Qatar Petroleum Refinery

There have been lots of recent headlines about how much money the governments of oil exporting nations will lose as a result of declining oil prices. But these countries will really just earn less money than they would from selling their product at a higher price.

The price of oil has never been static and setting a national budget based on an estimated oil price forecast is fraught with risk. This is why it’s strange that so much attention is paid to the oil price a government needs to balance its budget.

You hear this all time. A country structured its annual spending plan – budget – based on $70 per barrel oil, but now prices are below $50/bbl, uh oh. Guess what? That country needs to adjust its budget just as any corporation or household would if there was a material change to its income base.

Alternatively, the country’s government can keep expenditures unchanged and simply borrow the difference or take it from savings, assuming it has those options. Maybe you don’t build that bridge or new refinery this year, or you find a different way to pay for it.

So next time you hear about some country “losing” billions of dollars because oil prices declined by a certain percentage, don’t feel too bad for them. Unless maybe it’s Venezuela.