The paradox of black gold

Oil brings wealth but also corruption and poverty, says Peter Martin

The petrol station forecourt signs said "see Shell and smile", and I did. As a young student on my first work trip to Ghana in 1998, these service station shops provided a rare, air- conditioned opportunity to stock up on some of the convenience goods I took for granted at home. However, things have changed in the past decade, and few people smile at the thought of big oil companies in Africa today. Security and environmental concerns have increased unease with Western economies' reliance on oil, epitomised in George Bush's 2006 State of the Union Address, when he said for the first time "America is addicted to oil". Precipitated by these concerns, increasing critical attention is being paid to the dramatic effect of oil exploration and production upon newly oil rich countries.

These three books attempt to go beyond the popular oil headlines to investigate the massive changes that oil exploration and production can bring to newly oil-rich countries, how these affect the rest of the world and what can be done to control them. Increasing market demand, political changes and new technologies have brought oil exploration to many poor, non-industrialised countries - places where an oil find can increase the government's revenue by an order of magnitude in less than a decade. Such riches offer the promise of development but, as each of the books describes, they often result instead in increased poverty, instability and violence.

Nicholas Shaxson's Poisoned Wells: The Dirty Politics of African Oil and John Ghazvinian's Untapped: The Scramble for Africa's Oil cover very similar ground but from different perspectives. Shaxson is a UK-based journalist with more than 15 years' experience of on-the-ground reporting from the oil-rich states in the west of Africa, who broke the story of the attempted coup in Equatorial Guinea in 2004. Ghazvinian is a US-based historian and journalist who spent more than a year immersing himself in the places, people and politics of this oil-producing zone, which is expected to account for more than a quarter of US oil imports within a decade.

Shaxson and Ghazvinian are both attracted to the story of oil because of its uniqueness as a commodity and its exotic origins. Oil is essential for the prosperity of industrialised economies; securing a stable and diverse source of oil supply has been a US policy objective since the 1973 Opec-driven oil crisis, and even more so since September 11, 2001. For rapidly growing economies, such as China or India, securing new oil supplies is a pressing need. Oil is also a commodity with which, in its refined forms, we all have an everyday relationship. As we fill up our tanks, always with one eye on the price, do we wonder from which far-off place our fuel might have come and what had to be done to get it here? As US Vice-President Dick Cheney said, "The good Lord didn't see fit to put oil and gas only where there are democratically elected regimes friendly to the United States".

Many future oil discoveries are likely to be in African countries or other similarly undeveloped places. Both Shaxson and Ghazvinian are drawn to Africa by the political and economic dramas that oil creates and by a desire to witness the moral and ethical decisions that the international companies operating there have to make.

A decade and a half of reporting from the countries spanning Nigeria to Angola has left Shaxson worried. His principal theme is that the very nature of oil makes it a "corrupting, poisonous substance", which is "generating a mix of grievance, instability and great wealth that is not unlike the cocktail that motivated and financed the September 11 hijackers". His book aims to open the eyes of the general UK audience to reveal the links and threats to which he thinks the West is almost completely blind.

Oil producers charge huge oil "rents" from the companies invited in to run extraction operations. This is money not earned by innovation and hard work but instead appears to come out of the ground as if a gift from God. Nigeria, Africa's largest oil producer, was estimated to be in receipt of $2 million (£1 million) per hour in oil revenues from the concessions let to the Shell Petroleum Development Company of Nigeria in early 2006, and most African producers will take 70 to 90 per cent of the value of their oil for their treasuries.

Shaxson explains how these huge oil receipts create the so-called "paradox of plenty". Instead of leading to national development, they have tended to lower most measures of living standards for the majority of the population and leave a minority extremely wealthy and very well connected politically and militarily. Furthermore, the wealth controlled by these people enables old grievances to be fought out, as well as seeding new ones.

Shaxson starkly illustrates this point: "As Equatorial Guinea's income rose from $368 per capita in 1990 to over $2,000 in 2000, the country slipped ten places down the United Nation's Human Development ranking. It has the dubious distinction of being the country with the greatest negative difference - 93 places - between its ranking in terms of human welfare and its income per capita."

The problem is a neat reversal of the rallying cry of the American revolutionary war: "No taxation without representation." In countries such as Equatorial Guinea there is little need to tax the population or the domestic economy, and so governments do not succeed by being popular or by creating economic growth. This economic insulation allows corruption and repression to flourish. The oil companies have tended to compound this effect by placating disrupted local communities with promises of roads and hospitals, further diminishing demands on the state.

But the nature of oil cannot be changed. For Shaxson, the only solution is to "cut our energy use, drastically and urgently". To mitigate oil's effect, he calls for reform of the global finance architecture to enforce transparency in oil deals and, ultimately, to keep money out of politicians' hands.

Shaxson introduces variety into his book by basing each chapter around an individual character who influenced his time in the region, on the premise that economic theories mean nothing without factoring in human behaviour.

However, this leaves the book without sufficient structure and with little chronology to his colourful personal recollections.

Ghazvinian seeks to investigate the common American refrain about oil: "It has to be got from somewhere." His book describes his own journey into that somewhere. He has less experience on the ground than Shaxson but makes up for this with a more coherent and engaging travel story. He covers very much the same territory, although without the seasoned journalistic cynicism of Shaxson. With a more structured and chronological story, the arguments are clearer but also more superficial.

Jill Shankleman's Oil, Profits and Peace: Does Business Have a Role in Peacemaking? is the most illuminating of the three books. Along with the other two, Shankleman argues that "to the extent that an answer exists to this destructive situation, it lies in transparency".

Through her research at the US Institute of Peace and her long experience as a consultant to the industry, she aims to provide something akin to a guidebook for students, researchers and practitioners in the business and policy-making communities. Her concise style also makes her book accessible to a general audience and, despite not including accounts of her own personal experiences, the book is the most engaging of the three.

In particular, Shankleman addresses the particular question of whether companies operating in oil production areas can and should attempt to intervene in the host country's governance through their corporate social responsibility programmes. In half the number of pages she covers more than twice the material of Shaxson and Ghazvinian, not limiting herself to Africa and including in-depth case studies of specific attempts to implement transparency in Azerbaijan, Angola and Sudan.

One of the more radical approaches to solve the paradox of plenty that Shankleman considers is the direct distribution of oil receipts to the population. This is employed in Alaska, for example, where dividends are paid to each citizen to give them a stake in the development of the industry; the first dividends were paid in 1982, and in 2004 each resident received $919.84. However, she notes that this faces the formidable obstacle of "persuading elites to relinquish control of the revenue that provides them with power".

Another radical approach discussed is for the international community to take control, as in the Iraq "Oil for Food" programme. However, she concludes that ultimately "it is the people and the governments of oil-rich countries, not the corporations who invest there, who determine the outcomes".

These discussions are a product of the post-Cold War renegotiation of international relations. In all three books the principle of national sovereignty, if it is acknowledged at all, is taken to be an obstacle to progress. Shaxson is most forthright in his call for the international enforcement of transparency. Shankleman is the most considered in how intervention can be achieved.

None of the authors proposes what an alternative, non-sovereign, international infrastructure could be based on. Nor, more importantly, do they consider who would control it. The end of national sovereignty calls for a new global power but, as all these books have illustrated, power is not benign. National sovereignty has the merit that it can nominally be responsible to national populations. No models for making the power of the "international community" accountable to the people of the world have yet been proven.

Peter Martin is a lecturer, School of Chemical Engineering and Analytical Science, Manchester University.