| Kolsen Shunk | October 25, 2021 |
In June 2020, the oil company British Petroleum released the Statistical Review of World Energy 2020. The 72-page document shows several important details. While oil is on the decline as a share of total energy source, it is still the largest individual energy source, generating 31.2% of global primary energy. Much of the world is still powered by oil, meaning the production, supply, and control of oil is crucial to many economies, and who controls that oil is possibly one of the most important questions that our world faces.
In order, the top 20 countries with the most oil reserves according to Worldometer are:
Venezuela 18.2% *
Saudi Arabia 16.2% *
Canada 10.4%
Iran 9.5% *
Iraq 8.7% *
Kuwait 6.1% *
UAE 5.9% *
Russia 4.8%
Libya 2.9% *
Nigeria 2.2% *
USA 2.1%
Kazakhstan 1.8%
Qatar 1.5% *
China 1.5%
Brazil 1.0%
Algeria 0.7% *
Mexico 0.59%
Angola 0.51% *
Ecuador 0.50% *
Azerbaijan 0.42%
Together these countries control 95.52% of the world's oil supply, with the top four controlling more than half of the world's oil. Twelve of these nations are in OPEC, the Organization of Petroleum Exporting Countries, which is a cartel that fixes oil prices. According to OPEC itself almost 80% of the world's proven oil reserves are controlled by the 15 OPEC member countries, which are the countries starred in the above list including The Congo, Equatorial Guinea, and Gabon.
Some countries have gotten very rich off of oil. Norway is an excellent example of this. Although Norway’s oil fields are fairly small, because their population of only 5 million is also small, Norway became incredibly rich per capita off of oil. Norway invested the oil money into a sovereign wealth fund, which is now worth $1.3 trillion US dollars, which is approximately $260,000 per Norwegian. When Equatorial Guinea developed its oil, its GDP per capita shot up to over $20,000 USD per person, before the oil price crashed in 2014. Its economy continued to slump afterwards, now sitting at $7143 USD per person per year. The instability in quality of life and wealth for many oil-based economies reveals a problem with this economic dependency; if oil prices fall, so will the economies of oil-dependent economies, meaning that nation's standard of living is very unstable. Another thing to consider is the paradox of plenty. Essentially the paradox of plenty occurs when a natural resource makes a nation so rich that the nation ends up not developing other industries. This makes the economy even more reliant on that natural resource. Another side effect of the paradox of plenty is that in economies where the wealth is extracted from the ground rather than dependent on its people in terms of manufacturing and services, there is a much smaller need for the rulers to appease the people. This means almost all resource-dependent economies are authoritarian governments with an incredibly wealthy ruling elite and an incredibly impoverished populus. Some examples are Saudi Arabia and Venezuela.
The 7000 members of the Saudi royal family are all very wealthy, ‘earning’ allowances of millions and in many cases billions of dollars each month to spend on goods and services that their ultraconservative laws prevent their own citizens from buying. Many other oil-rich Arab Gulf states are also dependent on oil. Venezuela was also subjected to poor oil management. Under former president Hugo Chavez, the Veneuzuelan government would rely on their nationalised oil industry for almost all revenue, and would distribute generous welfare and social spending to their citizens, but made no attempt to diversify their economy. After oil prices collapsed in 2014, Venezuela's economy tanked; they had no money, so they stopped spending money on their social programs. This caused massive amounts of poverty, riots and protests, and then Chavez’ authoritarian successor Nicolas Maduro clamped down on protests hard, causing inflation to skyrocket. This was not helped by the government's policy of discouraging private enterprise prior to the crash.
Now that we know how over-reliance on oil can affect the social, political and economic wellbeing of a country, it's time to dive into a brief history of oil. The first oil in America was extracted in the late 1800’s in Pennsylvania, and was quickly used in many things like kerosene lamps. Later more oil was discovered across the world, including large fields in Texas, Alberta, Venezuela, the Middle East, Russia, and Australia, along with many many more places. Oil quickly became the fuel of choice for planes, cars, and electricity, while also used in plastics, roads, medicine, and other useful inventions. In the 1930’s US President Franklin D Roosevelt signed a deal with Saudi Arabia that allowed America to buy Saudi oil, and the Saudis would use this money to buy American weapons. Meanwhile, Britain set up the Anglo-Persian Oil company, which exploited Iran for its oil and made the company wealthy, while keeping the Iranians poor.
Following mass decolonization post-WW2, newly independent oil-rich countries united to form OPEC. OPEC first used its power as a cartel in 1973 by cutting the supply of oil produced in order to increase oil prices, as a way of punishing the west for supporting Israel in the Yom-Kippur War. Another oil crisis occured in 1979 following an Islamic revolution in Iran that brought Shia fundamentalists to power. This new Iranian government expelled the Anglo-Persian Oil Company, and triggered a drop in oil production which caused another spike in oil prices.
After the oil crisis, other countries decided that they should secure their own energy sources by developing their own oil reserves. The United States, Australia, Russia, and Canada would all begin to develop their oil resources much more during this time period. Russia in particular uses its oil as bargaining power against many European countries like Germany, which are dependent on Russian oil and natural gas for their energy. The United States is currently in the process of becoming more energy-independent.
Over 50% of the world's proven oil reserves are located in the Strait of Hormuz, a narrow 30km strip of water located between the UAE and Iran. Thus, the United States keeps a strong naval military presence in the region to ensure the supply of oil remains smooth, and it is why the U.S is so friendly to Middle Eastern dictators in many Gulf States. China is also transitioning from a coal-based economy to an oil-based economy, and buys most of its oil from the Middle East.
Canada has the third-largest oil reserves in the world, and the largest oil reserves out of any non-OPEC member. The Albertan economy’s largest sector is oil and gas, which constitutes 16% of Alberta’s economy. Alberta also experiences its own paradox of plenty; its economy is so dependent on oil that in order to keep the economy booming, Alberta needs to keep up oil production. Any attempts to diversify the Albertan economy are met with harsh backlash because attempts to diversify come at the expense of oil, which will in the short term make Alberta poorer. So Alberta keeps producing more oil, and the situation gets worse. Rachel Notley's one-time tenure as Premier of Alberta proves how much backlash Albertan politicians receive when they attempt to diversify the economy.
In many democracies such as Canada, the populus is unwilling to sacrifice short-term quality of life in exchange for long-term quality of life. Alberta needs to diversify its economy if it wants to stay successful after the oil runs out, all of the markets stop buying their oil, or the federal government shuts it down, whatever comes first. The growing threat of climate change adds even more urgency to the situation, making the choice as clear as ‘stop producing oil, or we are all going to die.’ Albertan politicians and federal politicians sympathetic to their cause usually respond with something along the lines of ‘If Alberta stops producing oil, other countries won’t stop buying oil, they will just buy from dictatorships like Saudi Arabia, which not only props up dictatorships, but hurts Alberta’s economy.’ Now, take this argument and apply it to every oil-producing country. (Almost) everybody agrees that climate change is real and in urgent need of action, but very few oil-producing countries want to make sacrifices because they are all worried cutting oil production will hurt their short-term economic growth, and make rival oil producing countries more powerful.
Geopolitics is like game theory; you have to base your choices on how you think everyone else will react, and the possibility of one person ditching the group for gain is what causes nothing to get done on climate change, reducing oil dependency, and conflict de-escalation, to name a few examples. The fact of the matter is that for now, we’re stuck with oil, and until we can muster up the political will to effectively transition to renewable energy resources, who controls the oil will always be one of the most important parts of energy geopolitics.
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