Oil Wealth: A Very Mixed Blessing

Jahangir Amuzegar

From Foreign Affairs, Spring 1982

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Summary:  For nearly a decade now, the spotlighted fortunes of some oil-exporting countries have been a focus of global interest. Raw materials exporters among the less-developed countries have dreamed of being able one day to establish a producers? association similar to the Organization of Petroleum Exporting Countries (OPEC). The industrial powers have helplessly watched their political clout and economic affluence dwindle before the kingdom of oil. The capital-short and aspiring Third World planners have kept telling themselves (and each other) that if only they had this black gold, the magical élan vital for their economic takeoff would be close at hand.

Jahangir Amuzegar is an adjunct professor at the School of Advanced International Studies, Johns Hopkins University. From 1973 to 1979 he was an Executive Director of the International Monetary Fund. He is the author of Comparative Economics: Priorities, Policies, and Performance, and other works.

For nearly a decade now, the spotlighted fortunes of some oil-exporting countries have been a focus of global interest. Raw materials exporters among the less-developed countries have dreamed of being able one day to establish a producers' association similar to the Organization of Petroleum Exporting Countries (OPEC). The industrial powers have helplessly watched their political clout and economic affluence dwindle before the kingdom of oil. The capital-short and aspiring Third World planners have kept telling themselves (and each other) that if only they had this black gold, the magical élan vital for their economic takeoff would be close at hand.

With the significant jump in the price of oil in 1973-74, and the projected transfer of wealth to the oil exporters, the dawn of prosperity and progress for the petroleum-rich countries was widely and uncritically presaged. OPEC's immense and growing revenues were exponentially projected not only to improve balances of external payments, but also to help finance domestic development and defense needs. The Midas touch of oil was expected to reduce domestic costs of living through larger supply of (oil-financed) imports. Massive oil receipts were widely believed not only to enlarge and extend domestic goods and services, but to make budgetary deficits fiscally extinct. Vast new opportunities for wise domestic investments were to guarantee gainful employment for the rising labor force. Rapid, all-around economic prosperity was thought to be achievable without forced saving or painful belt tightening. Material prosperity and progress, in turn, were hopefully believed to lead to more social cohesion, greater political stability, a meaningful industrial democracy, and an eventual advanced-country status.

The outcome, as even the dullest observer knows by now, has been astonishingly less rosy and far more checkered. Prosperity has been achieved at the cost of mystifying new sociopolitical tensions in some countries. In others, progress, although palpably evidenced, has put in motion destabilizing internal forces. Except for a dwindling few countries, initially large balance-of-payments surpluses have turned into deficits. Skyrocketing imports, while contributing to both higher standards of living and greater productive capacity, have oddly enough exacerbated domestic inflation. Budgetary gaps in most countries, while partly the result of expanded public services, have been further aggravated. The sweet dreams about sociopolitical integrity, middle-class solidarity, and genuine technological progress still remain to be fulfilled.

In short, many oil exporters now seem to think, and some even publicly admit, that the "oil bonanza" has not been a clear or unmitigated blessing for them. A disenchanted statesman among OPEC insiders goes as far as to say that history may show that the oil-exporting countries "have gained the least, or lost the most, from the discovery and development of their resources."1

Even if a more sympathetic evaluation of the past record, or a brighter outcome of still future events, should significantly blunt this rather pessimistic assessment, the oil exporters' manifestly enormous social, political and economic problems cannot be summarily dismissed as temporary aberrations. For most of the oil-rich countries, the tradition-shattering changes, the political uncertainties, the security ...

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