The Oil Delusion

It has been seen through the years that some oil producing countries have thrived and ensured growth in infrastructure for their own land.

There is a photo comparison made by Business Week between Dubai at the 80’s and Dubai nowadays, and it looks incredible how growth has done its part. In the first photo there was only a long highway and a Toyota building, and in the second one there are dozens if not hundreds of buildings in the skyline and we are able to see the old Toyota building very small compared to the the new and modern buildings. And examples like that can be seen not only in the Arabian peninsula but in the majority of the oil producing countries.

And definitely there is a lot of growth, but the central question: Is there development?

There can be development without growth, and growth without development. Growth is synonym of expansion while development is increasing the quality without the necessity to expand or increase.

For example the countries with the highest GDP per capita according to the World Bank are Monaco, Liechtenstein, Bermuda, Luxembourg, Switzerland, Ireland and Norway, all of these countries have the highest income per person and quality of life, and none of them has the big and fancy building skyline. It can be assumed that in these countries is more money invested in development than in growth.

Some of the oil-producing countries are betting for tourism as an alternate source and a viable one in the near future oil ends. But tourism by its own is going to be capable of sustaining the way of life these countries have?

Mexico is an example of an oil producing country that has managed well the diversification, first with tourism and in the mid 80 with a second wave of industrialization in the northern part, with the integration of the maquiladoras that, although have their ups and downs, have guaranteed increase in the country income.

Companies like Volkswagen have stated that by 2035 all of its production will be electric cars, so fifteen years form now the oil demand will be severely diminished, not only by the automotive industry but a lot of industries are migrating to more cleaner and cheaper energies.

The next question is: What is going to occur first? Oil runs out or World adopts by rule alternate energies? Whatsoever the case, oil is not going to represent great income in the near future.

Events like the Deepwater Horizon incident force humanity to rethink the benefit-cost of extracting and producing oil not only in numbers but in the environment impact not to mention the fracking technique that is so harmful. This disaster ought to be a wake up call to end the dependence on oil.

There’s also an opportunity because conventional drilling and extraction techniques are exhausted, petroleum engineers must devise new extracting and cost efficient techniques in case oil continues to be the main world fuel.

Oil producer countries OPEC and Non-OPEC should foster not only investments of their own to seek for growth and development but also search and ensure diversification, this is, if the primary source of GDP is oil production and exportation, try to migrate to other sources of income that ensures sustainable growth and development to the countries.

The main risk with investing too much in growth without the caution to diversifícate is to create a phenomena similar to a bubble, in which everything seems to be good, until the bubble explodes and the sustainment of all the infrastructure created is no longer feasible.

Oil is not going to stop being used from one day to another but humanity should be able to look for new approaches for using it more responsibly and start treating it like a precious resource and not to waste it the way we do today.