The Persian Gulf is geologically unique: sedimentary deposits are combined with large, relatively unbroken folding that results in underground oil reservoirs 16 to 240 km (10–150 mi) long, containing billions of barrels of oil. Kuwait's known petroleum deposits outrank those of any other country except Sa'udi Arabia and Iraq. With proved reserves of about 96.5 billion barrels (13.3 billion tons) in early 2002, Kuwait possesses more than 9% of the known global resources of petroleum.
Since its liberation from Iraqi occupation in February 1991, Kuwait has focused on the quick rebuilding of its preinvasion oilbased economy. During the occupation, oil production totally ceased following Iraqi sabotage and the havoc of Operation Desert Storm (the name of the allied military operation to free Kuwait). Iraqi troops had blown up 752 wells; 603 were ablaze while another 44 were gushing oil, creating oil lakes throughout the country. By November 1991, the fires were extinguished and the wells were under control, but the sabotage resulted in the loss of 1.1 billion barrels of oil. Crude oil production resumed in June 1991, exports in August 1991. Losses during the invasion had cost Kuwait $120 million per day. By 1994, Kuwait's oil industry was back to full strength, producing a total of 2.0 million barrels a day, a rate last reached in 1989.
In 2001, Kuwait had a crude oil output averaging 2.15 million barrels per day. The cost of production is perhaps the lowest in the world because Kuwait's vast pools of oil lie fairly close to the surface and conveniently near tidewater; the oil rises to the surface under its own pressure and, owing to a natural gradient, flows downhill to dockside without pumping. Reserves of natural gas in early 2002 were estimated at 1.5 trillion cu m (53 trillion cu ft); 9.6 billion cu m (170 billion cu ft) of natural gas were produced in 2000.
The Kuwait Petroleum Corp. (KPC), the state-run oil corporation, has a 30% share in offshore operations in the 16,000 sq km (6,200 sq mi) Neutral Zone partitioned between Kuwait and Sa'udi Arabia under a 1992 agreement. The Kuwait National Petroleum Co. (KNPC), is the refining and shipping arm of KPC. Kuwait Oil Company (KOC), another subsidiary of KPC, runs oil and gas exploration and production. KNPC has a monopoly on all petroleum sold domestically and operates the refinery complex at Sha'iba.
Oil was first discovered in commercial quantities in 1936, but only small amounts were produced before the end of World War II (1939–45). Commercial production began in 1946, and from
1951 on, a 50–50 profit-sharing plan governed the split of revenue between the Kuwait Oil Company and Kuwait's emir. KOC's concession (which was to run to the year 2026) covered all of Kuwait and its territorial waters, but in May 1962, it relinquished nearly half its area to the state. As of 1996, Kuwait was privatizing many of its state-owned companies, upon the recommendation of the World Bank. In March 1996 KNPC announced it would sell off 80% of its retail assets. With the dramatic rise in oil prices between 1999 and 2002, Kuwait's forecasted budget deficit of $6 billion for 2001/02 turned into a surplus of roughly the same amount.
All electric power is produced thermally from oil or natural gas. Installed capacity has grown dramatically during the past two decades and reached 8.5 million kW in 2001. Electric power production increased from 2,661 million kWh in 1970 to 20,610 million kWh in 1990 before falling to only 9,100 million kWh in 1991, due to the Iraqi invasion. In 2000, electricity generation totaled 30.6 million kWh, of which 100% was from fossil fuels. Most of the country is provided with electrical service; electric refrigeration and air conditioning are widely available. An extensive diesel power generating system serves outlying villages.