Cost Of Corruption To Oil Production

1515 words - 7 pages

Backgrounder

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The Pernicious Effects of Oil
Author: | Esther Pan |
October 10, 2005
* Introduction
* The Cost of Corruption
* The "Oil Curse"
* ...view middle of the document...

Throughout the 1990s, he says, there were a number of international initiatives to increase transparency in oil-producing countries, made possible because oil prices were low. Since oil-rich countries couldn't earn enough on oil revenues alone to run their states, they had to think about cooperating with international efforts toward diversification and more responsible governance. "That was working very well, until prices went up," Morse says. With prices currently over $60 a barrel, "it's far more difficult to ensure transparency," he says.
At the same time, "Western governments were giving hundreds of millions of dollars" to many of these same countries to help build hospitals, feed the hungry, and otherwise improve society, says Clarence Daryl Edwards of the Britain-based nonprofit advocacy group Global Witness. These funds were stolen or wasted, as oil revenues were diverted to the top 1 percent of these countries' populations, leaving the vast majority of their citizens still poor. Unequal oil revenue distribution also exacerbates tribal and ethnic conflicts, such as those between Muslims and Christians in Nigeria, or Nuer [cattle herders] and Muslims in Sudan. As revenues grow, experts say, the number of stakeholders in the oil industry also grows; tribal leaders, local government, national government, armed militias, and the military all want a share of the pie.
Many oil-producing nations, particularly in Africa, are widely viewed as corrupt, with elites who embezzle oil funds and governments that can barely provide security for oil production, much less housing, education, or services for their citizens. Since these countries are so-called rentier states-that is, they derive all or most of their income from renting or selling natural resources to outsiders, instead of collecting taxes from their citizens-they have no accountability to their people and little incentive to democratize. Instead, the government focuses on "keeping its people in line so they do not overthrow it and start collecting the oil rents themselves," Noah Feldman writes in his book After Jihad.
The international community also has limited power over rentier states. "The leverage the international community had was over debt payments [from developing countries], and when the oil price is high, oil-producing countries can service their debts with the money they're making, and the leverage is lost," Morse says. "Venezuela, for example, made enormous strides toward greater transparency-until the election of Hugo Chavez. Now we don't know if Venezuela even knows how much oil it's producing."
Corruption also limits the ability of developing countries to provide security, either for their citizens or for the multinational companies extracting their resources. Attacks by armed gangs on oil operations are often answered by harsh military repression into local villages; one such operation in the Nigerian town of Odi in the Bayelsa province left hundreds of civilians...

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