Energy resources like oil and natural gas deposits can be an economic blessing or curse. Developing economies that heavily rely on oil and other fossil fuel exports are at risk of a future financial collapse if they don’t fix or contain several risk factors. During the Middle East uprisings of 2011, the gulf countries that maintained power had substantial oil reserves per capita, lower oil break-even prices relating to the fiscal budget, some level of industry diversification and lower youth unemployment. Political and social risks arise for states that fail to diversify their oil revenue in the long run. Government dependence on commodity revenue needs to be curtailed and smoothed. Eventually a nation’s natural resource production will dwindle or downward price movements will cause fiscal budget deficits. Oil rich countries like Norway and Kuwait have created sovereign wealth funds. Sometimes sovereign funds are used as fiscal stabilizers to help fill budgetary gaps.
States relying solely on oil revenue can create future fiscal stability risk.
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