July 11, 2016
The rapid drop—or “crash” in petroleum export revenues has become a key factor affecting the economy and stability of each of the oil exporting states. It is having a major impact on the stability of the Middle East and North Africa—particularly in the Gulf region. It also is having a major impact on the oil exporting states of Africa and Latin America, where Venezuela has plunged into a massive national crisis.
A revised and greatly expanded working report by the CSIS Burke Chair attempts to quantify the impact of the “oil crash” on the economy and stability of oil exporting states by using OPEC as a case study. It then draws upon prior work by the IMF, World Bank, U.S. Energy Information Administration (EIA), and the CIA to make a separate risk assessment of each OPEC member.
This study shows that the “crash” in oil prices and oil revenues will have a major impact, but it also shows that the majority of OPEC members had become grossly over-dependent on petroleum export revenues long before the crash, and had used them as a substitute for adequate economic development, governance, and efforts to maintain stability and security.
Like the earlier “Dutch disease,” the majority of OPEC members now suffer from an “OPEC disease” which is much more damaging in the case of developing nations and economics, and greatly increases the impact of any sustained “crash” in their oil petroleum export revenues.
The Arab Gulf monarchies are a partial exception, but even they will need major reforms and diversification efforts. A recovery in oil prices alone cannot cure the “OPEC disease” and might actually lead many states to use the money to sustain their existing policies and make their problems worse.
The new working draft of the report is entitled The “OPEC Disease”: Assessing the True Impact of Lower Oil Export Revenues, and is available on the CSIS website at https://csis-prod.s3.amazonaws.com/s3fs-public/publication/160711_Lower_OPEC_Oil_Export_Revenues.pdf.
Comments and suggested revisions would be greatly appreciated and should be sent to Anthony H. Cordesman at acordesman@gmail.com.
Contents of the Report
Its full table of contents are shown below:
Estimating the Cut in Petroleum Export Income
The Table below illustrates the scale of the cuts addressed in the report. It uses EIA reporting on 2014, 2015, and the first five months of 2016 to project annual crude oil export revenues by country. It should be stressed that the EIA is careful to note that such figures still have limited comparability and significant uncertainty, and cannot be treated as more than broad indicators.
At the same time, the projections shown below do not begin to provide a valid picture of how serious the combined impact of structural economic over-dependence on petroleum export revenues and the oil “crash” has been in given countries. It also cannot portray the impact of the fact that oil exporting countries have radically different sizes, radically different export capacity, radically different competitiveness, and radically different production costs.
These variables interact with equal differences in governance, national economics, and security. OPEC nations already had critical problems in these areas, and the report makes it clear that the current crash in export revenues did not create the “OPEC disease,” it only made it much worse. It also makes it brutally clear that oil “wealth” has often created massive internal problems, and helped raise the level of extremism, violence, and conflict.
The rest of the new report entitled The “OPEC Disease”: Assessing the Impact of Lower Oil Export Revenues is available on the website at https://csis-prod.s3.amazonaws.com/s3fs-public/publication/160711_Lower_OPEC_Oil_Export_Revenues.pdf.
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