Scraping the Barrel… 7 August 2012

As today’s barrel scrapings reveal: Joseph Stiglitz ponders how to make a blessing out of a resource curse, a Twitter vigilante gets a nervous oil market to jump, and the two Sudans make (tentative) progress on their oil dispute. Below the fold for more…

It’s common to decry the ‘curse’ afflicting poor, resource rich countries, less so to actually offer solutions to the problems such countries face. Joseph Stiglitz, one of the high priests of the campaign against resource curse, breathes new life into it in this Project Syndicate blog in which he raises a point which, at least to me, doesn’t get enough attention: why is everyone, international companies and resource-rich governments alike, in such a rush to pump as much oil or dig up as much gold as quickly as humanly possible? Yes, there is the need to satisfy growing demand and on top of that everyone likes to get rich quick. But Stiglitz gives ample reason for countries to resist the urge to act quickly and move more deliberately: it takes time to train local workers, develop local enterprise and domestic processing capability, and devise a regulatory framework that can pay dividends locally and long term. It takes time to integrate natural resources sustainably into an economy. The resource curse debate, for me, can be self-righteous, circular and somewhat tired; but, as Stiglitz suggests, bold, radical action – like countries renegotiating these sanctified contracts with companies to extract better terms – is sometimes the only way to transform the conversation to reality.

On Monday, as you’ve already heard if you’re on twitter, a conniving puppeteer pulled the Middle East strings connected to global oil prices to great effect. A Twitter account claiming to be the Russian interior minister tweeted at 9:59 am eastern US time that Syrian President Bashar al-Assad had been killed; between 10:15 and 10:45, as the Wall Street Journal points out, light, sweet crude futures rose from $90.82 to $91.99 a barrel on the New York Mercantile Exchange. This says a few things – first, as we know, human beings are quick to jerk the knee; but
if crude futures can jump more than $1 in half an hour based on a couple of 140-character shots into the Twitterverse, no one will be surprised when Assad really does get popped off, and no one should be surprised when this causes a larger and more sustained price spike. Traders seem to be crouching just waiting for this to happen; so condolences, Assad, the world doesn’t like your chances.

In other oil price news, Brent crude is back up, now to $109.19, though this doesn’t seem to be the result of a Middle East dictator’s fake death.

Sudan and South Sudan have finally struck a deal on their oil pipeline dispute, offering some glimmer at the end of the tunnel that has been South Sudan’s shut-down-since-January oil production. But any talk of resuming South Sudanese oil flow, on which Juba depended for 98% of its revenues and which accounted for more than 85% of Khartoum’s export earnings through transit fees, remains provisional until security arrangements are sorted out. Juba said the per-barrel fee it has agreed to pay Khartoum for using its pipelines is $9.48 – falling between the exorbitant $30 or so Sudan demanded after South Sudan’s secession and the less than $1 offered by Juba – in addition to a compensation package of about $3 billion. But each government’s statements about the oil deal have been directed at domestic audiences, Magdi El Gizouli of the Rift Valley Institute says, making the true economic value of the deal difficult to assess.

Despite all the handshakes and glitzy smiles, Gizouli calls the deal more “an offer on the table rather than a final deal”. In other words it’s not perfect, but it’s progress. That’s something, considering the hell people on both sides of the border have gone through since secession a year and a month ago.

To check out previous news roundups, see the Scraping the Barrel series.

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