Three of the world’s largest oil producers, Russia, Venezuela, and Saudi Arabia, agreed on Tuesday to freeze their output as long as other major producers did the same. This market-manipulating move is a desperate attempt to prop up petroleum prices, which have fallen 70 percent over the past two years. But it is revealing on another level. The three countries, which have let themselves become highly dependent on a single material export, are also among those most in need of political and economic reforms.
Like the receding tide, the fall in oil prices has exposed which commodity-rich nations have learned how to avoid the so-called resource curse and which have not. Countries such as Norway and Bolivia have effectively sidestepped many of the pitfalls of easy resource wealth, such as corruption, reckless spending, or autocratic rule. Some have set aside oil money in prudent savings for future generations. Others plow their proceeds into long-term investments, such as education and high-tech innovation. The best ones ensure transparency and accountability – qualities that require democracy – in their oil industry and government.
The good news from lower oil prices is that it is driving reform, helping turn a curse into a blessing. Newly elected governments in Nigeria and Indonesia, for example, appear to be tackling corruption related to commodity exports. Brazil’s leaders are now under even more scrutiny after a scandal hit the state-run oil company, Petrobras, and led to unprecedented prosecutions of high-level officials. The price fall is forcing wealthier nations with large oil reserves, such as Canada, Australia, and the United States, to focus more on sustainable industries for growth.
Meanwhile, the autocratic rulers in Russia, Venezuela, and Saudi Arabia are trying some reforms. Russia plans a 10 percent cut in public spending. Saudi Arabia hints it might allow private investment in the kingdom’s oil company Aramco. And in Venezuela, President Nicolás Maduro is under extreme pressure to reform the economy. A recent election there saw the pro-democracy opposition win big in parliament.
“Just as the oil curse had a beginning, it could also have an end,” predicted Michael Ross in a 2012 book, “The Oil Curse: How Petroleum Wealth Shapes the Development of Nations.” With many experts forecasting low commodity prices for years, perhaps the world will see more resource-rich nations drill down on needed changes in governance.