Oil rush, a boon or a curse

Jayant Patel

The Oil Curse: How Petroleum Wealth Shapes the Development of Nations, Michael L Ross, Princeton University Press, Pp 289 (HB), £ 29.95

This book analyses half a century of data to produce a broad account of the politics and economics of oil wealth. Taking a comprehensive look as the political and economic consequences of petroleum wealth, especially in developing countries, it shows through analysis of 50 years of data for 170 countries of the world that extracting oil does not lead to slow economic growth or make governments weaker or less effective.

The book begins by saying that since 1980, the developing world has become wealthier, more democratic and more peaceful – this is true of countries without oil, while the oil States, like Algeria, Angola, Colombia, Nigeria, Sudan and Iraq are scarred by decades of civil war. These political and economic ailments constitute what is called the resource base. It is more acutely a “mineral curse”, not caused by other natural revenues like forest, fresh water or fertile agricultural land, but due to the presence of petroleum – which creates for more than 90 per cent of the world’s mineral trade, “producing the largest problems for the greatest number of countries. The resource curse is overwhelmingly an oil curse.”

The author tries to show that since about 1980, oil-producing countries in the developing world have become less democratic and more secretive, suffer from violent insurgencies and their economies provide women with fewer jobs and less political influence, proving “geology is not destiny”.

Why should petroleum have such strange effects on a country’s economic and political health? Some observers blame the intervention of foreign powers in oil-rich countries and manipulating their governments while others fault the international oil cartels for exploiting these resources to earn greater profits for themselves.

The author argues that political and economic problems of the oil States can be traced to the unusual properties of petroleum reserves, that is, whether the States use the revenue to benefit a few or the masses as this has far-reaching effects on a country’s political and economic well-being. According to the author, petroleum revenues have four distinctive qualities – their scale, source, stability and secrecy. The scale of revenues can be massive with low-income oil-producing countries showing stupendous increase, for instance, it is 600 per cent in Azerbaijan, making such governments authoritative enough to silence dissent or lead to violent insurrections where the masses seek a larger share.

The sources of revenues for oil-funded governments are not financed by taxes on their citizens but by the sale of State-owned assets, making the governments of oil-producing countries undemocratic as they are less susceptible to public pressure.

As for stability, the volatility of oil prices can make the government’s earnings fluctuate. This leads to squandering of their resource wealth or aggravation of regional conflicts.

Finally, the secrecy of the petroleum revenues compounds these problems. It is said that in Iraq, Saddam Hussein used to channel his government’s expenditure through the Iraqi National Oil Company, whose budget was secret.

Thus the most important political facts about oil – and the reasons that cause so much trouble for many developing countries – are that the revenues it bestows on governments are unusually large, do not come from taxes, fluctuate unpredictably and can be easily hidden. On reading these reasons, one is tempted to ask what about the revenues that certain developed countries take home after taking charge of the oil fields of Iraq or Libya?

(Princeton University Press, 41, William Street, Princeton, New Jersey 08540; press.princeton.edu)