WHAT IS THE PETROLIZED ECONOMY? - ECONOMY - 2025

The petrolized economy is one in which oil is the basis of the economic development of a country. In those cases, the sale of this resource constitutes the main source of wealth.

As good examples of the petrolization of the economy we can point to the countries of the Persian Gulf, such as Saudi Arabia, Bahrain, Qatar or Kuwait.

The weight of oil exports in the Gross Domestic Product of countries with an oil economy is very large. In the case of Saudi Arabia or Kuwait, it represents more than 50% of their CPI. Other nations, such as Venezuela, see how 30% of their wealth depends on oil prices.

Characteristics of the petrolization of the economy

The petrolized economy is part of the so-called single-producer economy, that is, its creation of wealth is concentrated in a single product.

This low diversity makes these nations extremely dependent on the prices at which they can sell their produce.

The historical dependence on this resource has meant that new sources of wealth have not been developed.

In the case of oil, this circumstance causes an apparent contradiction. They have had decades of great economic growth, but in the face of the current price crisis and a future with less production capacity, all the affected nations are trying to diversify their economies.

Organization of the Petroleum Exporting Countries (OPEC)

OPEC is an organization that brings together the main oil-selling states. It is made up of 13 countries: Angola, Saudi Arabia, Algeria, Ecuador, the United Arab Emirates, Indonesia, Iraq, Kuwait, Nigeria, Qatar, the Islamic Republic of Iran, Libya and Venezuela. Its members own 75% of the existing reserves.

Its objective is to control the flow of exports so that the price remains stable. Thus they can decide to reduce or increase production, which gives them great economic power.

Problems of petrolized economies

Such poorly diversified economies share a series of complications that are expected to increase in the future.

Price drop and instability

There are several problems that plague countries with this type of economy. Its growing political instability has caused its production to have been halted at times or non-governmental groups have taken its control.

This is the case of Libya or some areas of Iraq, where Islamist groups have financed themselves with the sale of oil.

Also the fall in prices in recent months has led to the impoverishment of some states. Even Saudi Arabia had to introduce austerity measures to offset lower sales.

The Peak Oil

Peak Oil is called the exact moment in which oil reserves will begin to decline until reaching the point of exhaustion.

There are numerous studies trying to predict when it will occur. In fact, the International Energy Agency (IEA) stated in a report that that moment was already reached in 2006.

Whatever the moment when production begins to fall, the consequences for countries with an oil-based economy will be very negative.

Saudi Arabia, for example, is already developing alternative plans for a future with less income from so-called black gold. The same is being done by Norway, the tenth largest exporter of crude.

References

1. World Bank. Oil rents (2011). Recovered from data.worldbank, org
2. World Economic Forum. Which economies are most reliant on oil ?. (May 10, 2016). Retrieved from weforum.org
3. Chapman, Ian. The end of Peak Oil ?. (2014). Recovered from insight.cumbria.ac.uk
4. Global Investor. The end of the Norwegian miracle (June 6, 2017). Obtained from inversorglobal.es
5. Politico Magazine. The Hidden Consequences of the Oil Crash. (January 21, 2016). Obtained from politico.com.