The Risks and Benefits of Oil Investment

Oil is often considered a political commodity, but there is

only a limited supply. Due to the Worlds’ dependence on oil as a

primary energy source, governments are becoming more and more

concerned about the availability of oil in the future. In the

global competition to secure energy sources, oil fields are

attracting an immense amount of interest from foreign investors.

The want and need for oil resources by industrialized, wealthy

nations has put an immense amount of power in the hands of oil-

reserve holding countries. About eighty percent of the worlds’

oil and gas reserves are held by state-owned enterprises, along

with governments. Most of the oil-reserve holding countries are

developing countries with evolving, fragile governments, which

causes risks and issues for foreign investors. Many political

issues are associated with the corruption and complications of

nations reliant on revenue from oil.

connotations applied are not always true for all corporations.

Both government stability and the increasing emergence of state-

owned oil enterprises can be beneficial and detrimental to

investors and suppliers. Shells investments and expansion in the

However, the negative

high-risk area of Sub-Saharan Africa, specifically Nigeria,

baffles business investors due to the risky political

instability that exists in those sectors. How has Shell been

able to succeed and excel in a location with so much instability

and risks?

Stability in an investment is a must for any rational

foreign investor. Being that oil is in constant demand and

affects the fortunes of governments’, serious political risks in

the investment of oil exist and should be considered. Even

though Africa is known to be labeled by business investors as

extremely unstable, Shell continues to be successful with their

investments in oil there. In particular, the political

instability in Nigeria carries a huge wave of risks for any

investor. Despite the risks, Nigeria is one of Shells main oil

contributors in the African region. One reason for Shells

confidence in their Nigerian location is that although their

government has had frequent and dramatic changes, the policies

involving the oil industry have not been altered.

The quality of oil is another key factor for foreign

investors. The quality of oil in Nigeria is much higher than the

oil found elsewhere. This is one of the main advantages that

Shell benefits from in its risky investment. Oil companies do

not only have to be concerned about the costs of extraction of

oil and its materials, but also the process of refining the oil.

The higher the oil