IRPD Circle

Wednesday, May 31, 2006

Oil share in economy

What does it mean to be an oil producing country? Middle east countries are well known as oil producers. It is widely believed that these countries are very rich and get enormous amounts of money by exporting oil. In year 2004 all Middle East countries had the GDP of 483 billion, about 1.32% of world production. It is far less than any developed country and less than India, Korea, Mexico, Australia, Brazil and Russia and about 1.8 times that of Turkey. The table below shows the percentage of fuel exports in GDP for the countries that this ratio is more than 10 percent. It shows that in main oil producing countries about half of the GDP comes from oil (Data from the World Bank). For bigger countries like Iran and Saudi Arabia this ratio is smaller. And the important thing is that this ratio grows smaller in time. The other parts of economy in these countries grow faster than oil revenue. In Iran the share of oil (chart below, data from Central Bank of Iran) depends on external forces. When the oil price is high the share is high. When there is crisis like war or the price is low, the share is low. It probably hurt the economy when there is such a huge shock in economy. Especially considering the point that it is the government that gets this money, this shock can widely disturb the economic policy. Interesting fact to investigate more.

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