Essay from the year 2004 in the subject Politics – Region: Near East, Near Orient, grade: 16.5, University of St Andrews, language: English, abstract: What must go wrong before economists label a scarce and strategically valuable commodity like oil a “curse”? Fundamental economics suggests that they are almost as good as cash. Abundant natural resources can help a country prosper through earnings of hard currencies, larger and diversified domestic investments in physical and human capital, and acquisition of foreign technology. Furthermore, despite attempts to diversify the energy portfolio, oil still is the world’s most important energy source. Nevertheless, when BBC launched the TV series “The Curse of Oil” in September 2004, no incident of protesting economists became known. This might be due to another lesson from history, namely the “natural resources paradox”: Oil – or natural resources in general – might not exactly be “as good as cash”. Rather, they could have negative impacts on the development of an economy, i. e. a process towards a stable, sustainable and diversified economy. The most obvious example of the natural resources paradox are conflict-ridden countries like Nigeria. Analysts argue that natural resource abundance is one of the reasons for destructive political conflicts. But even politically stable countries, which enjoy a high GDP per capita due to the exploitation of natural resources, show a negative correlation between oil and development. An obvious example of this is the performance of the member countries of the Gulf Cooperation Council (GCC). On the one hand, all of these oil monarchies enjoy a high GDP per capita (cf. figure 1).
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