By Senai Berhane
Kuwait’s economy has long been defined by the oil and gas sector, with crude oil contributing for 47 percent of the Kuwait GDP and over 90 percent of revenue, whilst accounting for 79.5 percent of exports (according to Central Bank of Kuwait Quarterly Statistical Bulletin for Q3 2024). Whilst this has been a driving force in Kuwait’s economy, its dependence exposes the country to significant macroeconomic volatility, as demonstrated by the collapse of oil prices from $110 per barrel in early 2014 to under $30 per barrel in early 2016.
This dependency is the main reason why Kuwait launched its 2035 vision, which was an initiative that was aimed at diversifying the economy, stabilizing government income and increasing value capture from energy resources. This was done by the development of projects like the Al Zour refinery, which uses downstream refining aimed at refining its oil exports into higher-value products.
Downstream refining refers to the process of turning crude oil into higher value petroleum products like ultra-low sulfur diesel, naphtha and low-sulfur fuel oil. Downstream refining is so valuable for Kuwait because of the crack spread – the difference between the price of a barrel of crude oil and the market value of the refined products. This is a gamechanger as this increases the gross profit per barrel. When Kuwait exports refined petroleum products instead of crude oil, it generates additional value in international markets.
Products such as naphtha and jet fuel typically have more demand and trade at premium prices compared to crude oil. An example of this is diesel, which can be worth 15-25 percent more per barrel. This means that Kuwait can benefit from increased export revenue. Another reason why trading refined products benefits Kuwait is that refined products typically aren’t that volatile. A huge problem with dependency on crude oil is that prices are extremely volatile due to their dependency on geopolitical affairs; however, refined products are dependent on consumer and industrial demand, which is more stable. This means increasing exports of refined products creates more stable and predictable revenue streams.
The main way that downstream refining will be harnessed is by using the Al Zour refinery. The Al Zour refinery, operated by KIPIC, represents the single largest refinery in Kuwait’s history and seventh largest refinery in the world by daily refining capacity of 615,000 barrels of crude oil per day. What makes the Al Zour refinery significant is not only its sheer size, but also its technology and market positioning. A key feature of the refinery is its ability to process Kuwait’s heavy, sour crude that is difficult to sell on the market. So by processing this kind of crude oil, Al Zour not only uses its domestic resource but also creates a competitive advantage that few other refineries can match worldwide.
The refinery is specifically designed to generate high-demand, high-margin products by focusing on premium, environmentally friendly fuels such as low-sulfur fuel oil that meets IMO regulations. Kuwait can secure access to growing international markets where cleaner fuels garner higher prices. As countries shift to cleaner energy sources, demand for “dirty fuels” decreases. Kuwait’s move into cleaner refined products gets it to a position where it will be a relevant supplier well into the future, ensuring long-term demand in a clean energy economy.
The use of the Al Zour refinery is bound to strengthen Kuwait’s economy, as although Kuwait has always been a top oil producer, it has historically been an importer of refined fuels due to limited refining capacity. However, now because of Al Zour refinery and its capacity, imports will be reduced, and this will improve the trade balance, as by producing domestically and not importing will reduce foreign currency outflows, strengthen current accounts and boost GDP due to net exports.
Furthermore, the Al Zour refinery has had a significant impact on employment in Kuwait. During its construction, the refinery created a large number of temporary jobs, with a peak workforce of 20,000 (in roles ranging from engineering to on-site construction). When looking at the long run, the refinery is expected to create 1,500 permanent jobs. These jobs are mostly in technical and operational fields, which reflect the project’s goal of empowering the local workforce. To support this, KIPIC has developed training programs to prepare young Kuwaitis for these roles. The refinery also helps the local economy by creating many indirect jobs in support of industries like logistics, catering and various other services.
The construction of the Al Zour refinery represents a turning point in Kuwait’s economic strategy, as it moves the nation away from exporting crude oil and towards the production of high-value, environmentally-friendly refined goods. Kuwait gains access to expanding international markets that meet sustainability standards and this stabilizes revenues by concentrating on fuels like low-sulfur oil.
Increasing domestic refining capacity also boosts GDP, improves the trade balance and decreases dependency on imports. Through the multiplier effect, the refinery creates jobs and encourages growth in other industries like shipping, logistics and technical services. Overall, Al Zour exemplifies how strategic investment in downstream refining can convert Kuwait’s vast crude reserves (104 billion barrels) into a robust, diversified and futuristic economy by positioning the nation into a competitive global energy supplier.
