy of the Middle East

Economy of the Middle East SS7E5, SS7E6, SS7E7

SS7E5 The student will analyze different economic systems. • SS7E5. C. Compare and contrast the economic systems in Israel, Saudi Arabia, Turkey, and Iran

Israel • Has almost no natural resources or farmland • Developed good relations with much of Western Europe and the United States • Economy based on advanced technology

Saudi Arabia • Rich oil reserves • Profit from oil allows them to buy most goods they are unable to produce themselves • King and his advisors make most decisions about how and where to spend the oil profits • Invested much wealth in technology and services which allows them to produce goods not usually found in a desert climate

Iran • Great oil wealth • Command economy has not been efficient in recent times • Shift to a more mixed economy • Despite the oil wealth, the Iranian people do not share in the money

Turkey • Least economic freedom of these four countries • In earlier times, the gov’t has controlled airlines, railroads, telephone, and television • Recently the gov’t has loosened its hold on these industries • Have allowed some private ownership • More laws have been passed to protect business owners

Summary Questions: • The economies of Israel, Saudi Arabia, Turkey, and Iran could best be described as….market, command, mixed, or traditional? • How have the Israelis made up for their lack of natural resources? • Which industry does the gov’t of Saudi Arabia heavily control? • How has the king of Saudi Arabia used the profits from oil to help other areas of his kingdom?

SS7E6. The student will explain how voluntary trade benefits buyers and sellers in the Middle East • SS7E6.a. Explain how specialization encourages trade b/w countries

Specialization • Not every country can produce the goods and services it needs • So they “specialize” in producing a good or service that they can produce most efficiently • They can then trade that product for goods and services they need • Way to build a profitable economy and earn money to buy what it needs • Saudi Arabia specializes in the production of oil and gas. • Israel specializes in agricultural technology even though they have a limited supply of farm land.

Summary Questions: • What is “economic specialization”? • Saudi Arabia specializes in the production of? • Israel specializes in?

SS7E6. The student will explain how voluntary trade benefits buyers and sellers in the Middle East • B. Compare and contrast different types of trade barriers such as tariffs, quotas, and embargos

Trade Barriers • Anything that slows down or prevents one country from exchanging goods with another • Some protect local industries from lower priced goods made in other countries (keeps competition away) • Some created due to political problems between countries

Tariff • Tax placed on goods when they are imported into one country from another • Purpose is to make the imported good more expensive than the similar item created locally • “protective tariff”-protects local manufacturers from competition

Quota • Different way of limiting the amount of foreign goods than can come into a country • Sets a specific amount of particular goods that can be imported in a certain time frame

Embargo • When one country announces that it will no longer trade with another country in order to isolate the country and cause problems with that country’s economy • Usually result of a political dispute • 1973-OPEC decided to stop all sales of oil and gas to countries supporting Israel in the 1973 Arab-Israeli war

Summary Questions: • What is a tariff? • What is a quota? • What is an embargo?

SS7E6. The student will explain how voluntary trade benefits buyers and sellers in the Middle East c. Explain the primary function of the Organization of Petroleum Exporting Countries (OPEC)

OPEC • Created in 1960 by countries with large oil supplies • Countries wanted to work together to regulate the supply and price of oil exported to other countries • First five countries: Kuwait, Iraq, Saudi Arabia, Iran and Venezuela • Continue to decide how much oil they will produce and that determines the price on the world market • Basic principles of supply and demand

Summary Questions: • Why was OPEC created? • What happens to the price of oil when OPEC countries decide to limit the production? • Where are most of the OPEC countries located?

SS7E7. The student will describe factors that influence economic growth and examine their presence or absence in Israel, Saudi Arabia, and Iran • A. Explain the relationship b/w investment in human capital and gross domestic product

Human Capital • The knowledge and skills that make it possible for workers to earn a living producing goods and services. • Companies that invest in human capital generally earn higher profits. • Countries that invest in human capital generally have higher production levels of goods and services. • This can lead to a higher gross domestic product than countries that do not invest in human capital

Gross Domestic Product (GDP) • Determined by taking the total value of all goods and services produced by a country in a single year. • Wealthy countries generally have a much higher GDP than developing or underdeveloped countries. • Countries in SW Asia have widely different GDP levels • Countries that make it possible for workers to have education and training generally have higher GDPs.

Israel • Much access to education • Economy depends on technology industries to make up for country’s lack of natural resources • Many citizens work in industries related to medical technology, agricultural tech., mining and electronics • Highly developed service industries • GDP very high b/c of its investment in human capital

Saudi Arabia • Main industry is as an exporter of oil and petroleum products. • Technology involved in oil industry requires education and much training. • Also have modern communications and transportation systems • Enormous building projects • These economic factors require investment in human capital • Saudi Arabia has a high GDP • Some citizens still practice traditional economic activities like farming and herding

Iran • World’s fifth largest producer of oil • Oil industry requires well-trained and educated workers • Have well respected schools and universities • However, in recent years, Iranian government has not done a good job of regulating the parts of the economy that are under gov’t control.

Summary Questions • Why have the Israelis made a big investment in human capital? • Why would the Saudi oil industry need a large investment in human capital? • One of Iran’s biggest problems with their state-run oil industry is:: • If a country does not invest in its human capital, how can it affect the country’s GDP?

SS7E7. The student will describe factors that influence economic growth and examine their presence or absence in Israel, Saudi Arabia, and Iran B. Explain the relationship between investment in capital and GDP

Capital goods • Factories, machines, and technology that people use to make other goods • Can increase production, which can increase profit which can increase GDP • Israel • Invested heavily in capital goods • Also invested heavily in technology used in defense industry • Saudi Arabia • Invested heavily in capital goods • Especially in technology needed in oil, transportation, and communication • Iran • Has made great investments in capital goods related to oil production, technology and communication • Also spends a great amount on technology for its defense industry

Summary Questions • What are capital goods? • Israel has invested heavily in capital goods in all of the following areas EXCEPT…..

SS7E7. The student will describe factors that influence economic growth and examine their presence or absence in Israel, Saudi Arabia, and Iran • C. Explain the role of oil in these countries’ economies.

Oil • One of most important and valuable resources in the Middle East • Most of the worlds’ industrial nations depend on a steady supply of oil and gas • U.S. imports nearly half of all the oil it uses, almost 18 million barrels every day • Over half of the world’s known supplies of oil come from countries in the Middle East

Oil • Israel • Has practically no oil at all • Economy depends more on technology than natural resources • Saudi Arabia • Has very few natural resources other than oil • Very influential in world economy and OPEC • The gov’t has modernized roads, schools, airports, and communication systems • Iran • Most valuable resource is oil • 85% of country’s money comes from the sale of oil and petrochemicals • 1/3 of population works in agricultural areas • Political problems have led to economic difficulties • Member of OPEC, therefore benefits by keeping the price of oil high in the world market

Summary Questions • Why are oil and gas such valuable natural resources? • How much of the oil used by the U.S. has to be imported every day? • How has the Saudi gov’t used its national wealth to change the country? • How do Iran and Saudi Arabia benefit from belonging to OPEC? • How has Israel’s lack of oil affected that country’s economy?

SS7E7. The student will describe factors that influence economic growth and examine their presence or absence in Israel, Saudi Arabia, and Iran • D. Describe the role of entrepreneurship

Entrepreneurs • Creative, original thinkers who are willing to take risks to create new businesses and products. • Willing to risk their own money (usually) to produce new goods and services in the hope that they will earn a profit. • Only about 50% of all new businesses are still operating after three years • Important asset to a strong economy

Economy of the Middle East