the oil curse summary

This is a timely and important contribution to the debate on the so-called resource curse and how to avoid it—especially important in a time of concern about energy security and sustainable economic development. Movies . This group operates as the custodian for cross-industry projects that aim to increase the efficiency of practices employed in offshore operations on the United Kingdom Continental Shelf. 11 Nicholas Kristof, “Corruption Is Killing Children in Angola,” New York Times, June 25, 2015, http://www.nytimes.com/2015/06/24/opinion/nicholas-kristof-corruption-is-killing-children-in-angola.html?_r=0. Examining authoritarianism, Ross emphasizes that until 1980, oil-rich developing countries were very similar to their oilpoor counterparts, in terms of having authoritarian regimes. When local contractors exist to capture revenues for the corrupt elite, their work is often substandard, expensive, or both. In this groundbreaking analysis, Michael L. Ross looks at how developing nations are shaped by their mineral wealth--and how they can turn oil from a curse into a blessing. 19 See Sarah Chayes, Thieves of State: Why Corruption Threatens Global Security (New York: Norton, 2015). The Curse of Oil. “Cash Transfer Literature Review.” London: DFID-UK, 2011. The charter is a voluntary set of best practices to guide governments that intend to improve the management of their countries’ wealth. The former is important in order to examine a government’s financial independence from society, and the latter is significant in assessing society’s financial dependence on the government through the distribution of rents. Though Boko Haram has not directly attacked oil installations, its resilience and potential reach make it a factor in the industry’s security modeling.49. Sarah Chayes is internationally recognized for her innovative thinking on corruption and its implications. The practice of operating offshore or in secured compounds significantly increases production costs due to the higher costs of security, the need to build sophisticated infrastructure, higher salaries for expatriate personnel, increased outlays for social spending to secure local support for operations (the so-called social license to operate), and losses associated with delays and disruption. Is oil a curse for the MENA region? Still, working together with other companies to mitigate problems in a troubled country would be beneficial for all stakeholders. Understanding and Avoiding the Oil Curse in Resource-rich Arab Economies. Anger at acute corruption helped spark the 2014 revolution in Ukraine; it helps explain the Iraqi army’s collapse in June 2014 in the face of the Islamic State, as well as the growing strength of that jihadist group, the Taliban in Afghanistan, the spread of Boko Haram in Nigeria, and the fall of governments in Tunisia, Egypt, and Yemen. 5 Michael L. Ross, The Oil Curse (Princeton: Princeton University Press, 2013), 48. All oil companies operating in EITI countries must publish the amounts they pay to the countries in the form of revenues, taxes, or royalties. The IFC requires companies that obtain IFC funding to publish their contracts. Why Can’t Europe Cope With the Coronavirus? Russia is experiencing authoritarian governance (rated “failing” by NRGI), acute corruption, economic crisis (the combination of the sharp drop in oil prices in 2014 and Western sanctions over the Ukraine crisis led to severe economic shock), and many of the precursors of conflict (including intimate involvement in the conflict raging next door in Ukraine). Ross has already written path-breaking articles on these issues and this magnum opus brings together his previous contributions with updated data, revised arguments, and fresh perspectives. As costs mount, budgets can quickly exceed project estimates. Therefore, “no country with high levels of oil and gas income successfully became a democracy between 1960 and 2010” (p. 74). Even though meaningful change may be slow in coming—and even though discretionary budgets are tight in the industry’s current low-profit environment—it is nevertheless in the industry’s interest to begin developing and implementing mitigation efforts as soon as practicable. It is also seen as a key to fighting corruption. A first step to reducing costs and delays, particularly those that are associated with unstable environments, might therefore be to develop a better understanding of the nature of the underlying conditions and their causalities, and then to consider approaches to mitigate or reduce these negative external conditions. There is no doubt that the oil industry suffers the consequences of these conditions; moreover, it is hardly alone. Western governments, international nongovernmental organizations (NGOs), and multilateral organizations have therefore launched initiatives, often in partnership with the oil industry, to promote transparency, good governance, and social welfare in troubled oil-rich countries (see appendix B for a description of these initiatives). A lot of the transparency agenda is still being tested in practice, however, and it is premature to consider it a success. Egypt is currently battling a jihadist insurgency in the Sinai and has suffered attacks on its tourist infrastructure.45 Its estimated country risk premium of 17 percent reflects its insecurity. Summary. Indeed, we suggest conferring with the mining industry as possible partners. Its prime minister is embroiled in a series of corruption scandals.32 The country is facing political and economic problems as a result. Education: Bsc Special Honours in Geology from the Imperial College at London University. This brief is a summary of the book Oil to Cash: Fighting the Resource Curse through Cash Transfers (Washington, DC: Center for Global Development, 2015).. As poor countries continue to discover massive deposits of natural resources — oil in Nigeria, gas in Timor-Leste, copper in Mongolia, and more — they Oil income per capita (1000s constant USD) by decade, 1951–2006. Princeton, NJ: Princeton University Press, 2012 (paperback. These countries demonstrate that the oil curse is a curse for the oil industry as well as for the people living there. The Oil Curse Essay 2359 Words | 10 Pages. This situation is unlikely to change; thus, Norway’s volatility is low (see table 1). A large body of literature finds a negative relationship between oil abundance and economic growth. However in 1711 The Spectator wrote "It is generally observed, that in countries of the greatest plenty there is the poorest living", so this was not a completely new observation. Even so, stable countries can struggle to manage their oil wealth responsibly. Brazil’s fiscal breakeven price is $76 per barrel, higher than world oil prices in mid-2015, perhaps reflecting the high costs of corruption. Moreover, the impact of a lengthy disruption due to these factors goes far beyond the mere dollar figure—as the industry has discovered in the domains of environment and safety, where public relations impacts have compounded the immediate cost of accidents. Companies have worked together to leverage commercial opportunities and spread risk by forming investment consortiums and building infrastructure for shared use. Nor are there provisions for material accounting errors, as appear in documents the company submitted to its auditors. Any discrepancy can then, at least in theory, be examined. Summary: The political and economic dysfunction known as the “oil curse” is a complex, structural phenomenon, caused largely by poor management or investment of oil revenues by the governments of oil-producing countries. See http://www.fsg.org/publications/extracting-purpose?srpush=true. 61 Interview with Tony Hodge, April 20, 2015. They may have some or all of the following indicators: Yellow countries include Brazil, Ghana, Kuwait, Malaysia, and Trinidad and Tobago, which is said to be a “poster child” of Dutch disease.29. Oil operations in Australia have been disrupted by labor unrest. EITI does not—nor is it intended to—address the underlying economic problems beyond corruption that create the conditions for instability and conflict, whether that is countering Dutch disease, requiring responsible oil policies, or imposing transparency on government spending. summary. Its GDP growth rate of 2.2 percent (in 2014) is low compared to some other countries, but it is consistent with European neighbors that are also recovering from the 2008 global financial crisis. Lacking hard numbers or a way to benchmark industry data, but understanding the problem intuitively, some of the majors have responded by shunning or divesting from some of the most complex environments, in favor of offshore or unconventional resources. Take the price of oil for example. 20, 2006 satisfactory governance, including strong governmental institutions with effective checks and balances, as measured by the Natural Resource Governance Institute’s (NRGI’s) Resource Governance Index; low levels of corruption and effective rule of law, as measured by TI’s Corruption Perceptions Index and other research; budgets that are not overly reliant on oil revenues; clear benefits accruing to the population as a result of the petroleum endowment; no indicators of insecurity or conflict; and. This platform holds promise because it provides a voice to civil society and makes it easy to identify even the smallest companies working in a country. 79 Kopits, “Oil and Economic Growth” presentation, slides 44, 46, 47, and 49. Period. 91 See generally the OpenOil website at http://openoil.net/#. When royalties and taxes do reach government coffers, cronyism and fraud in the public procurement process mean that they are often diverted into the pockets of powerful elites, rather than invested in public goods. Instead, oil states, where oil income per capita is over $100, “have grown at about the same rate as other countries” (p. 221). The oil curse happens because you become so dependent on oil and your productivity in other sectors is so low that you have no way of surviving as a country if and when the oil price falls or your oil reserves become costly and you cannot sustain oil production. These higher operating costs translate to a rising breakeven price per barrel for proposed projects. xxi + 289 pp. While the civil war in the new country has its origins in the struggle for power between ethnic groups, oil facilities are the prizes for the combatants. In 2014, EY (formerly Ernst & Young), analyzed 365 megaprojects each priced at over $1 billion, and attempted to quantify such cost overruns.68 Collectively, these projects were forecast to cost $2.6 trillion. And the industry is uniquely positioned to do so. With some notable exceptions—such as the Foundation for Partnership Initiatives in the Niger Delta launched by Chevron to promote economic development in the nonresource sectors97—many of these CSR efforts are focused on obtaining local community support for the operations, or even improving brand image in the West, rather than preventing or mitigating broader negative externalities. Falling oil prices in late 2014 and early 2015 caused some countries to repudiate their contracts as unfair, forcing companies into unexpected and costly litigation and provoking uncertainty. The Extractive Industries Transparency Initiative (EITI) is an international effort to increase transparency that is supported by governments, the oil industry, and civil society.81 EITI was launched in 2002, when the UK government came together with oil companies and NGOs such as Global Witness, the Natural Resource Governance Institute (NRGI), itself a combination of the Revenue Watch Institute and the Natural Resource Charter, and the Publish What You Pay campaign, a group of 800 local NGOs around the world promoting transparency and accountability. 21 Transparency International, “Oil and Gas,” last accessed August 25, 2015, http://www.transparency.org/topic/detail/oil_and_gas. unsustainably high fiscal breakeven points; “failing” governance according to the NRGI; serious levels of corruption, both specifically associated with national oil companies and more broadly; increased risk of conflict as a result of acute corruption, sometimes leading to popular protests, and/or a combination of risk factors that, when combined with oil, have been found to statistically increase the likelihood of civil war, such as low per capita income, economic shocks, high population density, and a prior history of civil war; high levels of corruption, both specifically associated with national oil companies and more broadly; and. Oil policy. The Multi-Stakeholder Group platform is good in theory, but in practice the participants focus primarily on accounting matters, not broader policy issues. In a 2014 report, Spotlight on Oil and Gas Megaprojects, EY (formerly Ernst & Young) cited an industry-wide “optimism bias,” or a tendency to underestimate costs, especially in projects with large endowments,57 as the cause of the frequent inaccuracy in cost estimating.58 The optimism that projects will stay within the approximately 20 percent potential cost overrun range that planners usually forecast is not borne out by the numbers. When operations are located onshore, oil companies work in insular security compounds that have little contact with the surrounding communities. The company may stop, alter, or cancel the project. Europe Is Late but Crucial in U.S.-Iran Nuclear Talks. What's on TV & Streaming What's on TV & … Institutional investors have filed lawsuits in the United States seeking to recover their losses.80. ESCAPING THE OIL CURSE AND MAKING POVERTY HISTORY ESCAPING THE OIL CURSE AND MAKING POVERTY HISTORY A Review of the Oil and Gas Policy and Legal Framework for Uganda Arthur Bainomugisha Hope Kivengyere Benson Tusasirwe ACODE Policy Research Series, No. Over a three-year period, companies that export nuclear power technology—including Russian ones—worked together to hammer out principles for best practices in safety, security, environmental protection, and even business ethics.62 The principles effectively created a commitment that companies would not build a new nuclear power plant in a country whose infrastructure, regulatory authority, and safety planning do not meet certain international standards. Thursday December 13 2018. Ross traces the oil curse to the upheaval of the 1970s, when oil prices soared and governments across the developing world seized control of their countries' oil industries. According to the World Bank, Malaysia’s population is comparatively well-off with per capita income (adjusted for purchasing power parity) of $22,850 in 2014 and average life expectancy of seventy-five years as of 2013.31, However, Malaysia has seriously mismanaged its two sovereign wealth funds and was caught unable to stabilize its economy when oil prices fell in 2014. I do not think these two can replace the causal relations explained by Ross’s 2001 article for three main reasons. Despite the economic growth fueled by oil revenues, the loss of jobs and economic opportunities in the agriculture and manufacturing sectors can impose hardship on large numbers of people, often the poorest members of society.6. Some argue that publishing the contracts would reduce some opportunities for corruption by the host government. Several transparency initiatives have been launched: Initiatives that focus on the uniformity of contracts advocate models that would: (1) reduce negotiation and enforcement costs, (2) ensure that basic standards protect the interests of both parties, (3) make it easier for both sides to understand and comply with the terms of a contract, and (4) clearly identify the parties to the contract (and ensure they are entitled to be parties to the contract). Although the dollar values can be difficult to measure, operating in countries with acutely corrupt governments also increases the risk of hidden patronage costs, such as those exposed by Brazil’s Petrobras scandal. Indicators of volatility include a high poverty rate, absence (or newness) of democratic institutions, acute corruption, and the presence of ethnic tensions. Ultimately, these problems can lead to more serious dysfunction, including conflict. It has also inspired Western governments to expand the transparency mandate though legislation. The oil industry’s current risk assessment methodology may place too much weight on a government’s track record of honoring its oil contracts. Second, EITI’s Multi-Stakeholder Group platform brings together representatives from government, industry, and civil society to review information, resolve concerns, and discuss how revenues should be spent. Compounding the corruption and insecurity, Nigeria’s oil policies and contract performance are among the worst. Gradually, the group established a set of voluntary standards to help mining companies promote sustainable development in countries in which they operate. Populations that are educated and employed, have access to health services, and are largely living above the poverty line are a good indicator of satisfactory governance, absence of corruption, and likely stability. In fact, absolute and relative measurements can be seen as complementary analytical tools. Tellingly, a soon-to-be-released study is expected to show that conflict increased sharply after these programs were curtailed in the wake of the 2008 fiscal crisis.61. As a result of sharp cuts in budgets, in the May 2015 provincial election, angry voters ousted the pro-oil Conservative Party, which had ruled for forty-four years. The industry can offer collective advice on opportunities for enhanced socioeconomic development and optimized use of oil revenues. Companies can share the most effective methods, promote diversified economic development and good resource governance, and spend funds collectively to increase their impact. Yet many have not yet implemented such policies, for whatever reason. An initiative on the part of a few mining company CEOs resulted in the launch of the International Council of Mining and Metals. The private oil industry is hit too when corruption takes root in a government or a national oil company partner. EITI may help to ensure that oil revenues go into government coffers, but it says nothing about how a government—or corrupt politicians—spend those revenues. 33 BBC News, “Malaysia Protests Against PM Najib Razak Draw Thousands,” August 30, 2015, http://www.bbc.com/news/world-asia-34093338. Although ambitious and well-meaning, however, these initiatives have so far failed to halt the spread of instability in hard-hit oil-producing countries. Unlike his earlier publications, Ross’s analysis focuses on oil and natural gas, sometimes referring to both as only “oil,” and consistently leaves mineral production aside. 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