Finance

Klarna reported overall net operating income of 9.2 billion Swedish krona ($843.8 million), up 21% year-over-year from 7.5 billion krona in the same period a year ago.
Klarna didn’t manage to report a profit though. The firm posted a net loss for the period of 2.1 billion Swedish krona, down 67% from 6.4 billion krona between January to June 2022.
Klarna recorded a monthly profit in the first half, which the company attributed to cost optimization via cutting expenses and boosting efficiency through artificial intelligence.

“Buy-now, pay-later” firm Klarna aims to return to profit by summer 2023.
Jakub Porzycki | NurPhoto | Getty Images

Swedish buy now, pay later firm Klarna reduced its losses by roughly 67% in the first half of 2023, as the company dramatically cut costs in a bid toward profitability.
The company reported overall net operating income of 9.2 billion Swedish krona ($843.5 million), up 21% year-over-year. Failing to record a half-year profit, the firm posted a net loss of 2.1 billion Swedish krona for the period, down 67% from 6.4 billion krona between January to June 2022.

Klarna did, however, say that it recorded one month of profitability in the first half of the year, ahead of its internal target to post profit on a monthly basis in the second half.
Klarna CEO and founder Sebastian Siemiatkowski hailed the firm’s profitability milestone, saying that its results “clearly rebut the misconceptions around Klarna’s business model, evidencing that it is incredibly agile and sustainable,” and supporting a “healthy consumer base.”
“Some claimed Klarna would face difficulties in the tough macro-economic climate with high interest rates, but having led the company through the 2008 financial crisis I knew we had a strong and resilient business model to see us through. Despite the volatile environment, we have done exactly what we set out to do,” Siemiatkowski said.
Credit losses, a measure of how much the company sets aside for customer defaults, sank by 39% to 1.8 billion krona from 2.9 billion.
Buy now, pay later, or BNPL, firms allow shoppers to defer payments to a later date or purchase things over installments on interest-free credit.

These firms are able to offer zero-interest loans by charging merchants, rather than customers, a fee on each transaction — but as interest rates have risen, the BNPL funding model has been challenged.
Siemiatkowski previously told CNBC the company was planning to achieve profitability on a monthly basis in the second half of 2023, suggesting that an aggressive cost-cutting strategy in 2022 — which included hundreds of redundancies — had paid off.
Klarna cut 10% of its workforce in May last year.
“To some degree, all of us were lucky that we took that decision in May [2022] because, as we’ve been tracking the people who left Klarna behind, basically almost everyone got a job,” Siemiatkowski said at an interview in Helsinki, Finland, at the Slush technology conference last November.
“If we would have done that today, that probably unfortunately would not have been the case.”
Klarna said that cost optimization was a key factor behind its ability to churn out a monthly profit in the first half of the year.
The company said that operating expenses before credit losses improved by 26% year-on-year, thanks in part to its push into artificial intelligence.
Klarna said a recently-launched customer services feature “made solving merchant disputes for customers more efficient, saving over 60,000 hours annually.”
Like other fintech companies, Klarna has made a big push into AI lately, as it looks to capitalize on the growing boom in the industry’s growth, following the birth of OpenAI’s ChatGPT.
In April, the company revamped its app with a host of new personalized shopping features. It is trying to make the software similar to TikTok, which has a discovery feed for users to find content suited to their preferences.
David Sandstrom, Klarna’s chief marketing officer, told CNBC at the time that the aim was to “offer people products and brands before they knew they wanted them.”
Klarna last year saw 85% erased from its market value in a so-called “down round,” taking the company’s valuation down from $46 billion to $6.7 billion.
Some of the company’s peers, like PayPal, Affirm, and Block, also saw their shares plummet sharply amid a wider sell-off in technology valuations.
Klarna at the time blamed deteriorating macroeconomic conditions, including higher inflation, rising interest rates, and a shift in consumer sentiment. More

Germany’s economic model is known for close relations between bosses and unions; the Mittelstand, the country’s world-leading manufacturing firms; and the political system’s federalism, which spreads prosperity widely. Another ingredient is less renowned but no less fundamental: the country’s banks, many regionally focused, provide long-term funding to Mittelstand companies nice and cheaply.Unfortunately, this model is no longer delivering: German growth is forecast by the imf to be the lowest of any g7 member this year. And the country’s banks are struggling, too. The European Banking Authority estimates that in the first three months of 2023 their weighted-average return on equity, a measure of profitability, was 6.5%, compared with 10.4% across the eu. In 2020 banks in eight countries in the eu offered worse returns than German lenders. In the first three months of this year only those in Luxembourg did.In part, this poor performance reflects quirks of the German market. The country’s banks are unusually keen on making fixed-rate loans, which has limited their ability to profit from higher interest rates. Their net interest margin—what a bank collects on loans minus what it pays for funding—has grown by just 0.1 percentage points since June 2020, half the eu average.Yet there are also deeper issues at play. German lenders are unusually structured, coming in three categories: private-sector lenders, including Commerzbank and Deutsche Bank; public banks, including 361 savings banks and five Landesbanken, which act as wholesale banks for the savings banks; and 737 co-operatives.Non-private lenders, which hold 57% of banking-sector assets, are conservative outfits with goals besides profits, such as supporting local firms. Many public banks have politicians as chairs or board members. This politicised governance brings poor risk management, says Nicolas Véron of Bruegel, a think-tank. Lots are highly exposed to property, for instance, leaving them vulnerable to recent price falls.Public banks and co-operatives also operate on a “regional principle” that bars them from seeking business in one another’s territory. They form networks, with the biggest possessing more assets than any single European bank, allowing them to share costs and reducing the amount of capital with which they are required to fund themselves. As a result, margins for private-sector banks are squeezed, making it hard for them to compete with other institutions. Deutsche Bank’s price-to-book ratio languishes at 0.3, about half that of bnp Paribas, a French rival.Germany’s unusual financial system is well-suited to supporting regional companies. It is rather less well-suited to supporting riskier business (say, startups needed for the green transition or digitisation) that require funding from capital markets alongside more traditional forms of finance. Although German politicians and policymakers are engaged in a lively debate about the country’s economic future, discussion of its financial institutions has yet to feature prominently. Perhaps the country’s banks are simply too much of a fixture to be questioned. ■For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter. More

Europe’s summer was a strange mixture of heavy rainfall and wildfires. The continent’s economy was also plagued by extremes. Inflation remained hot: prices rose by 5.3% in August compared with a year earlier. And officials are increasingly worried by the cloudy growth outlook. A recent drop in the purchasing managers’ index (pmi) suggests the bloc is facing recession.Ahead of the next meeting of the European Central Bank (ecb) on September 14th, policymakers will be worried by the possible emergence of stagflation (a situation in which low growth is paired with entrenched inflation). Christine Lagarde, the central bank’s president, recently reiterated her commitment to bringing down inflation and setting interest rates at “sufficiently restrictive levels for as long as necessary to achieve a timely return of inflation to our 2% medium-term target”. In plain English: the ecb would much prefer a “hard landing”, featuring economic pain, than failing to reduce price rises.The problem is that the ecb risks crashing the plane. Euro-zone inflation is proving as stubborn as the American variety. In Europe, price rises were sparked by increasing energy costs; in America, they were more demand-driven. But in both places inflation has followed a similar path, with Europe slightly behind. Now the question is whether core inflation, which excludes volatile energy and food prices, will come in to land. So far, it is staying stubbornly high (see chart).This is in part because Europe has, like America, so far managed to dodge recession. At the end of last year, when many expected a European downturn, monetary tightening had yet to hit the economy and national governments offered generous handouts in order to counteract the energy shock. The service sector showed decent growth, and industrial order books remained full from the post-covid boom.Gloom is now spreading across the continent. The global economy is weakening, and order books have plenty of blank pages. State support for households is also running out. Retail energy prices remain higher than before last year’s crisis; real incomes have yet to recover. Activity in the service industry contracted in August, according to the pmi survey. The sector is at its weakest in two and a half years.Higher interest rates have also started to affect the European economy, as intended by the ecb’s policymakers. Construction, which is traditionally sensitive to interest rates, is feeling the pain. Stingier bank lending is leading to a 0.4 percentage-point reduction in gdp growth each quarter, according to Goldman Sachs, a bank. Corporate insolvencies rose by more than 8% in the year’s second quarter, compared with the first, and have reached their highest since 2015. The impact of tighter monetary policy will peak in the second half of this year, predicts Oliver Rakau of Oxford Economics, a consultancy.A hard landing is thus almost guaranteed. But the return of inflation to the ecb’s 2% target remains some way off. Two forces are pulling prices in different directions. One is the situation in the labour market. Unemployment remains at a record low. Although firms are hiring fewer workers, there is no imminent danger of mass lay-offs—in part because bosses want to hold on to workers that are increasingly scarce in an ageing continent. As a result, wages across the bloc are rising, even if not by enough to make up for earlier inflation.The other force, which is pulling down inflation, is weakening demand for goods and services. During the covid pandemic, price growth took off in advance of wage growth, causing companies’ profits to rise strongly alongside inflation. If companies now find that demand is drying up, it is possible that inflation will fall at the same time as wage growth stays high, bringing profits back down. Indeed, prices on wholesale markets for goods are already falling fast, and import prices are also declining. At some point, these lower prices will be passed on to consumers.Which of these two forces will win out? At the moment, it looks like the answer will be weak demand, since it has spread to the service sector, too. This suggests that euro-zone inflation might fall in relatively short order. But the ecb appears unconvinced, and seems ready to lift its main rate to 4.5% from 4.25%. Policymakers would be better off holding rates steady, so that they can assess the danger of a crash. ■For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter. More

The world’s public finances look increasingly precarious. In the year to July America’s federal government borrowed $2.3trn, or 8.6% of GDP—the sort of deficit usually seen during economic catastrophes. By 2025 five of the G7 group of big rich countries will have a net-debt-to-GDP ratio of more than 100%, according to forecasts by the imf. Such debts may have been sustainable in the low-interest-rate era of the 2010s. But those days are long gone. This month the ten-year Treasury yield briefly hit 4.3%, its highest since before the global financial crisis of 2007-09.How will governments shed these burdens? Economists are increasingly gripped by the question. A recent paper by Serkan Arslanalp of the imf and Barry Eichengreen of the University of California, Berkeley, presented at America’s annual monetary-policy jamboree in Jackson Hole, Wyoming, on August 26th, sets out a menu of options. It is not exactly an appetising one.Big economies have had big debts before. Broadly speaking, they have dealt with them by employing one of two strategies. Call them the austere and the arithmetic. The austere method is to run primary surpluses (ie, surpluses before debt-interest payments). In the 1820s, after the Napoleonic wars, Britain’s debts reached almost 200% of GDP; the Franco-Prussian war left France owing nearly 100% of GDP in the 1870s. Previously Mr Eichengreen and co-authors found that between 1822 and 1913 Britain ran primary surpluses sufficient to reduce the debt-to-GDP ratio by more than 180 percentage points; France did enough to reduce its ratio by 100 percentage points in just 17 years after 1896.Messrs Arslanalp and Eichengreen are pessimistic about the prospect of democracies repeating the trick today. In the 19th century welfare states were minimal. British politicians followed the Victorian philosophy of “sound finance”; the French sought to reduce debts so as to be ready for their next war. In contrast, modern welfare states are weighed down by ageing populations, and the need for more defence spending and green investment means the size of the state is growing. Politicians could raise taxes. But other research by the IMF finds that in advanced economies, from 1979 to 2021, fiscal consolidations were less likely to succeed in cutting debts if they were driven by tax increases instead of spending cuts, perhaps because raising taxes harms economic growth.What about the arithmetic approach? This was the path many countries followed after the second world war, when America’s debts peaked at 106% of GDP (a level they could soon surpass). It involved the rate of economic growth exceeding the inflation-adjusted rate of interest, such that legacy debts shrank relative to GDP over time, with small primary surpluses chipping in. It is possible to argue that recent high rates of inflation have started the world economy on the arithmetic debt-reduction route. Indeed, advanced-economy net debts have fallen by about four percentage points after shooting up in 2020 when covid-19 struck.Yet inflation only reduces debt when it is unexpected. If bondholders anticipate fast-rising prices, they will demand higher returns, pushing up the government’s interest bill. Persistent inflation helped after the second world war only because policymakers held down nominal bond yields in a policy known as financial repression. Until 1951 the Federal Reserve capped long-term rates by creating money to buy bonds. Later a ban on paying interest on bank deposits would redirect savings to the bond market.The resulting low real interest rates were paired with rapid post-war growth. Between 1945 and 1975, this reduced the debt-to-GDP ratio by a weighted average of 80 percentage points across the rich world. Both sides of the equation were important. Everyone can agree growth is desirable—it is the “painless way of solving debt problems”, write Messrs Arslanalp and Eichengreen, and it averaged an annual 4.5% across the rich world in this period. But high growth typically raises real interest rates. Another working paper, by Julien Acalin and Laurence Ball, both of Johns Hopkins University, finds that with undistorted real interest rates and a balanced primary budget, America’s debt-to-GDP ratio would have declined to only 74% in 1974, rather than the actual figure of 23%.Unless artificial intelligence or another technological breakthrough unleashes a step change in productivity growth, today’s ageing economies have no chance of matching post-war rates of expansion. America’s GDP is expected to rise at an annual pace of just 2% over the next decade. That immediately limits the arithmetic strategy by putting the onus on real interest rates. There are good reasons to expect rates to be “naturally” low, such as more saving as societies age. But investors seem to be having doubts, as the recent rise in long-term bond yields demonstrates. Financial repression and high inflation to bring down real rates would require sweeping changes, such as central banks abandoning their inflation targets, as well as a reversal of much of the financial liberalisation that took place towards the end of the 20th century.Best of the worstWhat, then, will happen? “Governments are going to have to live with high inherited debts,” reckon Messrs Arslanalp and Eichengreen. The best politicians can do is not to make a bad situation worse. Yet the ongoing accumulation of debt suggests it is unlikely that politicians will follow this advice. On its current path America will match its post-war record of spending 3.2% of GDP on interest in 2030. Two decades later this will pass 6%. The bill could be higher if another pandemic or major war arrives in the meantime.However unlikely it seems that voters and politicians will be willing to tolerate primary surpluses, sustained inflation or financial repression, they will probably reach a point where they are equally unwilling to put up with handing over a large chunk of tax revenues to bondholders. At such a time political constraints will ease—and the danger of a bond-market crisis will rise. The debt-reduction menu will then not look quite so unpalatable. ■Read more from Free exchange, our column on economics:Which animals should a modern-day Noah put in his ark? (Aug 24th)Democracy and the price of a vote (Aug 17th)Elon Musk’s plans could hinder Twitternomics (Aug 7th) More

Money can look like just about anything. In ancient China, bronze knives circulated as a means of payment; during the Depression, Californians used clamshells instead of cash; in 1970 Irish shoppers were forced, by a banking strike, to make do with ious written on toilet paper. As Hyman Minsky, an economist, put it: “Anyone can create money; the problem is getting it accepted.”Europeans will soon need to accept a new-look euro. A European Central Bank (ecb) survey, which closed at the end of August, asked respondents to choose between seven themes, varying from “hands: together we build Europe” to “rivers, the water of life in Europe” and “our Europe, ourselves”. A design contest will now follow, and updated euros will emerge from cash machines in 2026.Economists see money as a neutral medium of exchange, but images on banknotes are some of the world’s most recreated designs. For governments, they are an opportunity to put propaganda in pockets, and transmit a certain idea of the state. Birds, another possible theme, would symbolise “freedom of movement”, the ecb says, as well as celebrate the eu birds directive, which protects nature. Such a rosy picture of European co-operation is in stark contrast with the messages sent a century ago: the German 10,000 mark note, introduced in 1922, included a vampire, representing France, sucking a German worker dry.Putting dead presidents on money, as America does, or monarchs, like Britain, is a less appealing option in Europe. A squabbling bloc of 20 countries, including those for which the term “nationalism” was coined, are unlikely to be satisfied with a focus on any one country’s leaders, even those long gone. Famous artists, a mooted alternative, will almost certainly end up with an argument over which country’s genius deserves the €500 note, which ends up on the €5 and which misses out altogether.The ecb previously managed to swerve these dilemmas by using imaginary bridges. These showcased the continent’s traditional architectural styles (baroque, neoclassical and so on) without favouring any single country’s monuments. That was until Spijkenisse, in the Netherlands, spoiled things. The suburb of Rotterdam turned the images into reality, employing dyed concrete to match the colour of the banknotes.Whatever the end product looks like, cash is on the way out. According to the ecb, it was used for just 59% of euro transactions last year, down from 72% three years previously. For many Europeans, especially younger ones, money no longer looks like paper or coins, but whatever a smartphone screen displays. Ultimately, then, the new look for the euro will be decided more by graphic designers in Silicon Valley than central bankers in Frankfurt.■For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter. More

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UBS on Thursday posted a second-quarter profit of $28.88 billion in its first quarterly earnings since Switzerland’s largest bank completed its takeover of stricken rival Credit Suisse.
UBS said the result primarily reflected $28.93 billion in negative goodwill on the Credit Suisse acquisition. Underlying profit before tax, which excludes negative goodwill, integration-related expenses and acquisition costs, came in at $1.1 billion.
In a separate Thursday filing, the Credit Suisse subsidiary posted a second-quarter net loss of 9.3 billion Swiss francs.

General view of the UBS building in Manhattan on June 5, 2023 in New York City.
Eduardo Munoz Alvarez | View Press | Corbis News | Getty Images

UBS shares reached their highest point since late 2008 during early trade in Zurich on Thursday, after the Swiss banking giant posted a mammoth profit beat and announced thousands of layoffs as it plans to fully absorb Credit Suisse’s Swiss bank.
UBS posted a second-quarter profit of $28.88 billion in its first quarterly earnings since Switzerland’s largest bank completed its takeover of stricken rival Credit Suisse.

Analysts had projected a net profit of $12.8 billion for the three months to the end of June, according to a Reuters poll.
UBS said the result primarily reflected $28.93 billion in negative goodwill on the Credit Suisse acquisition. Underlying profit before tax, which excludes negative goodwill, integration-related expenses and acquisition costs, came in at $1.1 billion.
Negative goodwill represents the fair value of assets acquired in a merger over and above the purchase price. UBS paid a discounted 3 billion Swiss francs ($3.4 billion) to acquire Credit Suisse in March.
Ermotti told CNBC’s “Squawk Box Europe” on Thursday that the bank is making “very good progress” with its integration plans.
“When people look into those numbers, they will clearly understand that this negative goodwill is the equity necessary to sustain $240 billion of risk-weighted assets and the financial resources to go through a deep restructuring that is necessary at Credit Suisse, because our analysis has proven that the business model was not viable any longer,” he told CNBC’s Joumanna Bercetche.

“Credit Suisse has excellent people, clients, and product capabilities, but the business model was not sustainable any longer and needs to be restructured.”

UBS shares were up 4.9% around an hour into trading.
Here are some other highlights:

CET 1 capital ratio, a measure of bank liquidity, reached 14.4% versus 14.2% in the second quarter of 2022.
Return on tangible equity (excluding negative goodwill, integration-related expenses, and acquisition costs) was 4.3%.
CET1 leverage ratio was 4.8% versus 4.4% a year ago.

Credit Suisse’s Swiss bank to be fully absorbed
Credit Suisse’s stalwart domestic banking unit will be fully integrated into UBS, the group also announced on Thursday, with a merging of legal entities expected to close in 2024.
The fate of Credit Suisse’s flagship Swiss bank, a key profit center for the group and the only division still generating positive earnings in 2022, was a focal point of the acquisition, with some analysts speculating that UBS could spin it off and float it in an IPO.
Ermotti said the bank’s analysis had determined that this is “the best outcome for UBS, our stakeholders and the Swiss economy.”
The integration may prove more controversial in Switzerland because of the possibility of heavy job losses in the process. UBS confirmed on Thursday that the integration of the Swiss bank will result in 1,000 redundancies, beginning in late 2024, while a further 2,000 layoffs are expected due to the wider restructure of Credit Suisse.
The Credit Suisse acquisition was part of an emergency rescue deal mediated by Swiss authorities over the course of a weekend in March. Earlier this month, UBS announced that it had ended a 9 billion Swiss franc ($10.24 billion) loss protection agreement and a 100 billion Swiss franc public liquidity backstop that were put in place by the Swiss government when it agreed to take over Credit Suisse in March.

“Clients will continue to receive the premium level of service they expect, benefiting from enhanced offerings, expert capabilities and global reach,” Ermotti said of the integration of Credit Suisse’s Swiss banking division.
“Our stronger capital base will enable us to keep the combined lending exposures unchanged, while maintaining our risk discipline.”
The bank also announced that it is targeting gross cost savings of at least $10 billion by 2026, when it hopes to have completed the integration all of Credit Suisse Group’s businesses.
UBS delayed reporting its second-quarter results — initially scheduled for July 25 — until after completing the Credit Suisse takeover on June 12.
In the previous quarter, UBS suffered a surprise 52% annual drop in net profit due to a legacy litigation issue relating to U.S. mortgage-backed securities.
UBS shares closed Wednesday’s trade up nearly 30% since the turn of the year, according to Eikon.
In a separate Thursday filing, the Credit Suisse subsidiary posted a second-quarter net loss of 9.3 billion Swiss francs, as it saw net asset outflows of 39.2 billion Swiss francs, with assets under management falling 3% amid a mass exodus of clients and staff.
The Thursday report was Credit Suisse’s last as an independent entity, and showed that, despite the rescue, the loss of client confidence that precipitated the bank’s near-collapse in March has yet to be reversed.

UBS nevertheless noted that this attrition rate was slowing, and the bank will be keen to retain as many Credit Suisse clients and customers as possible, in order to make the colossal merger work in the long run.
UBS’ Ermotti told CNBC on Thursday that both UBS and Credit Suisse had seen an uptick in deposit inflows in the second quarter and in the current one so far, and that this was evidence that clients are “staying loyal.”
For the second quarter, net inflows into deposits for the combined group were $23 billion, of which $18 billion came from Credit Suisse’s wealth management and Swiss bank divisions.
Though Credit Suisse continued to suffer net asset outflows, UBS said that these slowed over the second quarter and turned positive after the acquisition was completed in June.
“Credit Suisse lost around $200 billion during its difficult times in 2022 and 2023, and we are seeing now some of this coming back, and our goal is to try to get back as much as possible. It’s not easy, but it is our ambition,” Ermotti added.
UBS’ flagship global wealth management business received $16 billion in net new money over the three months to the end of June, its highest second-quarter net inflows for over a decade. More

Haitham al-Ghais, secretary-general of the Organization of Petroleum Exporting Countries (OPEC), speaking at the Energy Asia Summit on June 26, 2023.
Bloomberg | Bloomberg | Getty Images

What do toothpaste, deodorant, soap, cameras, computers, gasoline, heating oil, jet fuel, car tires, contact lenses and artificial limbs have in common?
If oil vanished today, these and many other vital products and services that use oil or its derivatives would vanish too. Transportation networks would grind to a halt, homes could freeze, supply chains would crash and energy poverty would rise.

The World Energy Report for 2022, published by the UK-based Energy Institute and consulting firms KPMG and Kearney, noted that fossil fuels constituted 82% of global energy in 2022. This is comparable to OPEC’s latest world oil outlook and represents a similar level to 30 years ago.
Why then do most energy transition debates disregard the critical role that commodities like oil and gas continue to play in improving lives, fostering stability and energy security, as well as related industries’ efforts to develop technologies and best practices to reduce emissions? The scale of the climate change challenge is daunting, but meeting the world’s rising energy demand and mitigating climate change do not have to exist in a vacuum or be at odds with each other.
Rather, the world should act to reduce emissions and ensure that people have access to the products and services they need to live comfortably. Towards these goals, OPEC members are investing in upstream and downstream capacities, mobilizing cleaner technologies and deploying vast expertise to decarbonize the oil industry. Major investments are also being made in renewables and hydrogen capacity, carbon capture utilization and storage — as well as in promoting the circular carbon economy.
The bottom line is that it is possible to invest heavily in renewables while continuing to produce the oil the world needs today and in the coming decades. This approach also contributes to global stability at a time of volatility and is critical given that history shows that energy transitions evolve over decades and take many paths.
Take electric vehicles: Although the Toyota Prius became the world’s first mass-produced hybrid vehicle in the late 1990s, an analysis from the U.S. National Automobile Dealers Association noted that sales of hybrids, plug-in hybrids and battery electric vehicles (BEV) accounted for only 12.3% of all new vehicles sold in the U.S. in 2022.

While the rising popularity of electric vehicles is indisputable, total sales of BEVS also made up only 19% of new car sales in China last year. Similarly, in the EU, vehicles using petrol or diesel still accounted for around half of all car sales in 2022.
Thus, when it comes to the transportation sector – and indeed many other fields – it is clear that it would not be prudent to ignore that billions of people across the globe rely on oil and will continue to do so for the foreseeable future.
This becomes even more pressing when coupled with the investment needed to meet the rising demand for energy, ensure energy security and affordable access, and lower global emissions in line with the Paris Agreement.

Rising demand for energy

The world’s population is growing. OPEC’s World Oil Outlook (WOO) for 2022 sees it increasing by 1.6 billion people through 2045, while United Nations statistics note growth to around 10.4 billion by 2100.
In parallel, OPEC’s estimates that global energy demand will increase by 23% to 2045. Within this, oil demand is projected to increase to around 110 million barrels a day (mb/d). Thus, it is clear that oil will continue to be an essential part of the global energy infrastructure for decades to come. This is in stark contrast to the many proclamations of past decades that the age of oil was over. Indeed, contemporary demand is close to an all-time high and will rise by close to 5 mb/d in 2023 and 2024.
No single form of energy can currently meet expected future energy demand; instead, an “all-peoples, all-fuels and all-technologies” approach is required. As such, OPEC member countries are ready, willing and able to provide the affordable energy needed to cater towards these future energy needs, all the while reducing their emissions and helping eradicate energy poverty in doing so.
The UN notes that more than 700 million people still lack access to electricity and almost one-third of the global population uses inefficient, polluting cooking systems. Daily life is not about cars, laptops or air conditioning for these people; it is about basic access to heat and electricity. To provide adequate and affordable universal energy access, and eradicate energy poverty, oil can and will play a key role in developing countries. The Global South has been – and continues to be – very clear about this; is the Global North taking heed?

Investment in oil is critical for energy security

Another worrying reality across the globe is that not enough investment is going into all energies. Looming oil demand growth alone necessitates far more investment if a sustainable supply is to be maintained.
Oil will make up close to 29% of global energy needs by 2045, with investment of $12.1 trillion needed by then — or over $500 billion a year — but recent annual levels have been far below this.
The consequence of failing to invest adequately in oil is hammered home by recent OPEC Secretariat research outlining that in five years there would be a staggering oil market deficit of 16 million barrels per day between forecasted rising global demand and supply if investments into upstream activities were stopped today — as some are calling for.
The oil industry has played a central role in improving billions of lives to date. If it is to continue to do so, and if the world is serious about implementing orderly energy transitions and meeting future energy demand while ensuring energy security for all, chronic under-investment in the industry needs to be remedied swiftly.
Ahead of this year’s United Nations Climate Change Conference (COP28) in the United Arab Emirates – where the world will evaluate progress on the Paris Agreement – COP28 President-Designate Dr. Sultan Ahmed Al Jaber said the world needs “maximum energy, minimum emissions.” A healthy degree of pragmatism will be necessary to achieve this goal, especially given the clear need to utilize all energies if we are to meet the world’s current and future energy demands.
Ultimately, no people, industry or country can be ignored, and we believe that discussions at this year’s COP28 will reflect this. After all, history is filled with numerous examples of turmoil that should serve as ample warning for what occurs when policymakers fail to take on board energy’s interwoven complexities. More