Picture yourself for a minute as a poor citizen of a poor country. You rely on sustenance farming to feed your family. Uneducated and lacking access to healthcare, you toil on property to which you hold no legal title under the rule of a corrupt government with only some of the ornamental trappings of democracy. Then one day, as you are digging, a thick, black liquid gurgles up from the ground. Like a third-world Beverly Hillbillies, you've struck oil. However, unlike the Clampetts, you'll have a lot more to worry about than culture shock and the faux-pas of leaving junk on your well-manicured lawn. In fact, it might even be in your best interest to hide the oil find, considering what oil does to the governments of poor countries.
Although oil that gurgles up from the ground has mostly been exploited, new technology has driven a series of large oil finds over the last few years, potentially lessening our dependence on oil from the Middle East and pushing back the day when the world's gas pumps permanently run out. The United States imports 16 percent of its oil from West Africa and is expected to increase that share to 25 percent by 2015. Much of this oil is coming from small, poor nations who have discovered it only recently. For example, Equatorial Guinea, a nation of fewer than one million people, produces 250,000 barrels of oil a day, which is more oil per person than Saudi Arabia.
Despite high oil prices and such a large volume of oil in comparison to its population, most Equatorial Guineans have not benefited from the tremendous wealth being extracted from their territorial waters. To be sure, improvements have been made to the properties occupied by President Teodoro Obiang and his clan. His electoral standing has also improved -- he received 97 percent of the vote in a recent election. Needless to say, his high vote tallies are a result of vote-buying, poll-rigging and the mass-jailing of political opponents.
Since the deep-sea drilling required the expertise of foreign oil conglomerates, companies were brought in to do the extracting and shipping. ExxonMobil and Ocean Energy struck oil, not an Equatorial Guinean peasant. Since foreign companies are striking oil in the water or in countries with poorly defined property rights, oil royalties flow only to the government, where it is dispersed at the whim of governments. Did you ever wonder why most of the world's remaining monarchies, such as Saudi Arabia and Kuwait, are oil-producing countries? It is because oil allows governments to rely on something other than taxes on citizens for revenue, allowing the princes to buy off or repress any opposition and keep their countries in a permanent feudal state.
Instead of the widespread wealth created by small business or improved farming techniques, oil wealth is extremely concentrated in the hands of the very few, who are almost always corrupted by this wealth. Even when it is self-evident that an economy needs serious reforms, oil provides a fiscal buffer for government revenue that makes it easier to ignore chaos in the private sector. In Nigeria, which is one of the top five exporters of oil to the United States, there was a gasoline shortage last week. Civil unrest caused by unhappiness on the part of the citizens of the oil-producing regions who have seen very little improvement in their standard of living caused a decrease in production. The cost for filling stations to obtain gasoline went up, but price caps on the retail price of gas, a vestige of socialism, made it illegal to raise prices. Predictably, massive shortages occurred, making Lagos' notorious traffic even worse than usual and generating a ready market for bribes to policemen who can allow drivers to cut in line.
If the domestic rot created by oil wealth wasn't bad enough, the dependence on one revenue source has even larger repercussions. Since oil wealth in poor countries flows directly to governments in the form of royalties, planning ministries have no incentive to develop a diversified economy with robust agricultural, industrial and service sectors -- treasuries are completely beholden to oil revenues. This becomes problematic when the price of oil drops on the world market, which is does quite often. As the oil shocks of the 1970's subsided and the price of oil plummeted, many governments who were depended solely on oil had a tough time paying their bills. Mexico, which isn't as dependant on oil as many other countries but still depends on it for a large portion of its foreign exchange, went through well-publicized debt crises.
Far from being any nation's savior, oil has been little more than a corrupting influence for those unlucky enough to find it. Therefore, as we "liberate oil wells for democracy" in Iraq, we should make sure that the Iraqi government controls oil resources, not the other way around.
Charles Donefer can be reached at cdonefer@jhunewsletter.com.
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