Introduction
Oil and natural gas are energy resources that play a key role in the global economy. The fluctuating prices of these resources affect various economic dimensions such as economic growth, inflation, and fiscal policies. Clearly, the economic influence of oil and gas, the factors affecting their prices, the prospects for investment in the industry and the impact of the transition to renewable energies are a daily occurrence, and this undoubtedly determines how local economies can weather the variations of this energy game.
The purpose of this article is to analyze the influence of oil and gas on the global economy and its impact on economic and investment policies.
How do oil and gas influence the global economy?
Influence on economic growth
Oil and gas are essential for industrial production and global transportation, making them key determinants of economic growth. An increase in oil prices tends to raise production and transportation costs, which in turn slows economic activity.
According to the International Monetary Fund (IMF), oil price hikes have caused significant economic slowdowns, affecting both exporting and importing countries (Obstfeld, Milesi-Ferretti & Arezki, 2016). For example, the 1973 oil crisis demonstrated how a sudden rise in prices can have global effects.
The drop in prices in the 1990s and later from 2005 onwards, the rise in oil prices and oil production, as well as the discovery and exploration of gas fields, increased the prices of this raw material for industries. This resulted in the recession of 2008 and 2009, when many countries even declared bankruptcy of their economies due to the banking and real estate crisis, such as Greece, Spain, Ireland and Portugal.
Impact on global inflation
Although we already know historically how these events are triggered, it is worth asking the same question: What are the effects of oil price fluctuations on inflation? Oil is definitely a basic component in the production of goods and services, so fluctuations in its price impact local and global inflation. When oil prices rise, energy and transportation costs increase, affecting the cost of living and reducing purchasing power.
A BBVA study highlights that the relationship between oil prices and inflation is complex, but generally, high prices lead to accelerated inflation (BBVA, 2024). Likewise, the IMF noted at the time that the fall in oil prices since 2014 has not generated the expected stimulus in the global economy, due to factors such as the depreciation of the dollar and reduced investment in the energy sector (Obstfeld et al., 2016).
Influences on monetary and fiscal policies
In response, governments are often forced to adjust their monetary policies to mitigate the inflationary effects caused by changes in oil prices. This includes the use of interest rates to control inflation or the implementation of fuel subsidies to protect consumers.
In particular, during the price increase in 2008, several countries resorted to fiscal measures to stabilize their economies (IMF, 2016). On the other hand, price volatility had an impact on the balance of payments and international reserves of importing countries, directly influencing their economic policies.
Economic factors affecting oil and gas prices
The price of oil and natural gas is a key indicator of the health of the global economy and experiences significant fluctuations in response to a variety of factors. Among the key determinants of these prices are:
World supply and demand
Global supply and demand for oil and gas are determining factors in setting prices. Events such as geopolitical conflicts or natural disasters can disrupt supply and raise prices. On the other hand, sustained high demand, such as that observed during the economic recovery after the COVID-19 pandemic, can push prices up (SCIELO, 2018).
Thus, an increase in global demand, driven by factors such as economic growth and industrialization, tends to raise prices (BBVA, 2023). Conversely, a decrease in demand, caused by economic recessions or the adoption of energy conservation policies, can put downward pressure on prices. Likewise, the development of technologies such as fracking has increased supply, especially in countries such as the United States, thus harming global prices.
OPEC and other major producers’ production policy
It is worth noting that the Organization of the Petroleum Exporting Countries (OPEC) in its role of regulating world oil production, with its decisions to increase or reduce production, causes immediate effects on the market. According to an IG report, OPEC policies have been instrumental in maintaining price stability, although they sometimes generate controversy because of their impact on consumers (IG, 2024).
At the same time, cooperation or competition between OPEC and other major producers, such as Russia and the United States, influences price dynamics.
Comparative table of factors and examples.
| Factor | Price effect | Example |
| Increased global demand | Raise | Post-pandemic economic recovery |
| Decrease in OPEC production | Raise | Production cutback agreements |
| Increase in proven reserves | Low | New field discoveries |
| Bullish speculation | Raise | Anticipation of increased demand |
| Energy transition policies | Long-term low | Carbon tax, renewable subsidies |
Speculation and future markets
Speculation in the oil markets can lead to significant differences in prices. Investors, anticipating these changes in supply and demand, carry out operations that condition current prices. For example, expectations of conflicts in producing regions can lead to speculative price increases, even without real changes in supply. According to IG, speculation and future price expectations are key factors influencing price fluctuations (IG, 2024).
Energy and environmental policies
Policies to transition to renewable energy and environmental regulations can reduce oil demand in a medium-term scenario forecast, in line with COP26 estimates and agreements and other environmental treaties to reduce carbon emissions.
Initiatives to promote these new clean energy sources are affecting demand and thus oil and gas prices. In particular, the adoption of electric vehicles and investment in renewable energies are changing the dynamics of the energy market. According to a report by EY, one of the world’s most prestigious consulting and auditing firms, oil and gas companies are shifting capital towards cleaner technologies to mitigate environmental impact (EY, 2024).
Investment prospects in the oil and gas industry
Current oil and gas investment outlook
The oil and gas industry has experienced significant changes in its investment patterns. According to Mordor Intelligence’s analysis, projected oil and gas CAPEX or capital expenditures are expected to grow from $797.58 billion in 2023 to $983.04 billion in 2028, at a compound annual rate of 4.27% (Mordor Intelligence, 2024). This growth reflects a balanced recovery in post-pandemic investments and an adaptation to new energy market dynamics.
Investment trends in new technologies and clean energy
Oil and gas companies are shifting capital toward cleaner technologies to mitigate environmental impact. Investment in carbon capture, wind and solar power, and energy efficiency technologies has increased. EY confirms that companies are implementing strategies to keep the sector relevant in a clean energy future (EY, 2024). Furthermore, digitalization and automation in the sector are transforming operations to improve efficiency and reduce costs.
For example, ExxonMobil has allocated a significant portion of its budget to research and development of advanced technologies for emissions reduction. This reflects a trend in which large energy companies are not only looking for short-term profitability, but also to ensure their relevance in an increasingly sustainability-oriented future.
Risk factors for investors
Investing in the oil and gas industry carries a number of risks, from price volatility to increasingly restrictive environmental policies. A report by Mordor Intelligence reveals that oil prices, driven by geopolitical factors and the variability of supply and demand, represent a significant risk for investors (Mordor Intelligence, 2024).
Likewise, global environmental policies, such as emission reduction agreements, force companies to adapt or face significant penalties. Diversification towards clean energy therefore becomes not only an environmental strategy, but also an economic one.
Comparison between oil and gas exporting and importing economies
Export economies
Countries that depend on oil and gas exports, such as Saudi Arabia and Russia, see these resources as a key source of revenue for their national budgets.
For example, in 2023, Saudi Arabia reported that more than 70% of its government revenues came from oil exports. This economy is highly sensitive to price fluctuations, and any sharp drop can have catastrophic consequences for its public finances.
In Russia’s case, it is estimated that around 40% of its government revenues come from oil and gas exports. The Russian economy has been subject to international sanctions due to the war with Ukraine and volatility in the energy market, consequently, these scenarios undermine its ability to sustain robust economic growth.
In addition, sovereign wealth funds, such as Saudi Arabia’s Public Investment Fund, play a key role in diversifying investments to mitigate these risks. In Russia, the National Welfare Fund also seeks to stabilize the economy in the face of energy market fluctuations and support social spending.
Importing economies
Economies dependent on imported oil and gas, such as Japan and Germany, face different challenges. Increases in oil prices raise energy costs, affecting industrial productivity and the cost of living.
As stated in a study published in El Economista, the production boom in large gas fields has altered commercial dynamics, affecting prices and energy policies in importing countries (El Economista, 2024). For these nations, the transition to renewable energy sources is already an environmental necessity and also an economic strategy to reduce dependence on fossil fuels.
Comparative table of investment strategies in oil and gas vs. renewable energies.
| Factor | Oil & gas | Renewable energies |
| Risk | High (price volatility, regulatory changes) | Moderate (constantly evolving technology, government incentives) |
| Potential return | High in the short term | Long-term stable |
| Environmental impact | High | Low |
| Diversification | Minor | Major |
Impact on emerging and developed economies
But why is it important for producing countries to diversify their economies? The impact of oil prices varies significantly between emerging and developed economies. Emerging economies, such as Nigeria and Venezuela, rely heavily on oil to finance their national budgets and generate revenue. A fall in prices can exacerbate problems such as external debt and political instability.
In contrast, developed economies, although also impacted by price fluctuations, tend to have more resources and strategies to mitigate these effects, such as strategic oil reserves and diversified energy policies.
A comparative table between these types of economies shows the differences in dependence and policy responses to price fluctuations.
Summary of the impact of oil on different types of economy.
| Economy type | Impact of an increase in oil prices | Impact of a decrease in oil prices |
| Export | Increased tax revenues, higher investment | Fiscal pressure, economic slowdown |
| Import | Inflation, reduction of purchasing power, economic slowdown, etc | Reduction of inflation, increase in purchasing power, economic acceleration |
| Emerging | Increased macroeconomic vulnerability and risk of financial crisis | Greater macroeconomic stability, growth opportunities |
| Developed | Lesser impact overall, but may affect highly industrialized countries | Opportunities to reduce energy dependence |
The role of energy transition in the oil and gas industry
Switch to renewable energies
The transition to renewable energy is transforming the oil and gas industry. As governments implement policies to reduce carbon emissions, energy companies are being forced to adapt. Companies such as Shell and BP have announced ambitious plans to reduce their emissions and increase their investment in renewable energy (EY, 2024). However, the pace of this transition varies by region and government policies.
Emission reduction policies
Global pressure to reduce greenhouse gas emissions is driving significant changes in the industry. Stricter environmental regulations in Europe and North America are forcing oil companies to invest in cleaner technologies and rethink their exploration and production strategies.
This has led to innovations such as carbon capture and storage (CCS) and investment in renewable energy infrastructure. European Union policies, such as the European Green Pact, are accelerating these changes and setting standards that affect the global operations of energy companies.
Sector adaptation to attract investments
The oil and gas industry is currently at a crossroads, and adaptation is key to attracting investment. Companies that fail to innovate and diversify their energy sources risk losing relevance in a global market that is moving towards sustainability. ExxonMobil, to name one case, has committed billions of dollars to carbon capture projects, while BP has set clear targets to become a net-zero energy company by 2050. The strategy aims to mitigate environmental impact and attract investors who prioritize sustainability.
This is the focus of projects and, consequently, the diversification of the world economy in the energy field. In summary: oil and gas remain vital components of the global economy, influencing economic growth, inflation, fiscal and monetary policies. However, the industry faces significant challenges, from price volatility to pressure to reduce carbon emissions.
The transition to renewable energies and investment in clean technologies are inevitable trends that will define the future of this sector. As the world moves towards a more sustainable energy model, companies and economies must adapt to meet the challenges and seize the opportunities presented by this new era.
References
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