How more or less economic freedom affects oil supplies

Having oil is one thing. Delivering it to a growing market is another, say economists Stephen Brown and Richard Alm. Using the Heritage Foundation's annual index of economic freedom, they point out that the world's oil wealth is concentrated in a relatively few countries, and of those countries even fewer have free or mostly free economies.

For example:

Of the 30 countries that control nearly all of the world's oil, just three rank as free – the United Kingdom, the United States and Canada. Private companies explore, produce and deliver oil in these countries, but they have only 16 per cent of world reserves.

Six of the top producers – including Saudi Arabia, Kuwait and the United Arab Emirates – have economies that are mostly free and account for 38 per cent of the world's reserves, with Saudi Arabia leading the pack with 267 billion barrels of proven reserves and Kuwait with 104 billion barrels. Although these countries have relatively stable economies, their governments control the oil industry.

The 21 remaining countries with significant oil reserves, accounting for 44 per cent of proven reserves, rate as either mostly unfree or repressed. For example, economically repressed countries hold many barrels of proven oil reserves, such as Iran (133 billion), Iraq (115 billion), Venezuela (79.7 billion), Libya (39.1 billion) and Nigeria (35.9 billion). There are also large reserves in mostly unfree Russia (60 billion).

These countries are not good candidates for increasing oil production, say Brown and Alm, because of extensive state intervention in their economies and control over their energy sector – which is quite often managed for political purposes beyond economic gain.

Source: H. Sterling Burnett, How Economic Freedom Can Increase Oil Supplies, National Center for Policy Analysis, Brief Analysis No. 562, June 26, 2006; based upon: Stephen P. A. Brown and Richard Alm, Running on Empty? How Economic Freedom Affects Oil Supplies, Economic Letter -- Insights from the Federal Reserve Bank of Dallas, Vol. 1, No. 4, April 2006.

For text: http://www.ncpa.org/pub/ba/ba562/

For study text: http://dallasfed.org/research/eclett/2006/el0604.html

For more on Energy: http://eteam.ncpa.org/issues/?c=gasoline-and-petroleum

FMF Policy Bulletin/ 04 July 2006