Crude oil has been described as the engine of the world economy due to its many uses. The impact of oil on the world economy has been enormous such that the global economy will basically slow down to a halt without it.
One of the many uses of crude oil is that it is a great source of energy when refined. Also, it is present in most of the products we use daily.
What you should know: The oil industry consists of three sections — the upstream which involves exploring and drilling, the Midstream which involves transportation and storage, and the downstream which involves marketing to the end users.
- Crude oil accounts for approximately 3 per cent of the world’s GDP.
- An estimated 99.89 million barrels were produced per day in 2022. The daily demand was 92.36 million bpd.
- In 2022, the cost of oil per barrel was $79.80
- 4 per cent of the World proven oil reserves are located in OPEC member countries.
One major thing about crude oil, asides from its uses, is the revenue gotten from oil. A number of the world’s economies and countries are dependent on oil and earn the most revenue from it, especially OPEC countries. The revenues, although varying on different factors, are largely determined by global oil prices and each country’s production output.
Different oil-producing countries spend their oil revenues on different things. Let’s take a look below.
The USA: The USA is one of the biggest oil producers in the world with 18,875,000 bpd, according to the Energy Information Administration. In 2021 the USA made around $211.9 billion in oil revenues. For the fiscal year 2022, the USA spent $6.27 trillion.
According to the Department of Treasury, the USA spent 19% on Social Security, 15% on Health Income Security, 14% on Security, 12% on National Defense, and 12% on Medicare, as the top five most expenditure. Although the US revenue is mostly from tax, proceeds from oil were also expended.
Saudi Arabia: Saudi Arabia produces 10,835,000 bpd, and Saudi Aramco is the official oil company of the country. As of Q3 of 2022, Aramco announced it had earned $42.4 billion in net income. Oil accounts for about 80 per cent of revenue, and 40 per cent of GDP.
Saudi Arabia spends its income on the military, as it announced it has spent $1.4 billion to boost its local military sector in two years. Also, the country is currently working on its NEOM project with $500 billion to build a Smart City and it is also part of the country’s effort to diversify its economy from oil by 2030.
Russia: Russia produces 10,778,000 bpd and accounts for 10 per cent of the World’s oil output. The country has seen a drop in its oil exports following the invasion of Ukraine. Oil exports account for 53 per cent of Russia’s revenue. According to a report, Russia’s budget revenue from oil and gas in 2022 was $36.5 billion.
One of the sectors the country spends its revenue on is its military. Russia’s 2023 defence budget was increased to $84 billion more than 40 per cent higher than the 2023 initial budget announced in 2021. The government also funds its social welfare program especially pension, which accounts for 83% of the country’s extra-budgetary allocations.
Canada: As of 2021, Canada has a production of 5,558,000. In 2021, the revenue received from oil and gas was about 295m CAD. Oil accounts for 7.5% of GDP. Canada spends most of its proceeds on Social programs and the provision of infrastructure and amenities like schools, hospitals, and jobs.
China: In 2021, the country produced 4,993,000 bpd. Although the economy of the country is largely dependent on manufacturing, services, and agriculture, oil contribution to the economy is on the increase. In 2021, oil-related finance and investments were $6.4 billion as part of the Belt and Road Initiative.
Iraq: As of December 2022, Iraq’s production is 4,480,000 bpd. Iraq is one of the world’s most dependent on the oil economy. Oil contributes to about 90 per cent of the country’s income, 99 per cent of exports, and 42 per cent of GDP. The country spends most of its revenue gotten from oil on salaries and other government costs.
Nigeria: In 2022, lost its long-standing place as Africa’s biggest producer of oil and as of November 2022, third behind Algeria and Angola. Oil is Nigeria’s major source of revenue and contributes 6 per cent to the country’s GDP.
Nigeria’s bittersweet relationship with oil includes its rising subsidy payment, which has seen the country spend about 90 or more of its oil revenue monthly on subsidy and servicing debt. The country’s low production has also seen the production output drop.
In response and with an insight into what other top-producing countries in the world do with proceeds from oil, the FG will have to proffer a solution which will most likely be the removal of fuel subsidies to channel revenues to other areas of the country.