Oil Independence

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Unformatted text preview: turn to 1970s-style prosperity for Saudi Arabia, even were its profile as an oil producer to continue rising. Similarly, Russia’s status as a ‘natural gas superpower’ is a very slender foundation for its ambitions, or even for preventing the continuing erosion of its power base.33 There are also consequences to using the ‘oil weapon’ against buyers, not least of these the forgoing of income from oil sales. This was not a major problem for the wealthy, industrialised United States when it refused to sell oil to Japan before the Second World War, or when it cut oil sales to the United Kingdom and France during the 1956 Suez crisis, but today, the potential economic cost of such a move is much greater for countries like Russia and Saudi Arabia which are so dependent on oil sales for foreign revenue. It should also be made clear that any gains in influence enjoyed by oil-exporting nations in an oil-scarce world would be temporary, lasting only as long as these states remained exporters, which might not be very long.34 (It is commonly estimated that Iran’s profile as an oil exporter will suffer badly during the second half of the next decade, for instance.35) The contraction of supplies at the global level is inseparable from the contraction of supplies in these states. These states are also voracious oil consumers, not only because they are developing, but also because their large oil supplies permit governments to subsidise domestic use, fostering inefficiency.36 This will constrain their exports long before they exhaust their oil supplies. Moreover, it is unlikely that a period of higher revenue from oil will provide a launch pad for more permanent economic power, given the poor record of resource-exporting countries.37 Philippe Le Billon, among other experts, has identified a ‘clear pattern of economic underperformance and governance failure among resource dependent countries’ – the so-called ‘resource curse’.38 Rents from this revenue stream provide a cushion to governments that would otherwise be insolvent; raise the exchange rate of their currency sufficiently to undermine the competitiveness of other sectors; and discourage economic diversification away from a single commodity subject to dramatic market fluctuations.39 They also tend to be at the discretionary control of elites, fostering not only corruption, but rent-seeking by various interest groups, and a tendency on the part of policymakers to mollify disaffection with that revenue rather than seek more fundamental solutions to problems.40 Indeed, corruption and overdependence on a single resource typically result in the ‘overextraction of rents from the resource sector’, at the expense of needed maintenance.41 Oil exporters have tended to perform especially poorly in this regard, their revenues typically providing elites with the means to placate domestic interest groups, and fortunes that are invested and secured abroad, as in the case of Saudi Arabia.42 The result has often been the frustration of hopes for development rather than their realisation, and it may be expected that such tendencies will be exacerbated by higher revenue...
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This note was uploaded on 01/30/2013 for the course ECON 101 taught by Professor Burke during the Spring '13 term at Southern Arkansas University.

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