Resource Nationalism: The Last Stand for the Oil Optimists

The price of oil has more than doubled from its nadir of $30 a barrel earlier this year. To explain the resilience of oil prices in the face of a severe economic slump, the oil optimists have turned to an old standby argument: resource nationalism.

With the world in the middle of the worst economic downturn since the Great Depression, oil prices ought to be hugging the ground. Instead, they continue to fly upward. With concerns growing about the geologic limits of oil extraction, the oil optimists are putting forward one of their favorite arguments: resource nationalism.

According to the U. S. Energy Information Administration some 88 percent of the world’s remaining oil reserves are under the control of government-owned oil companies. Thus, extraction of the vast majority of the globe’s proven reserves is subject to the needs and priorities of the governments that control them. Not all those governments think it is in their interests to extract an appreciating asset from their oil fields as fast as possible. Why not save some for later when prices are likely to be higher? Wouldn’t that be the rational thing to do?

The problem with the resource nationalism argument is that it contains an important hidden assumption, to wit, that oil under the territory of, say, Venezuela, doesn’t necessarily belong to Venezuela. The same is implicitly being said about oil under the territory of Iran, Saudi Arabia, Libya, Russia, Brazil and many other countries. Would the same analysts complain about resource nationalism in the United States because that country shares almost none of the crude oil and natural gas it produces with the world? And, are these analysts really suggesting that major oil importing nations such as the United States and many countries in Europe simply seize oil fields in oil exporting nations and ramp up production to suit their needs?

Scitizen