CURSES, OIL AGAIN (via Jim Hamlen):

India: Blessed With Less (AMITY SHLAES, February 22, 2007, NY Sun)

This week, Russia is busy warning that Poland or the Czech Republic will be targeted by its missiles if they cooperate with America in missile defense. This action follows a threatening speech by President Putin in Munich.

India, by contrast, is emphatically assuring the world that the recent bombing of a Pakistan-bound train won't ruin relations with its Muslim neighbor.

In other words, Russia is turning out to be a country that creates geopolitical shocks, India a country that absorbs them. It may be that the Russia problem doesn't have so much to do with national temperament as with oil. New oil has further corrupted the Russian people. It has even -- improbable as this might have once sounded -- transformed Mr. Putin into a Latin-style petrocrat.

There's a corollary to the blame-the-oil proposition. It is that India is a source of stability precisely because it has no oil or any comparable windfall. If natural resources are a curse, their absence is a blessing.

What Went Wrong?: Western Impact and Middle Eastern Response
by Bernard Lewis (Booknotes, 12/30/2001, C-Span)

Prof. LEWIS: ... It has a very disruptive effect, and on the whole, I should say that oil has been a curse to the Arab world.

LAMB: Why?

Prof. LEWIS: Precisely this reason. You know, there's this old American dictum: no taxation without representation. What is sometimes overlooked is that the converse is also true: no representation without taxation. And with our revenues, they didn't need taxes; therefore, they didn't need assemblies to levy taxes. And they were made independent of public opinion in their own countries with this untold wealth accruing from oil revenues. This greatly strengthened the power of autocratic governments, far greater than it had ever been in the past. Now if traditional Islamic government is authoritarian, but it is not dictatorial or despotic, it is governed under certain rules and so on. In modern times, the power of the author--the power of the ruler has been vastly augmented by these huge revenues so that he doesn't need public support or public approval of his taxes.

MORE:
Putin's patrimony: Russia's economy is more dependent on natural resources than in Soviet times. This "oil curse" means a brittle economy and an unstable political system based on the fusion of power and property. Watch out for the coming Putin succession crisis (Robert Skidelsky, March 2007, Prospect)
As Airbus squabble grows, Putin calls for aerospace aid (David Robertson, 2/22/07, Times of London)

Russia's President, Vladimir Putin, again demonstrated his tendency towards "muscular diplomacy" yesterday as he took advantage of chaos at Airbus, the European aircraft maker, to demand help developing the Russian aerospace industry.

At a meeting with French defence and finance ministers, Mr Putin said that the Russians would continue to buy shares in EADS, Airbus's parent, unless the company agreed to greater cooperation with Russia. The Russians already have a 6 per cent holding.

Russian-built jets are noisy, inefficient and heavy polluters, but the Kremlin does not want to admit defeat and give up on the high-tech aerospace industry. This is partly for strategic reasons and partly because the Kremlin does not want to spend billions on Airbus and Boeing. However, the Russian aerospace industry can only improve if it gains access to Western technology and Mr Putin is trying to lure Airbus into greater cooperation.

Russia interested in acquiring larger stake in EADS: Putin (The Associated Press, February 21, 2007)

Russia is interested in acquiring a larger stake in European Aeronautic Defense and Space Co., the parent company of airline manufacturer Airbus, President Vladimir Putin said Wednesday.

Such "meaningful cooperation would be interesting and useful not only for Russian producers but for their European partners," Putin said during a meeting with French Foreign Minister Philippe Douste-Blazy and Defense Minister Michele Alliot-Marie.

The Oil Curse: The history of oil investment in the developing world hints at trouble ahead for the multinationals in Iraq (Daniel Litvin, March 2003, Prospect))

[N]o amount of CSR or diplomacy by Aramco could control the dramatic process of social change in Saudi Arabia which the wealth brought by its oil revenues had unleashed. Over the space of several decades, oil money had transformed Saudi Arabia from a traditional society of subsistence farmers and nomads to one accustomed to western standards of living and�at least for the elite�lavish palaces, expensive cars, and so on. While welcomed by some Saudis, such changes also created social tensions which eventually rebounded against Aramco. In particular, devout Muslims among the population argued that exposure to western ideas and materialism was corrupting Saudi society. Such criticisms could not be ignored by the royal family, itself followers of the puritanical Wahhabi branch of Islam. Adopting a tough approach towards the US companies presented the Saudi rulers with an opportunity to assert their anti-western credentials.

This tension within the Saudi regime between pro and anti-western forces unleashed by the oil investment, also lies at the heart of America's current problems with the country. While Saudi Arabia professes support for America's war on terror, wealthy Saudis are accused of bankrolling suspect groups. Can Saudi Arabia continue to be considered a secure oil supplier to the west? Whatever the answer, the story of Aramco illustrates the limitations of CSR in managing strategic foreign investments.

The second example is Shell's experience in Nigeria. Although far from the middle east, Nigeria has some important similarities with Iraq: it is an oil-rich, ethnically-divided state, with its borders arbitrarily drawn during the colonial era. As in Iraq, it was the British empire which tried, with limited success, to impose a sense of nationhood on a set of distinct ethnic and religious groups. In Nigeria's case, the main tribes are the Hausa-Fulanis in the north, the Yorubas in the southwest, and the Ibos in the southeast. Within the main oil-producing region of Nigeria�the Niger Delta�there are also dozens of smaller ethnic and religious groups.

Shell became famously embroiled in an international controversy in 1995 when the Nigerian government executed Ken Saro-Wiwa, a leader of the movement for the survival of the Ogoni people (one of these small Niger Delta groups), and western campaigners accused the company of guilt by association. Posters of Shell's logo dripping with blood sprang up in many western countries. Following that episode, the company invested more in its CSR and environmental programmes in the Delta region. But violent local unrest persists: in March, for example, Shell was forced to shut down much of its Nigerian oil production, as fighting erupted between Ijaws, Itsekiris and government troops in the Delta region. As in 1995, disagreements over the distribution of oil revenues drove much of the violence.

Indeed, Shell's experience in Nigeria is more than just another illustration of the limitations of CSR. It shows how the politics of revenue distribution could be a particularly hazardous issue for the oil companies in Iraq. The companies will face two broad options. One is to side with the government in Baghdad. The other is to pay most attention to the demands of local groups in the various oil-producing areas, whether these be Kurds, Sunnis, or Marsh Arabs.

An attraction of the Baghdad option which is likely to weigh heavily in the case of Iraq is that it allows companies to avoid accusations of imperial meddling. This was why Shell, in the decades after Nigeria's independence from Britain in 1960, left the issue of revenue distribution to the central government and was reluctant to lobby openly for other groups. The threat of nationalisation was real at the time�BP lost its stake in Nigeria's main oil concession in 1979.

However, ignoring the demands of the communities in the Niger Delta sowed the seeds for the public uproar against Shell in 1995. When local groups began to protest, federal troops were dispatched to the region to quash dissent�often brutally. The situation was compounded by deep corruption at both the local and federal level. And Shell, for much of the time, stood by, refusing to get "involved in politics."

The Ogoni, one of the aggrieved local groups, brought the issue to international attention with some shrewd marketing. Ken Saro-Wiwa, a journalist and former writer of television soap operas, appreciated the potency of images of environmental destruction for western audiences. He helped frame the Ogoni cause as a green, anti-corporate movement, and thereby directed the wrath of western protestors against Shell.

Since 1995, Shell has changed course. It has pumped more money into local welfare projects, such as schools and small-business schemes (its community development budget has roughly trebled to over $60m a year). It has also begun to exert more explicit political pressure on the federal government to assist the development of the Niger Delta. For several years now, the government has been returning 13 per cent of the oil revenues to the Delta region, compared with 3 per cent previously. Shell lobbying was one factor behind this rise.

The recent fighting involving Ijaws and Itsekiris is one indication that this strategy has not yet brought peace to the area. More generally, Shell's new approach of trying to balance federal and local interests risks opening the company precisely to the accusation that it is meddling in domestic politics�especially from those ethnic groups which are now receiving a diminished proportion of the oil wealth.

Conflicting demands over oil revenues have already driven one secessionist movement in Nigeria�the Biafran war in the late 1960s�in which over 1m people are thought to have lost their lives to violence and to famine. In that case, it was the Ibos who tried (and failed) to split from the rest of the country and take the oil provinces with them. Today, many of the tribes in the Delta, although less populous than the Ibos, also feel little political attachment to Nigeria. "Nigeria is a shaky, even temporary, phenomenon," says one Ijaw activist ominously.

Even if Iraq holds together as a nation in the immediate wake of the war, in the long run the demands of various ethnic groups for a greater share of the oil money could accelerate a process of internal fragmentation. In such a situation, the position adopted by the oil companies will be key, and misjudgement on their part could exacerbate conflict.

It is ironic, perhaps, that the giant oil companies, for all their power and wealth, often find it difficult to manage local politics effectively. But keeping local people happy and maintaining a stable climate for investment over the long term, can be a highly complex business, requiring a deep understanding of local traditions and a delicate balancing of conflicting pressures. And if the multinationals do get it wrong in the case of Iraq, US and British soldiers may find themselves back on the ground, charged with sorting out another oil-fuelled mess.

Posted by Orrin Judd at February 23, 2007 7:34 AM