Alaska is America's worst state for business in 2025 as falling oil prices sink economy

• Alaska finishes at the bottom of CNBC‘s state competitiveness rankings in 2025 with America’s worst state economy.
• The state counts on oil for around 70% of its revenue, and upwards of half its budget. The price of oil is down by double digits from one year ago.
• Alaska has long tried to diversify its economy away from oil. The latest initiatives include carbon capture and a Trump administration push to build a natural gas pipeline.

From the first discovery in Prudhoe Bay in 1968, Alaskans have had a love-hate relationship with oil.

On one hand, it allowed Alaska to abolish its state income tax, fund most government operations and provide every Alaskan with a dividend that continues to this day. On the other hand, it has left the state at the near total mercy of the global oil market.

In recent years, that has proven to be a bad bet. And it is the major reason Alaska finishes at the bottom of the CNBC America's Top States for Business rankings in 2025.

With the price of Alaska North Slope crude oil down by double digits from a year ago, according to the Alaska Department of Revenue, Alaska has America's worst economy as measured by the CNBC study. Economy is the heaviest-weighted category under this year's methodology.

• See the full list of America's Top States for Business 2025
• Methodology: How we chose America's Top States for Business in 2025
• North Carolina is America's Top State for Business in 2025, led by a strong workforce and economy

Alaska's gross domestic product growth is in the bottom ten nationally. The state's economy grew by just 1.5% last year, compared to 2.8% nationally.

More crucially, the state's fiscal year 2026 budget is based on a forecast of $68 per barrel for crude oil, and it is unclear if that will hold. Alaska North Slope crude traded as low as $63.49 on May 5 before rebounding above $70 in recent weeks. State forecasters are counting on oil for around 70% of the state's revenue over the next ten years, or nearly half the state's operating budget. And some localities are far more dependent.

“When you look at the economic engine by default,” North Slope Borough Mayor Josiah Patkotak told CNBC last month, “That happens to be oil and gas by about 98% of our operating budget.”

$40 billion bet on natural gas as diversifier

For decades, Alaska has sought ways to diversify its economy, but it has had limited success. Proposals have involved alternative energy, agriculture, and the state's tourism sector.

In 2023, Gov. Mike Dunleavy, a Republican, signed legislation to put Alaska into the carbon market, using the state's vast public lands for carbon storage, and to generate carbon offset credits for high carbon emitters in other states. But the program is still in the study phase. A report to the legislature in January said the program is not expected to generate any revenue until at least 2027.

More recently, the Trump administration is backing a proposal to build a natural gas pipeline alongside the Trans-Alaska oil pipeline, allowing the U.S. to ship liquid natural gas — a byproduct of North Slope oil production — to Asia.

The idea has been around for years, but the price tag, estimated at around $40 billion, was impossible for the industry to swallow even when petroleum prices were high.

Now, however, administration officials think that trade tensions might change the economics.

“There [are] countries around the world looking to shrink their trade deficit with the United States, and of course, a very easy way to do that is to buy more American energy,” U.S. Energy Secretary Chris Wright told CNBC's Brian Sullivan in Prudhoe Bay last month.

“If you get the commercial offtakers for the gas, financing is pretty straightforward,” Wright said.

If the project gets off the ground, it could provide a huge boost to Alaska's economy, though it would still be at the mercy of commodity prices.

Lack of tech infrastructure, high costs

Alaska's struggling economy is a major reason for its poor competitive performance, but it is not the only one.

The state ranks No. 49 in Infrastructure. While the state's roads and bridges are in better shape than in many states in the Lower 48, its virtual infrastructure leaves much to be desired. Fewer than 2% of Alaskans have access to affordable broadband service, according to BroadbandNow Research. The data center boom has passed Alaska by thus far, with only four in the entire state.

Alaska is a notoriously expensive place to live, especially in the many remote parts of the state.

“When you're paying 16 bucks a gallon for milk, we've got to figure out how to make sure that you can afford to buy the milk so you can live here. We've got to make sure you can afford to buy the gas so you can hunt here,” said Patkotak.

But one aspect of life is a bargain in Alaska. At a time of soaring homeowner premiums, online insurance marketplace Insurify projects Alaska homeowners insurance premiums will average $1,543 this year, the second lowest in the nation.

Join the conversation. Didn't see your state mentioned? You can see where it ranked overall, and in all 10 categories of competitiveness, in the full rankings of the 2025 America's Top States for Business.