Environmental Engineering Reference
In-Depth Information
Caution: oil can damage your state
Oil resources can be a blessing to states that use them wisely. The model of
a prudent petro-state is Norway, which has not gone on a spending splurge,
but put aside surplus oil revenue for future generations of Norwegians (for the
rainy day when the oil and gas eventually run out). But then Norway had fully
developed as a state before it ever found oil. For all those countries where oil
exploitation and state-building still go hand in hand, oil wealth ought to carry
an economic and political health-warning.
The first drawback is economic. The problem is that a state's export of a valu-
able natural resource like oil or gas can, by raising the real exchange rate, make
other goods less competitive, and so over time de-industrialize the country in
question. This phenomenon was dubbed “the Dutch disease” after large gas
finds in the Netherlands seemed to lead to a manufacturing decline. Such
industrial decline would not matter, provided the state could go on exporting
the natural resource forever. But while the Dutch can probably go on exporting
tulips forever, their gas will run out.
While this problem can occur in sophisticated economies and long-established
political systems, like the Netherlands, the second drawback of oil wealth
applies specifically to developing countries. This is the problem that resource
riches can warp or stunt political institutions. The argument goes that, in such
petro-states, the ease of extracting revenues from natural resources means
that governments do not need to do the hard work of creating the public
services that would justify taxing their citizens, because they don't need to
tax them. The logic is that petro-wealth breaks the link between taxation and
state-building on which, for instance, state formation was based in Europe
(whose monarchs had to go to parliaments to raise taxes in order to fight their
frequent wars).
Certainly oil wealth lessens the pressure on conservative rulers of the Gulf
petro-states to give their citizens political representation. If “no taxation with-
out representation” was the slogan of the American Revolution, the reverse can
also be true - “no need for representation if no taxation'”. Even petro-states with
a more developed democracy, such as Nigeria, Venezuela, Iran and Indonesia,
tax their non-oil sectors more lightly than countries without oil, because they
feel they can afford to.
Other features of oil can mean that a state with oil may be no better off than
one without. In developing countries, the oil sector is typically an economic
China is pursuing a twin-track policy to improve its energy security.
In addition to building a domestic emergency petroleum reserve, Beijing
has directed its three national oil companies to undertake what they call a
“going out” policy - to take equity stakes in oil fields around the world in
order to diversify and secure sources of supply. Like India, China appears
fearful that the international market might not make enough oil available
