Is Oil a Curse or a Blessing? - Yazgı Nur Akın

Oil, as one the most essential and biggest industries in the world, has been a black gold for some people, but sometimes, it was just the devil’s excrement. We can see oil abundance both in very well-governed democratic states like the U.S., Canada, and Norway and in relatively corrupted and undemocratic countries like Saudi Arabia, Iraq, and Nigeria. This difference stems mainly from not the oil itself, but from the regime, governmental institutions, and economy.

As Haber and Menaldo mention, the resource curse is related to a dynamic process that has emerged over time. There is evidence that natural source abundance generally results in the resource curse but under some conditions. One type of natural resources which is correlated with the level of democracy and weak governmental institutions, can cause this situation. It is the oil…

Generally, there are three approaches to the resource curse issue: the orthodox, heterodox, and dissenting views. The first one argues that there is a direct relationship between oil and some political, economic, and social problems like authoritarianism, slow growth, and civil conflict. As Ulfelder indicates, if the revenues from resources have a large share of national income, the transition towards a democratic regime becomes more difficult.

For example, oil-rich countries generally located in Latin America, Africa, and the Middle East have slow growth rates besides political regime problems. Moreover, their economic growth happened during only the 1970s.

On the other side, the heterodox view says that there is a conditional relationship, and this can lead to both autocracy and democracy. It a double-edged sword as Frankel calls. Ortega and de Gregorio claim that any impact of the oil abundance on growth is conditional because the level of human capital is also different in each country. So, the political and economic conditions in the states are the most effective factors to prevent or to face corruption, patronage, autocratic regimes, and weak governmental institutions. For example, when we look at Canada, it is seen that Canada has abundant oil reserves with 10.4%.

At the same time, when we look at the democracy index, we can see this country as sitting in 6th place. Based on these data, the political, economic, and social prosperity peculiar to Canada has enormous impacts on creating a balance between its incomes from the natural resources and political regime. So, from a Canadian perspective, the resource curse is not a “curse,” but it is a “blessing.” Finally, the dissenting view says that there is no systematic relationship.

Also, the resource curse is an exception rather than a rule. In this approach, a question comes into the mind. If the resource abundance is a curse, why the states don’t refrain from exploiting these resources? Moreover, any increase in resource abundance is neither associated with authoritarianism nor with the civil wars. However, as the value of oil increases, the conflict risk might rise. For example, if the oil is found onshore, there will be significant effects in terms of security. If the location of discovery is close to the marginalized ethnic groups living area, there will be some asymmetric war activities as well as the concession demands from the government.

The oil and other natural resources might cause a necessary evil; however, it cannot be said that this directly promotes dictatorship, slow growth, or civil war over the long run. Under some conditions in some countries, oil can be either a curse or a blessing. Sagging oil prices are just one of the COVID-19 crisis effects awaiting African producer countries like Nigeria.

Despite essential steps in economic growth, their economies are not yet resilient enough to go beyond the resource curse. If the current decrease in commodity prices maintains beyond the COVID-19 crisis, resource-rich countries will need to change gears quickly in order not to be a subject of the curse. The best solution might be the diversification policies that are tailored to their specific market and institutional conditions. As a resource blessed country with vast amounts of oil and gas incomes, Russia also tried to develop its economy.

However, despite these efforts, Russia will probably be inflicted by a curse due to the decreasing oil prices, COVID-19, weak institutions, and the lack of diversification in the economy. Russia can handle with this resource curse situation at the dawn of the price war and COVID-19 by attracting foreign direct investments. At this step, Russian policymakers’ approaches and normalization efforts with open and close diplomatic relations will be very useful in the resource curse or blessing dilemma.

2020 All Rights Reserved