Diversification of oil producing economies vital for global energy market: IEA

The extent to which crude oil producing countries steer through economic transformation can have major implications for global energy markets, environmental goals, and energy security, according to a new report from the International Energy Agency (IEA).

The report examined six resource-dependent economies that are pillars of global energy supply: Iraq, Nigeria, Russia, Saudi Arabia, UAE and Venezuela, and assessed how they might fare to 2040 under a variety of price and policy scenarios.

“More than at any other point in recent history, fundamental changes to the development model of resource-rich countries look unavoidable,” said Dr Fatih Birol, the IEA’s executive director.

“Following through with the announced reform initiatives is essential, as failure to take adequate action would compound future risks for producer economies as well as for global markets,” he added.

Some of the world’s largest producers face strong pressures from rising numbers of young people entering the workforce, IEA report added.

More than 50 percent of the population living across the Middle East is under the age of 30; the proportion is more than 70 percent in Nigeria. In many major producers, income from oil and gas will not be large enough to provide for these growing populations, even in scenarios where oil demand continues to grow to 2040 and prices remain relatively robust, it said.

The rollercoaster in oil prices over the last decade has brought into sharp relief the structural weaknesses in many of the major exporters, it added.

Since 2014, the net income available from oil and gas has fallen by between 40 percent (in the case of Iraq) and 70 percent (in the case of Venezuela), with wide-ranging consequences for economic performance.

The volatility of hydrocarbon revenues presents dilemmas for countries whose budgets depend on them, especially if their economies and finances are not resilient, IEA maintained.