Three years ago, the price of oil plunged below $10 per barrel on the world market. This marked its nadir since the 1973 Arab embargo that first sent prices spiraling and secured the global sway of the nascent cartel of oil-producing states, the Organization of Petroleum Exporting Countries (OPEC). At its twenty-fifth anniversary, OPEC’s future looked grim, with its member governments feuding over how best to stabilize plummeting prices and fumbling to salvage their individual treasuries. Today it might be tempting to assume that these troubles are finished and long forgotten. After all, the oil producers managed to mitigate the price collapse relatively quickly, with some help from Alan Greenspan and the Asian economic recovery. These days, oil price hikes provoke outrage at the gasoline pumps from American consumers and fulmination about OPEC from the U.S. government, while the producers reap revenues that far exceed their budgetary planning.
But in spite of occasional Congressional blustering over OPEC’s market dominance, the challenges for producers remain perversely complex, even in this time of plenty. For OPEC, the roller-coaster oil market of the past few years only highlights its members’ extreme vulnerability to price volatility and the importance of maintaining stable supplies in the midst of political turmoil, such as the long stand-off between Iraq and the world community. At home, recent windfall revenues for oil producers have confounded the earlier urgency of needed economic reforms and intensified domestic political pressures for payoffs now.
For a deeper understanding of the burdens that accompany the oil bonanza, readers should take up Jahangir Amuzegar’s superb new reference work, Managing The Oil Wealth: OPEC’s Windfalls and Pitfalls. The book, recently updated and re-issued from its initial 1999 release, renders a steadfastly dispassionate portrayal of the decidedly mixed blessings that accompany vast petroleum endowments, and the uneven record of producer states in making optimal use of that bounty. Amuzegar is a highly respected international economist whose previous posts include service at the International Monetary Fund and leadership of Iran’s Finance Ministry during the final years of Mohammad Reza Shah’s reign. He has deployed his profound understanding of the region and its development challenges to address the wider scope of political economic dilemmas facing oil-producing states. The result is a statistically rich and meticulously researched historical overview of the performance of 13 OPEC member states over the past 27 years.
The reader might be forgiven for embarking on this volume with a small but critical misapprehension; despite its subtitle, “OPEC’s Windfalls and Pitfalls,” the book is not really about OPEC at all. Rather, Amuzegar analyzes the various constituent governments that comprise the oil producers’ cartel and trains his careful focus on their relative successes in deploying their petro-revenues to achieve a host of socioeconomic objectives. The book begins by addressing both the distinctive features of petroleum-led development strategies, and the historical circumstances that gave rise to OPEC’s emergence as a global force to be reckoned with. From there, Chapter 4 presents a brief but painstaking synopsis of the history of each OPEC state and the way that each managed its oil revenues on behalf of a particular national agenda. Following chapters offer a subjective analysis of each country’s performance, based on both its own stated criteria and an admirable set of criteria that commendably includes environmental impact. Finally, Amuzegar provides a comparative overview and reviews the conclusions of the study and their implications for accepted political economic theory.
Amuzegar makes an important contribution by detailing the many ironies of petroleum-based development, first and foremost that the price explosion of the 1970s did not generate a consistent or substantial expansion in the per-capita national income of most of its members. For example, he gently disproves the “plausible but facile” assumption that the $1 trillion in oil revenues reaped by the Saudi government 1974-94 significantly increased real per capita income in that country. The book highlights the other paradoxes of petroleum resources – that most OPEC states experienced serious balance-of-payments deficits and progressively assumed problematic foreign-debt burdens, and that, despite the powerful financial and technical linkages to the world economy that are an inherent dimension of oil resources, most of the states in this study missed the globalization boat.
Finally and perhaps most poignantly, Amuzegar concludes that none of the five states (among the 13 OPEC members under consideration) whose size, circumstances and relative potential might have enabled them to deploy their oil windfalls on behalf of an integrated economic development program (Algeria, Indonesia, Nigeria, Saudi Arabia and Venezuela) managed to do so successfully. Even in these countries – which possess sufficient resource bases, labor forces and politico-strategic prospects for non-oil development – the vast influx of petroleum rents and revenues simply failed to trigger or sustain enduring and balanced development.
Why was this the case? From such a diverse array of states, whose development has been molded by a variety of factors wholly independent of petro-wealth allocation, theory building is understandably problematic. However Amuzegar takes pains to draw some generally applicable conclusions about the viability of petroleum-led development and about the applicability of various models within the political economy literature. He rejects any all-inclusive explanation, including the oft-mentioned phenomenon of “Dutch Disease,” in which resource rents effectively displace other export sectors and transfer domestic production to less sustainable non-tradeables, as well as a host of other single causal factors in the economic, political or social structures of the OPEC states.
Instead, Managing the Oil Wealth acknowledges that a wide range of factors facilitated the effective deployment of oil rents in specific cases and that a discrete set of injudicious policies – including the bloating of the state sector, weak bureaucracies, unsustainably generous welfare policies, poorly managed industrialization programs, as well as rent-seeking and corruption – fueled the generalized failure of these states to make optimal use of their immense endowments. While he does not impute absolute causality between petro-wealth and policy blunders, the book makes a persuasive case for their interrelationship. As a result, Amuzegar’s final chapter reads like a catalogue of the many distortions that plague oil-producing states and an admonition for the future.
For readers of this journal, the book contributes a much-needed comparative perspective among the Persian Gulf states’ policies, which too often tend to be treated indiscriminately in nonregionalist literature, along with other Arab OPEC members Libya and Algeria. The historical reviews are appropriately critical and unsparing, and praise – as for the UAE’s overall growth and modest diversification – is levied only with reservation (or, in the case of the UAE, criticism of the high cost of these achievements). But in each case, Amuzegar’s keen understanding of the political dynamics and economic policy disasters reveals the wisdom of the roads that each state chose to travel and the evolution of individual pressures – political or financial – that have gradually provoked needed changes, such as in Qatar.
There are several small but relevant criticisms. First, despite the recent revision and re-issuing of the book, its focus remains predominantly on the period between 1974 and 1994, and a 25-page “Addendum” covering the past seven years is simply inadequate, particularly given the agitation in both the oil markets and international politics that characterizes recent years. Also, the book might have benefited from brief comparative consideration of non-OPEC oil-producing states, such as Mexico or even post-Soviet Russia, which have experienced different but certainly parallel dilemmas in managing their own oil and gas resources. But these are small quarrels with a work that will serve as a widely accessible textbook for a variety of courses that deal with the Middle East and development economics, and as an invaluable overview for scholars and policy makers interested in probing the dilemmas of petroleum resources. Amuzegar’s criticisms and prescriptions remain equally relevant today.
In Washington, Managing the Oil Wealth should be considered required reading for anyone concerned with the newly revived debate over energy security. Amuzegar effectively illustrates the “flip side” of energy security, an issue that tends to be narrowly focused on defending strategic supply routes. As Managing the Oil Wealth powerfully demonstrates, just as important as the security of supply is the stability of the suppliers themselves and their respective abilities to achieve sustainable socioeconomic development and address the rising demands of their populations. Their success or failure in this task has profound implications for American national security.