Oil & Transparency

Stopped by Evan Lieberman’s blog and stumbled upon a working paper  by the International Budget Partnership has brought up the question of transparency among extractive industries. His paper holds that there is no link between transparency and mineral/oil wealth in democracies, but there is an issue of transparency within autocracies. In this paper he drops this little nugget of information — In 2009 petroleum counted for fourteen percent of the world’s trade. That’s an extremely large number for the majority of the world to be completely clueless about. In years of record profit we go, “wow, this is proof that oil is bad” if this is the case I think it’s time to know how/why, exactly.

Let’s find some real information to do the talking and the data we have on oil’s causal effect on democracies and autocracies alike may be misleading (Haaber and Menaldo 2011). We need to make claims based on newer, bigger, badder, bolder and nacho cheesier data sets, which I’m sure is on the way(minus some of those adjectives). This information should be the first step in true transparency, in a world where one can feel comfortable about fourteen percent of its trade. Maybe with the correct information we can create policy that adjusts the approach institutions, democratic or not, take with oil. Could transparency in the international trade be the answer to removing the resource curse? I don’t see why it wouldn’t.  Attempts at finding a way around the transparency issue are already starting to surface (Gelb and Mejerowicz 2011), but I would consider the suggestion in that paper to be nothing more than an unfeasible pipe dream. It still serves as a good example of people trying to find a solution to the problem.

Thinking off the top of my head would be increasing the barriers of entry when it comes to trading resources. Why wait until gross human rights abuse to start sanctioning the oil trade of an autocracy? A high standard of accountability and transparency should be the norms before you toss your barrels out to sea, before the firms that are private or state use their technology to begin extraction on foreign soil or offshore. Are we really so needy for the black stuff at a time where we are definitely not at peak oil, and we are getting more and more use out of extraction sites than ever before? Raising the barriers of entry, and making transparency the norm would make newly resource rich nations like Uganda and Angola think twice about corruption. Chances are, until they get their operation off the ground, they are more likely to need and accept conditional loans (that call for certain freedoms, and developmental goals, blah blah). In the event a state meets all of its requirements to enter the market, the increased capital is a very nice incentive to remain transparent, at least in the oil trade. The international community should be more than capable of enforcement, as developing nations often lack the technological prowess to make continued oil exploration and extraction an economical decision – assistance is often needed to turn a profit.

Just something to think about, and just because I’m blogging it, doesn’t mean I speak with certainty. This blog needs/is many an exercise in throat clearing. Note that I haven’t exactly said what these barriers of entry would be. The reason why is because I have no earthly idea.

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