In just a few years, the international oil market has changed profoundly: new oil deposits discovered off of Brazil and Africa’s shores have boosted supply, as has the massive development of the shale oil in the United States. And instead of reducing its output, the Organization of Petroleum Exporting Countries (OPEC) decided to hold steady. Saudi Arabia, which leads the group, wants to protect its market share from U.S. competition and seeks to hamper Iran’s ability to take advantage of high oil prices when sanctions against the nation are lifted. These three factors have led worldwide oil production to increase from83.2 million barrels per day in 2010 to over 88.6 million barrels per day in 2014. This has happened just as demand has contracted, thanks to slowing growth in China, stagnation in Europe, and potential recessions in emerging countries (such as Brazil, Russia, and Turkey).
In turn, Brent prices plunged from $115 in June 2014 to $45 in January 2015, averaging $56 since then. Low oil prices are particularly hard for African producing countries, such as Angola and Nigeria, which belong to OPEC but which were ignored in OPEC’s decision-making. Their 2015 national budgets were based on higher prices for Brent crude, thus leaving both countries with major financing gaps. Indeed, many are concerned about the potential disruption that low oil prices could cause to still fragile economies, and the chance that the resource curse will claim its next victims.
AN EMBARRASSMENT OF RICHES
The concept of the resource curse arose from the observation that in the postcolonial era developing countries that were endowed with natural resources lagged behind those that were not. The reason seems to be that in hyperspecialized, natural-resource-based economies most resources are exported rather than used and transformed domestically. Flush with income from commodities, these governments don’t need to create economic growth and collect taxes. Since they don’t tax citizens, states don’t need to be accountable to them. Rather, they just need to keep the peace through subsidies and to please those groups
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