Petroleum, also known as crude oil or simply as oil in its liquid state, is a substance mainly consisting of hydrocarbons, formed by the decomposition of organic material over time. While referred to as crude oil in its liquid form, broader definitions of petroleum can also refer to natural gas or bitumen.[1][2][3]
Petroleum is widely used in the manufacturing of thousands of products as well as being burned as a source of fuel.[3] It is a fossil fuel and a non-renewableresource.[3]
Petroleum is a strategically significant resource due to a variety of considerations, including its material qualities as well as its function in the petrodollar system.[4]
A chart depicting the world's proven crude oil reserves by region in 2019.
As of 2024 data, the leading exporters of crude petroleum were Saudi Arabia, Russia, and the United States.[5] The countries with the highest share of crude petroleum comprising their exports were Chad (91.3%), Libya (90.6%), and Iraq (89.6%),[5] while the countries where crude petroleum ranked highest in their export portfolios were Angola (1st), Azerbaijan (1st), and Brazil (1st).[5]
Venezuela has the world's largest proven oil reserves. Saudi Arabia and Iran also possess major proven reserves. Canada ranks fourth globally in proven reserves, with the majority of Canada's reserves coming from oil sands, which are more expensive and carbon-intensive to extract. Iraq, United Arab Emirates, Kuwait, Russia, Libya, and the US are also among the top ten in proven reserves, as of 2024.[6]
Crude oil (and natural gas) can be found in underground reservoirs, which are found by analyzing geological structures that typically trap petroleum, and engaging in processes such as seismic reflection and exploratory drilling. Oil can be drilled on land or offshore. While drilling is most common, some oil can be surface mined from oil sands.[3]
When oil is found and extracted, different mixtures of materials such as sulfur and sand are typically present in the oil, which are later removed in the refining process. The geographic origin, sulfur content (whether oil is "sweet" or "sour"), and density compared to water (whether oil is "light" or "heavy") are some of the main considerations in classifying and refining crude oil as they together determine factors such as transport logistics, refining complexity, and end product yield.[3]
Oil refining is focused on separating the various components (fractions) of the oil. As different hydrocarbon chain lengths all have different boiling points, they can be separated via distillation. Crude oil is heated and different chains are pulled out by their vaporization temperatures. Among the separated chain lengths are products with various applications such as petroleum gas, naphtha, gasoline, kerosene, and others. Oil refining may also involve chemical processing to convert certain products into others by altering their chain length. Refineries also treat fractions to remove impurities as well as combine different mixtures to create desired products. The products are then stored on-site until they can be delivered to various markets.[7]
Oil is classified according to three main categories. These categories include the location where it was drilled, its sulfur content, and its density compared to water, a measurement known as API gravity.[3][8] Location of where the oil originates is important for a variety of logistical and political considerations. As for sulfur content, sulfur in crude oil can corrode metal in the refining process and contribute more to air pollution. Oil with more sulfur content is referred to as "sour" while oil with less sulfur content is called "sweet", with sweet oil being generally more valuable than sour as it does not require as much refining and is less environmentally damaging. API gravity is a measure of the density of petroleum liquid compared to water. Petroleum liquid with a higher API gravity floats on top of water and is considered "light", while a lower API gravity petroleum liquid sinks in water and is called "heavy". Light oils have a higher yield of hydrocarbons, while heavier oils have greater concentrations of metals and sulfur, requiring more refining.[3]
The sale of oil in US dollars (USD) since the 1970s forms what is known as the "petrodollar" system. This system emerged after the end of the Bretton Woods system in 1971, in which the US dollar had been convertible into gold in a USD-linked form of the gold standard. The sale of oil in USD maintains demand for USD and US Treasury assets, playing a major role in supporting US dollar hegemony for decades.[9]
[B]y 1971 the U.S. faced mounting trade deficits and dwindling gold reserves, as countries sought to trade USD for gold they didn’t have, US President Nixon ended dollar convertibility to gold – a move that threatened the dollar’s supremacy. The solution emerged via oil: in 1974, one year after the oil crisis, Washington and Riyadh struck a pivotal deal (kept secret until 2016) that ensured Saudi oil would be priced exclusively in dollars. In return, the U.S. provided military protection and lucrative arms sales to Saudi Arabia, and Saudi leaders would recycle their oil revenues into U.S. Treasuries and American investments. This U.S.–Saudi arrangement laid the foundation of the petrodollar system, firmly tying the world’s most traded commodity (oil) to the American currency.[9]
The pricing of oil in other currencies is one notable avenue of de-dollarization.[9]
