The Oil Curse

According to a Tufts expert, large revenues from oil development are often mismanaged by governments – but this need not be the case in post-war Iraq.

Medford/Somerville, Mass. [09-16-03] While petroleum development can offer high revenues to developing countries, poor management often keeps much of the money out of the hands of the people who need it most – everyday citizens. In some cases, oil pumping actually leads to greater poverty and massive corruption, instead of bringing wealth to the people – a phenomenon often called the ‘oil curse.’ But according a Tufts professor, Iraq can learn from the mistakes of others -- and give its citizens the benefit of its black gold.

“Will the ‘oil curse,’ frustrate plans for a free, prosperous Iraq? Not if Iraqis make a simple decision: Put oil revenues directly into the hands of the citizenry,” Bruce M. Everett -- adjunct associate professor at the Fletcher School of Law and Diplomacy at Tufts -- wrote in the Christian Science Monitor.

According to Everett -- an international energy expert who worked as ExxonMobile’s Middle East manager of natural gas for five years – more than 30 nations rely on oil exports as a major source of revenue. But most of the citizens of these nations have not seen the benefits.

“Since the oil crisis in the early 1970s, these countries have spent more than $4 trillion in oil revenues with little if any lasting benefit for ordinary people,” wrote Everett. “In the worst cases, like Nigeria, Angola, Burma and Sudan, oil cash seems only to fuel civil wars and human rights abuses.”

Everett says the problem lies in failure to properly handle the resources.

“The problem is mismanagement, not the money itself,” the Tufts expert wrote in the Monitor. “Most oil exporting countries use an industry structure guaranteed to fail: Oil revenues are controlled by the state and a powerful national oil company manages the industry.”

According to the Tufts energy expert, socializing the petroleum industry will not solve the problem – but privatization will.

“Iraqis should look to the free market for solutions,” Everett wrote. “Avoid the temptation to reestablish a national oil company, even if its shares are held by Iraqi citizens.”

Pointing to countries such as Britain -- which has no national oil company, yet retains public ownership of petroleum resources – Everett says that allowing private companies to pursue development will lessen the burden on government.

“Oil exports of 2 million barrels per day at a price of $25/barrel would generate about $15 billion annually,” Everett wrote in the Monitor. “Why reinvest this money in oil development when private companies are willing to provide risk capital along with their technology and know-how? Iraq could make better use of this money.”

Everett says that a plan such as this will allow the Iraqi government to give oil money back to its own people.

“Iraq should distribute its oil revenues directly to its 25 million citizens, with each individual receiving $600 to $700 per year or $3,000 to $3,500 for a family of five,” wrote the Tufts expert. “Beyond supporting basic human needs, much of this cash would be invested in small businesses, services, agriculture, and the other ingredients of a vibrant economy.”