Oil’s Impact on Decision Making

Oil remains a dominant factor in global decision making.

An obvious sentence, but one that decision makers often only apply to conditions in Saudi Arabia or Russia. Less obvious are a handful of countries in which oil revenues comprise a significant percentage of their total exports. When oil prices drop, these countries feel the effect in nearly every aspect of their economy.

Source: United Nations Statistics Division, Trade Statistics
Source: United Nations Statistics Division, Trade Statistics

Take Nigeria as an example. Crude oil exports comprise 82% of its total exports, a value of nearly $27 bn. Even a slight dip in export revenues could have a significant impact on political stability. Moreover, any lost revenue will need to be made up somewhere. For a country on the lower end of the economic development spectrum, this lost revenue is not easily recovered. As such, the ramifications for the domestic economy could be severe; severity that could ultimately disrupt political stability, increase the likelihood of geopolitical incidents, or increase the chances of a terror incident.

Such extreme examples are not merely academic in nature. Consider Venezuela, whose crisis can be linked to the global drop in oil prices. Between 2005 and 2013, when oil commanded an average price per barrel of $73, the Venezuelan government used the high revenues to embark on populist domestic policies that included subsidized food and gasoline. When the price dropped in 2015, the government was unable to maintain these subsidies which, when combined with poor government planning, led to Venezuela’s current domestic instability. This instability made a country a volatile player that caused a number of multi-national corporations to pull out of the country completely.

To be clear, we are not predicting similar conditions for Nigeria. The above merely serves as one potential outcome; an outcome global decision makers should be aware of when faced with global decisions.