Beyond the Resource Curse

Abstract

Energy security is a fundamental challenge for major energy- exporting states. Most policymakers and many academics think of energy security solely in terms of the interests of energy importers. However, the constant volatility in energy prices and the permanent uncertainty of supply and consumption trends create energy security challenges for both importers and exporters. Beyond the Resource Curse examines a number of the challenges to energyexporting states that emanate from this volatility and studies the various infl uences of oil and gas revenue on exporting states. Energy production and transport is a highly capital- intensive industry. Creating new energy production also requires a long lead time, which means that energy supply and demand are frequently unsynchronized. Th is creates inherent energy price volatility and the subsequent boom and bust cycles characteristic of energy- exporting economies. Energy trade is the largest input in the world economy, and energy consumption and production trends directly infl uence and are infl uenced by the state of the world economy. Although the ebbs and fl ows of energy prices have a signifi cant impact on the state of the world economy, those same ebbs and fl ows can translate into tsunamis and tidal waves for energy- exporting economies. Th is can be seen in the collapse of prices that took place with the onset of the current global fi nancial crisis that began in 2008, when the price of oil fell to under $40 a barrel in January 2009. Just half a year earlier, oil prices had been at an all- time high of $147 a barrel. Over the years, analysts have not been very good at predicting changes in oil prices, further complicating energy exporters’ long- term planning. Oil prices fl uctuate twice as frequently as other commodities. In the last de cade, oil prices have been especially volatile. In 2008, for example, daily oil prices increased or declined by at least 5 percent a total of thirty- nine times. Th is extreme unpredictability can wreak havoc with energy- exporting states’ economic and bud get projections. Oil producers may have enjoyed rising state revenues from 2004 to 2007, but the sudden collapse in oil prices in 2008 and 2009 left the state bud gets and national economies of many oil exporters in turmoil. States that rely predominately on revenues from energy export operate in an environment of constant uncertainty that creates a built- in challenge in state bud gets on every level of government. Th is uncertainty leads to unstable state investments and thus oft en produces inadequately maintained infrastructures, such as roads and electricity grids. It also creates diffi culty in building human capital over the long term. Th is oft en leads energy- exporting states to invest in policies that produce short- term, oft en in eff ec tive, results, such as constructing new buildings and funding student scholarships instead of establishing comprehensive educational institutions and programs. Th is price uncertainty also aff ects exporters’ ability to invest in and attract investments in oil and natural gas production, which aff ects the long- term productivity of the very source of their economic livelihoods