Oil Majors Face Increased Political Risk from State Intervention

Oil multinationals face increased political and economic risks as governments readdress the balance of power by taking more control over their domestic product, according to Aon’s Political and Economic Risk Map 2008. The report found that countries such as Venezuela and Uzbekistan pose a high risk for companies with potential problems such as confiscation, sovereign non-payment and political interference. These political risks could threaten global oil supplies and push record oil prices even further.
This is evidenced in yesterday’s threat by Venezuela to cut off the US oil sales after one of the world’s four largest oil companies won international court orders freezing up to $12bn in assets of state oil firm Petroleos de Venezuela (PDVSA). Also, the Chinese government diverted coal exports back to coastal towns during the New Year winter storms.

Governments with state-owned oil companies have benefited and learnt from the technology, expertise and training from the oil multinationals that originally invested in exploration and production. Now, along with the increasing price of oil and by accruing tax and royalties, these governments have asserted themselves to bring the domestic product into their control through varying degrees of nationalisation. The drivers for state control vary from left wing politics, as evidenced in South American countries such as Venezuela, Ecuador and Bolivia, to capitalist economics.

As most of the world’s oil reserves are today held by government-controlled oil companies — approximately 90% compared to 30% in 1978 (Source: Hydrocarbon Highway) — multinationals are now dealing with nations with elevated levels of political and economic risk to meet increasing global demand.

Rigzone