Oil companies are always trying to get the F1 media to say how important they are in the sport, which is fine. They do play a role in developing technology and in providing the sport with much-needed cash. If you look up and down the F1 grid you see that some of the biggest oil companies are heavily involved in the sport: Petronas with Mercedes, Shell with Ferrari, Total with Renault-related teams, ExxonMobil with McLaren and so on. But oil is important in other ways to the sport because of the price of what they used to call black gold is very important in getting governments to pay for Formula 1 races. If you look at the current F1 calendar (ungainly though it may be) you can see that oil revenues are a key driver in a number of nations involved. Abu Dhabi, for example, uses F1 to show off that it is diversifying away from surviving simple on oil money, Bahrain is using the sport in the same idea way, although it is less dependent on oil revenues. Much of the Malaysian motorsport activity has been funded by Petronas, oil is vital in the funding of the Russian GP, and the new race in Baku and, as we all know, oil money has kept Pastor Maldonado in the sport, despite all his adventures. The fact that the price of oil has been seriously low in recent weeks means that the Grand Prix contracts that some people signed up for are now beginning to cost the local promoters rather more than they wanted to have to pay. Race promoter deals are traditionally done in US dollars, but in recent years the Euro has also been used. The Formula One group doesn’t want to do deals in currencies that might be worth pennies from one day to the next and so it is the promoter who takes on the risks of currency fluctuations. Thus when a currency weakens, the cost of a Grand Prix to that country increases, while inflation, which often follows, means that their money is not worth what it was, so fewer tickets are sold.
Right now, you need only scan the financial pages of any newspaper to know that a lot of economies are hurting big time because of of low oil prices. Russia, for example, is in big trouble because of oil. The rouble has hit record lows against the dollar in recent days causing Russia’s central bank to have to deny the currency is collapsing. The currency has been squeezed not only by the dive in the value of Russia’s oil exports but also by Western sanctions, which comes as the result of some of the dodgier activities that the Russian government has been up to in recent years. These are things that F1 leaders tend to skate over very rapidly, or to sidestep when the subject is brought up. Russia? Bad guys? Lovely weather we’re having… The Russian economy contracted more than three percent last year. Russia’s exports and government revenues fell, the rouble has lost 70 percent of its value in the last 18 months, inflation is running at 13 percent. The government has looked for things to cut, but its reserves are being burned up. They can print more roubles but that will push up inflation and push down the quality of life. Russians are travelling less and the value of labour is reducing. That might normally be a benefit, but foreign investors are wary of Russia.
Over in Baku, there are similar things happening. The country has just announced a 20 percent tax on taking money out of the country following a 32 percent dive in the value of the manat in the last month. The black market has gone berserk because the government restricted currency exchange. There is even talk of a total ban on the movement of foreign currency, which would make paying for an F1 race a rather difficult exercise.
In Malaysia Petronas has announced major spending cuts. It is one of the countries biggest employers and jobs are going to have to go. The government is not very popular because of new taxes aimed at shoring up the economy, not to mention scandals over money that seems to have disappeared into the wrong bank accounts.
Conversely, the trends in the oil industry are working in favour of sports in AbuDhabi where the government is looking to invest more in sports events in an effort to increase economic diversification in the future. So now is a good time to get on a plane and to fly to Abu Dhabi with sponsorship presentations to promote Abu Dhabi abroad.
We won’t go into Venezuela right now, suffice to say that today the International Monetary Fund said that the country’s inflation will reach 700 percent this year. The IMF estimates that inflation was running at 275 percent in 2015.