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Last Updated: Monday, 12 May, 2003, 13:55 GMT 14:55 UK
The burden of 'black gold'
By Jonathan Duffy
BBC News Online

Troops in Ramala
Dark future? Securing the oil fields in Iraq
Iraq's great oil reserves will ease the way to a better future for this downtrodden country, we are told. But the "black gold" is more often a curse than a blessing, according to a new report.

There can be few jackpots in this world quite as big as striking oil. As the fuel that drives the world's economy, the "black gold" ranks top of the list of natural resources a government would wish for in its backyard.

Perhaps the luckiest of all winners in this lottery of buried wealth is Iraq. While Saudi Arabia is the only country thought to have bigger reserves, the average cost of bringing a barrel to the ground in Iraq is less than half that of Saudi.

Oil, of course, is Iraq's much cited "saviour". Revenues from crude have already been earmarked to pay for the Gulf state's post-war reconstruction.

The presence of oil in a developing country makes life worse, not better, for the people who live there
Christian Aid report

When that balance is settled, Iraqis can look forward to a rosy future of riches spewing forth from the oil wells of Rumaila and Kirkuk, which will catapult the shattered Gulf state into the First World Premier League.

At least that's the line coming out of Washington and London. But according to the charity Christian Aid, Iraq's oil could be more of a curse than a blessing.

A report by the charity, called Fuelling Poverty - Oil, War and Corruption, outlines how countries "blessed" with oil often end up worse off than poor nations with no natural resources to draw on.

Money on tap

Striking oil is akin to turning on a tap gushing with billions of dollars. But, like a rags-to-riches lottery winner who goes crazy on his winnings, poor countries lack the experience to manage this sudden surge of money.

FRENCH OIL ON TRIAL
Three former executives of French state-owned oil firm Elf-Aquitaine currently on trial
Evidence that billions of dollars of illicit money passed to foreign governments
Former president Loik Le Floch Prigent (above) admitted tactics for keeping system opaque
"On Iraq, we are trying to apply the brakes," says Christian Aid's Andrew Pendleton. "Our direct call to Blair and Bush is you've got to take a long, hard look at the way oil has been handled in other countries."

The charity's report finds developing countries dependent on oil have a higher incidence of these interconnected problems:

  • mass poverty
  • corruption
  • war or civil strife, and
  • dictatorial government

    At the root of it all are the weak institutions, governance and democracy that prevail in developing countries. Instead of being strengthened through years of sustained economic planning and development, these structures are suddenly subverted by huge sums of money.

    Oil money is easy money, says Professor Alex Kemp, an economist at Aberdeen University. "Getting revenues is simple - you bring in foreign companies to extract the stuff, get a down payment from them and levy taxes on them.

    "It's less of an effort than developing high-production agriculture or manufacturing."

    Dutch Disease

    The shock impact of oil on an economy is responsible for what's known as Dutch Disease - relating to when the Netherlands' economy crashed in the 1960s after it discovered offshore gas.

    Oil tanker
    In oil-rich Nigeria, 66% live on less than $1 a day
    In this scenario, wages and prices inflate and the oil-producing country's currency quickly strengthens, but this suddenly makes it hard for domestic producers to compete with imports.

    "Wealth finds its way into other sectors of the economy, as people earning money from oil have more to spend on goods that aren't usually traded across borders," says the report.

    "These sectors start to benefit, but they also drag workers away from mainstream manufacturing, further damaging the manufacturing base of the economy, frustrating the expansion and 'deepening' of the economy."

    The result is that a country quickly becomes dependent on its oil.

    Things then tend to get messy. With poorly accountable institutions, a lot of oil money tends to disappear into a select few back pockets.

    Rush for business

    Frequently, this is done with the connivance of western oil companies who are climbing over each other to get a stake in the potential riches, says the charity.

    PUBLISH AND BE DAMNED
    Recently, BP confirmed intention to declare payments for Angolan oil contracts
    Declared would invest $4.9bn over 10 years
    But was forced to retract promise when government threatened to expel company for full publication
    None of this is a surprise to anyone in the business. After all, says Manouchehr Takin, of the Centre for Global Energy Studies, "these companies are responsible to their shareholders not governments. They're not benevolent organisations".

    But it's not just private firms that pump money into corrupt regimes. According to Christian Aid, western governments feed millions of dollars a year into "oil exploitation" through contributions to the World Bank.

    To counter widespread corruption, Christian Aid is calling for enforced transparency for all oil projects around the world.

    Already there are moves in this direction, driven by the British government which last year set out plans for "publish what you pay" system.

    But while the oil companies have leant support for the scheme, its voluntary nature means they are only willing to take part if their rivals do the same.

    The biggest problem, however, says Prof Kemp, is the governments themselves, who are deeply unhappy at the idea that sums they are being paid by oil companies would be published for all their citizens to see.


  • SEE ALSO:
    Hostage oil worker released
    04 May 03  |  Hampshire/Dorset
    Elf trial reveals moral vacuum
    24 Apr 03  |  Europe
    US appoints new Iraq oil boss
    04 May 03  |  Business
    Iraq reopens Kirkuk oilfield
    29 Apr 03  |  Business


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