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Iraq: Oil Wealth May Not Mean Country Will Prosper

by Mark FritzAssociated Press
August 11th, 2003

Iraq is swimming in oil, but anybody who thinks that such natural wealth translates into a fat and happy middle class is in for a crude awakening.

Precious resources alone - whether oil or gold or diamonds - rarely raise nations from poverty to prosperity. Countries usually become poorer, more corrupt and more prone to coups, wars and tyranny than their less-endowed neighbors, recent studies show.

"It's a big problem, this myth about oil - that if you have it, everybody is going to be rich," said Terry Lynn Karl, a Stanford University political scientist who studies developing nations that depend on the sale of their natural resources.

Amid the violence and chaos in their country, many Iraqis look longingly to a day when they can share the wealth that had been hoarded by ousted ruler Saddam Hussein.

The Bush administration has promoted that notion in its fitful efforts to pacify an impatient populace and quell attacks on the U.S.-led occupation force.

But even if the administration meets its goals to have Iraq's battered, looted oil infrastructure pumping petroleum at pre-war levels of 2.5 million barrels a day early next year, some Iraqis are certain to be disappointed. Washington wants to use those revenues to repair the damage done since the war, not just write checks to Iraqis.

Oil exploration is enormously expensive, but once oil is found, it doesn't require much labor to get out of the ground. Once flowing, it produces huge revenues for governments.

Yet there is little precedent that enormous government oil wealth trickles down and finds its way into improving education and health care, and diversifying the economy to create jobs that don't rely on the swings in the oil markets.

"The temptations are enormous," said Ron Gold, vice president of the nonprofit, New York-based Petroleum Industry Research Foundation and author of a recent report titled "Going Where the Oil is." "Where institutions are sturdy the odds are that the oil bonanza can be had to enhance the country's welfare."

He cited Norway's distribution of its offshore oil wealth. But it is an exception. Iraq has ethnic, religious and geographic factions that could be at each other's throats over oil.

In Gold's study that used World Bank data gauging a nation's openness, honesty and lawfulness, he found that 58 percent of the world's known oil reserves are in countries that ranked in the bottom quarter of at least one of the three categories.

And nearly half of the oil the U.S. imported during the first three months of this year came from 11 of the 12 low-ranking countries, Gold said.

Iraq has the second-biggest known oil reserves in the world - 112 billion barrels - after its southern neighbor, Saudi Arabia. Yet even the world's undisputed petropower, with a quarter of the world's known reserves, is finally paying the price for failing to diversify a volatile economy that has caused per capita income to plunge from $28,000 in 1983 to less than a fifth of that, said Karl of Stanford University.

Venezuela, Iran, Libya, Angola, Qatar, Ecuador and Algeria have also seen per capita wages plunge, along with widening gulfs between a rich minority and an increasingly impoverished majority, she said.

Karl and policy analyst Ian Gary are co-authors of a 110-page analysis of the impact of oil on developing nations and the potential for disaster - or, if changes are made, of stunning success - that could result from a nascent oil boom in sub-Saharan Africa.

A number of projects in poor, politically fragile countries such as Chad, Sao Tome and Equatorial Guinea are expected to make the continent a potential alternative to the Persian Gulf.

At the same time, new discoveries in the Caspian Sea are poised to make five former Soviet republics significant oil exporters within the next five years. Yet their human rights records are spotty, democracy remains elusive, and they have been unable to agree on how to share what is estimated to be the third-largest oil reserves on the planet.

"That's why we see this moment in time as a tremendous threat to these countries, but also an enormous opportunity," Gary said.

The June report was sponsored by the humanitarian group Catholic Relief Services. It is the latest salvo by a range of advocacy groups seeking to force oil companies, the countries in which they are based and the governments they do business with to disclose every dollar, dinar and ducat that changes hands, and how the money is eventually used.

The multinational oil companies generally oppose mandatory disclosure guidelines. British Prime Minister Tony Blair tried to get his government to adopt such rules this year, but settled for voluntary guidelines that disclosure advocates say are largely useless.

British Petroleum took the lead in disclosure two years ago, when it said it would publish all the payments made to Angola for oil pumped from its waters, which included a $100 million "signature bonus" to Angolan officials. The government promptly threatened to cancel BP's contract.

Angola is considered one of the most corrupt countries in the world by Transparency International, a watchdog group.

If oil companies contend they are playing fair, what do they have to hide?

"In the U.S. you have an open auction. But in these other places you're competing, and you'd rather not show your hand," said Gold, the industry analyst.

While President Bush dismissed Africa's importance to U.S. interests while campaigning for president, he has taken a keen interest in Africa since the Sept. 11 terrorist attacks and recently visited the continent.

The Catholic Relief Services report estimated that oil companies were plunging $50 billion in foreign investment into sub-Saharan Africa's oil industry.

Even more than the Middle East, the continent is riven with wars, authoritarian regimes and ethnic and geographic rivalries. Thirty African nations make up the bottom 35 of the U.N. Development Program's annual "misery" index of terrible places to live.

Despite the dinar signs dancing in Iraq's eyes, few nations have spilled as much blood over oil. Iraq's 1980-88 war with Iran cost an estimated half million lives and began with Iraq's attempt to seize the oil-rich Iranian border region of Khuzestan.

Saddam subsequently invaded Kuwait because the emirate was producing so much oil that it was depressing global prices, leading to the 1991 Persian Gulf War.

Now, the United States is accused by critics of invading the country to get at its oil.

But getting the oil infrastructure running is a problem. Smuggling into Syria and sabotage of oil lines by anti-American guerrillas has slowed progress. In northern Iraq, two rival groups of ethnic Kurds have skirmished for control of the oil city of Kirkuk.

Still, oil companies are lining up for a crack at the crude that brings big profits.





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