Day 515: The Resource Curse

World Oil Production: ~83 million barrels a day
World Oil Consumption: ~83 million barrels a day

As easy drilling and production declines, and operations move into deepwater, will promises by the United States, European Union and China to slash hydrocarbon consumption keep the production to consumption ratio stable and drive prices down?

While we wring, wave and chew on the demand-supply question and continue to base our economy on a turbulent yet necessary product, political instability in major global producing regions may bring us to our knees, or at least to $5 per gallon, which the average American family can afford for only so long. This month’s Vanity Fair carries a long and informative article on the possibility of Nigerian rebels wreaking havoc on the American economy.  Combine this with Russia’s latest tantrums regarding deals with western companies and it isn’t hard to see energy becoming a bigger and bigger deal in the near future.  Why is oil so precious, you ask?

This is why oil is so valuable: one tank of gas from a typical S.U.V. has the energy equivalent of more than 60,000 man-hours of work”roughly 100 men working around the clock for nearly a month. That is the power that the American consumer can access for about $60 at the gasoline pump. If gasoline were a person, we would be paying 10 cents an hour for his labor. Easily accessible reserves are running dry, though, which means that the industry must develop increasingly ingenious”and costly”techniques for getting at the oil.

The article is so timely and multi-faceted – there’s even a mention of ol’ Dolla’ Bill’s ties to Nigeria – that I can’t possibly quote every sentence of interest. Junger’s reference to resource-rich, economy-poor nations, however, gave me pause to think beyond Nigeria and oil. [Emphasis mine]

… The resource curse holds that underdeveloped countries with great natural wealth fail to diversify their industry or to invest in education, which leads to long-term economic decline. The per capita gross national product of OPEC countries, for example, has been in steady decline for the past 30 years, whereas the per capita G.N.P. of non-oil-producing countries in the developing world has steadily risen.

… most of Nigeria’s oil wealth gets siphoned off by 1 percent of the population, condemning more than half of the country to subsist on less than a dollar a day. By that standard, it is one of the poorest countries in the world. Since independence in 1960, it is estimated that between $300 and $400 billion of oil revenue has been stolen or misspent by corrupt government officials”an amount of money approaching all the Western aid received by Africa in those years. Former president Sani Abacha and his inner circle stole at least $2 billion.

… The Nigerian constitution stipulates that just under 50 percent of national oil revenue must be distributed to state and local governments, and that an additional 13 percent must go to the nine oil-producing states of the Niger delta. Last year that amounted to almost $6 billion for the nine delta states”plenty, it would seem, to take care of basic social services. The problem, however, is that the money goes to the governors’ offices and then simply disappears. A financial-crimes commission was recently formed to investigate all of the country’s 36 governors, and it wound up accusing all but 5 of corruption.

Great natural wealth – failure to diversify industry or to invest in education – wealth siphoned off by small portion of the population – money available for basic social services goes to local government and then disappears. Does this remind you of a certain city? Especially pay attention to where the money stops flowing and compare it to New Orleans’s financial blockades.

Whoever first called New Orleans America’s own Third World wasn’t joking. How much does the average American care about Nigeria? That is how much he or she is concerned about New Orleans. But, if most Louisianans and New Orleanians mirror the apathy of richer Nigerians, no federal government or intervention of any sort can save a dying economy. Tourism, historic elegance and the cultural mélange are all well and good, but if New Orleanians fail to invest in better schools and mentor their students in a variety of trades, it will not be the Federal Flood that doomed this city.