Nationalization causes oil market and economic distortions — destabilizes in the long term.

Nationalization of oil reserves and facilities can contribute to oil market and economic distortions, the politicization/militarization of oil security, and the use of oil revenue in destabilizing ways. However, when countries that nationalize their assets are genuine liberal democracies with transparent revenue generation streams—including effective taxation regimes—and observant of international diplomatic and trade norms, then the impact of oil nationalization on energy security is neutral. Companies in these countries operate similarly to free market oil companies. Norway, with its state-owned Statoil, is a case in point in that it operates virtually the same as publicly traded IOCs. Yet, most of the nationalized countries listed in Appendix A are non-democratic and have limited transparency. Many of these states lack effective taxation regimes so their leaders often treat oil revenues as a primary source of funding for their agendas. Moreover, as detailed below, some of these states have used oil exports as a political weapon in the past and are likely to continue to do so.

In order to appreciate the level of influence that NOCs exert on global oil security it is necessary to understand their market share. Appendix A lists most of the countries that have nationalized their domestic and overseas oil company operations and indicates that they possessed 92.5% of total global proved reserves and accounted for 81.5% of total global oil production in 2008.7 This is not to suggest that all of the production or reserves listed in the appendix were the property of NOCs since, in many cases, IOCs also operate in the listed countries.

Nevertheless, it is noteworthy that the production ratio between IOCs and NOCs has virtually reversed since the 1970s. In 1972, the last year before the first major OPEC-driven oil shock, IOCs produced approximately 93% of global crude oil, whereas NOCs produced roughly 7%. In 2007, by contrast, IOCs accounted for approximately 23% of daily production against roughly 77% for NOCs.8 This trend in favor of NOCs will likely continue since much of the IOC production has occurred in nonnationalized regions, such as the United States, where fields are generally older and closer to depletion. Moreover, recent history has witnessed more nationalization, such as those undertaken by the Venezuelan or Ecuadorian Governments.