Royal Dutch Shell Group .com Rotating Header Image

UpstreamOnline: Two-edge sword of resource nationalism

THERE is little doubt that “resource nationalism” as a state ideology is on a roll, whether in Bolivia, Chad or Russia.

It offers local politicians a high-profile way of courting popularity and in theory offers a burst of wealth and economic independence. What could be a more welcoming sight to impoverished Latin American peasants than seeing on television their national army seizing control of the country’s oilfields from supposedly money-grabbing foreign-owned multinationals? What a sense of empowerment for a nation dependent on one commodity for the bulk of its income.

But what seems a great idea when crude prices are at historic highs might look rather different were oil prices to plummet, as unlikely as that may seem today. You do not have to be an American neo-con to question the wisdom of this land-grab strategy given its likely impact on future investment.

Whatever happens to the value of oil and gas, these countries have almost overnight changed the way they will be viewed by international investors for the foreseeable future.

Sovereign risk will carry a premium, not just in those nations that are breaking commercial contracts but in other developing countries where there are other kinds of political uncertainties. And while Bolivia, Chad or Russia might think it a good idea to reduce their reliance on Western companies, others — as diverse as China, Libya, or even Iran — recognise that they can bring technological know-how, major investment and the quick execution of projects.

There are studies showing that very poor developing countries find it difficult to deal with sudden oil wealth, but equally there are many more studies showing that isolationism and a turning away from foreign engagement is worst of all.

Ever wondered why China plunged from being the most advanced nation on earth in the 1400s to one hit by famine, extreme poverty and ultimately foreign invasion? The Ming emporer shut down foreign trade in 1434 as did Mao Tse Tung much later in the 1960s. These policies were disastrous.

The Far East country has been the fastest developing one in the world since 1980 because it has become increasingly integrated with the wider world around it.

Resource nationalism has been billed as an epic victory for the poor against the rich, local socialism versus international capitalism, but that simplistic notion has been blown apart by its impact on its comrades next door in Brazil.

The energy policy of Bolivian president Evo Morales has seriously hindered the election campaign of his political ally next door, Luiz Inacio Lula da Silva, who is standing for re¬election on 1 October. Demanding much higher prices for Bolivian gas being exported to Brazil and forcing Brazilian state-controlled oil company Petrobras to renegotiate downwards the terms of its engagement in the Bolivian refining sector has gone down like a lead balloon.

Lula’s unwillingness to criticise Morales’ policies and to support too heavily infuriated Petrobras officials has led to accusations from Lula’s competitors that he is soft and does not properly defend the interests of his country.

The exit of the architect of Bolivia’s new policies — energy minister Andres Soliz — and a backpedalling on the hardball dealings with Petrobras may have helped save Lula his job. Both Repsol and Total — among foreign investors hit by the Bolivian industry restructuring — also seem optimistic that sensible talks can take place now.

Some sense has returned to the debate but political risk has risen up every oilman’s agenda. Just look at what is happening in Thailand or Hungary, never mind Bolivia.

royaldutchshellplc.com and its sister websites royaldutchshellgroup.com, shellenergy.website, shellnazihistory.com, royaldutchshell.website, johndonovan.website, shellnews.net and shell2004.com are all owned by John Donovan. There is also a Wikipedia article.

Comments are closed.

%d bloggers like this: