Oil prices continue to waver after an 18-month slump, and the world’s most oil-dependent nations are feeling the effects. Saudi Arabia, home of the world’s biggest oil company Saudi Aramco, has announced that they intend to become completely independent of oil by 2030.
While this news looms large for the industry and stands starkly as symbol of oil’s uncertain future, Saudi Arabia, who depend on oil for nearly 90 percent of their GDP, is not even in the Top 10 most oil-dependent nations in the world. Ranked by dependence on exports of fuel commodities (including natural gas and coal as well as oil and oil products) Saudi Arabia is number 11, falling behind Iraq, Libya, Venezuela, Algeria, Brunei, Kuwait, Azerbaijan, Sudan, Qatar, and Nigeria.
In the past, resource-rich countries built their entire economies and government systems around oil production, as it seemed an endless and infallible goldmine. Now, they’re paying for it. Where oil consumption was once used as a prime example of inelastic demand, the world’s consumption has taken a sharp turn towards instability as oil prices have nosedived in the past two years and investment has all but dried up.
Unsurprisingly, most of the nations with the biggest oil dependencies are economically monopolized by energy industries and politically fragile. While many associate oil dependency with Saudi Arabia and the Middle East, the hardest hit nations are actually found in politically fraught Africa and South America. A prime example of this is Venezuela, plagued by political unrest and a failing economy. Related: Oil Prices Rise As Saudis Discuss OPEC Deal Extension With Iraq
When taking into account the percentage of government revenues attributed to oil in addition to GDP and exports, Venezuela rises to the top as the most disastrously oil-dependent nation in the world. Oil accounts for 96 percent of Venezuela's exports and over 40 percent of government revenues, leaving the nation's economy at the whim of the crude market.
Once the most affluent country in Latin America, Venezuela is now the posterchild for the brutal effects of oil-addiction. As the country’s increasingly state-controlled industries are stymied, the country’s dependence on oil becomes more and more exaggerated.
Venezuela still has more proven crude oil reserves than any other nation in the world, but, unlike Saudi Arabia (who hold over $600 billion in foreign reserves) it has very few oil investments outside of the country’s borders, leaving them largely unable to control currency inflation. The inflation of the Venezuelan bolívar is projected to reach 500 percent or higher, and the government has responded to the drop in revenue with a series of slashes to social services, resulting in a widely publicized lack of food and medicine.
A close second to Venezuela in terms of oil-dependence is Libya, a nearly single-industry economy with 65 percent of their GDP and a staggering 95 percent of government revenue derived from energy, according to numbers from the CIA. the problem is exacerbated by the fact that over 84 percent of employed Libyans work for the government, making the public recklessly dependent on the energy sector’s success.
Other governments alarmingly dependent on oil include Russia, Angola, and Kuwait, who have all seen dangerously plateaued economies and declining currencies in response to the last year’s steep drop in oil prices. Another largely-ignored cautionary tale is in Nigeria.
Nigeria, Africa’s biggest economy, once poised to enter world’s top 20 economies with a 7 percent annual growth rate, is in a nosedive, now at a growth rate of -1.3 percent according to numbers from the Central Bank of Nigeria. In addition to the blows to global oil rates, the nation’s oil production has fallen to a 20-year low after rebels attacked pipelines and other oil facilities. Related: Oil Prices Rise As Most OPEC Members Back Deal Extension
As the world watches the fallout in Venezuela, the tragic decline of Nigeria, the drastic transitions in Saudi Arabia, and the increasingly dire economic stagnation in oil-dependent nations like Russia, and the absurdly lopsided job market in Libya, it’s becoming all too clear that oil is not the dependable cash cow it once was.
Yes, gas and oil are still fundamental to much of the world’s infrastructure and will continue to see high levels of demand, but we can no longer depend on steady growth, especially with renewable resources and electric vehicles looming ever larger on the global scene. The only way to prevent more fallouts like the tragic turn in Venezuela is to diversify and prepare ourselves for the reality if more oil giants crumble under their own weight.
By Haley Zaremba for Oilprice.com
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