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photo: Christian Aid/ network/ Salomon Cytrynowicz

Fuelling poverty - Oil, war and corruption

December 05 2003

Full report: Fuelling poverty - Oil, war and corruption (PDF)

'All Iraqi military and civilian personnel should listen carefully to this warning. In any conflict your fate will depend on your action. Do not destroy oil wells, a source of wealth that belongs to the Iraqi people.'

George W Bush, US President, in his 'ultimatum' speech to the Iraqi leadership, 17 March 2003

'The oil revenues, which people falsely claim the US and UK government want, should be put in a trust fund for the Iraqi people, administered through the UN.'

Tony Blair, UK Prime Minister, during a Commons debate on war with Iraq, 18 March 2003

'You've got to go where the oil is. I don't think about it [political volatility] very much.'

Dick Cheney, US vice president and former CEO of oil-services company Halliburton (1). Speech to Panhandle Producers and Royalty Owners Association annual meeting, 1998

Introduction

The iconic image from the latest war in Iraq will undoubtedly be the toppling of Saddam Hussein's 20ft statue in Paradise Square, on the day US marines arrived in Baghdad. But two other striking images from that conflict could have equally eloquent things to say about Iraq's future. One is of British troops standing guard over the oil fields near Basra in the early hours of the war, while wells were burning. The other is of those same troops, days later, trying to keep order as they distributed meagre supplies of bottled water and other aid to a desperate population.

The contrast between these two military exercises - in terms of resources, effort and planning - was startlingly clear. And the contrast is instructive, in a wider context, when considering the relationship between the world's most sought-after natural resource and the people on whom it most directly impacts. Put simply, when oil is involved the needs of ordinary people - such as the need for a secure supply of clean water - usually come a very distant second.

Indeed, all available evidence indicates that the presence of oil in a developing country makes life worse, not better, for the people who live there - particularly the poorest people. That is what this report is about.

In global terms, it can be argued that oil and the oil economy are all but irrelevant to the world's poorest people - the very people for whom Christian Aid seeks to speak - as they struggle to live their lives.They do not own cars, they often have no access to electricity and their fuel comes from animal dung or dwindling supplies of wood. Again, their greatest need is likely to be water.

It can also be said that the global economy's addiction to oil - its drug of choice - has done more than anything else to skew the world's priorities. The craving - just to get us through our daily lives - is such that we will go to almost any lengths to get hold of the stuff. Moreover, like an addict in need of a fix, we don't care who gets hurt along the way. Global climate change, for example, already wreaks its most serious damage on developing countries and seems certain to intensify in the years ahead.

The UK's dependency on oil was graphically illustrated by the fuel protests of September 2000. Within weeks of supplies being seriously disrupted, the country was in danger of grinding to a halt and even the government was threatened. But before the Iraq crisis gained serious momentum, people here barely gave a second thought to where fuel comes from and the misery that its exploitation can create. We might think hard about what to put in our trolley when going around the local supermarket, balancing the ethical implications of one item of shopping over another. Yet when we go to fill up the car afterwards, how many of us wonder about the impact of that purchase?

This report shows that for many developing countries, oil reserves are more likely to prove a curse than a blessing. New research from Christian Aid - along with important studies from some of the world's leading development specialists, and research by both the World Bank and the International Monetary Fund - indicates that poor countries dependent on oil revenues have a higher incidence of four great and interconnected ills. Oil, in these conditions, becomes the key ingredient in a 'lethal cocktail' of:

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greater poverty for the vast majority of the population

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increased corruption

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a greater likelihood of war or civil strife

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dictatorial or unrepresentative government.

In cases where oil has been the cause of wars, or has funded the prolonging of wars, it can justifiably be regarded as 'blood oil'.

Christian Aid research reveals that at least US$20 billion (13 billion) worth of public money from the rich world has gone into supporting oil exploration and exploitation in the past decade. How many British taxpayers realise that some of their money has gone, and continues to go, into pump-priming this misery?

In Iraq, vast oil reserves - at some 112 billion barrels, second only to Saudi Arabia(2) - are seen as the panacea to all that blighted country's ills. Analysts have estimated that, once rejuvenated, the Iraqi oil industry could produce up to six million barrels per day(3). At 2001 prices, this would mean an average 100 million per day for Iraq's much talked-about reconstruction. This is not Afghanistan, the argument goes, and once the oil industry is put back on its feet, there will be sufficient revenue to breathe new economic life into a nation devastated by three major wars, UN sanctions and decades of dictatorial rule.

If so, that industry has a serious job to do. In its heyday, around the time the Ba'ath Party nationalised it in 1972, Iraq's oil industry pumped up to 3.5 million barrels of oil per day(4). Even in 1991 - after the ruinous Iran-Iraq war and in the year of the first Gulf war - Iraq ranked 50th out of 130 countries in the United Nations' Human Development Index. By 2000 it had fallen to 126th out of 174. Even before the latest war, some 19 per cent of the population did not have safe drinking water, more than 46 per cent of its people are illiterate and almost one quarter of under-fives are underweight.(5)

Iraq, then, has already drunk a deep draught of oil's 'lethal cocktail'. As this report shows, merely pumping more oil will by no means guarantee that the situation will improve. Case studies from other oil-producing countries show that unless a dramatically different approach to using oil revenues is adopted, the situation could continue to decline.

Angola - where oil revenues have fuelled a 30-year civil war, from which the country is only just emerging. Now, up to 90 per cent of the government's revenue comes from oil. In Angola, almost two-thirds of the population have no access to safe drinking water and the country now ranks as one of the world's poorest - 151 out of 173 in world human-development tables. Of the $5 billion the Angolan government receives in oil revenues every year, it is estimated that more than US$1 billion goes missing.

Sudan - a country still gripped by a civil war that has been fuelled, prolonged and part-financed by oil. The two sides are currently locked in peace talks, but one of the most acrimonious issues at the heart of negotiations is the sharing of oil wealth between the government-controlled north and the south of the country, where much of the oil is located. At the same time, international companies, including two from Europe, continue to exploit Sudan's oil.

Kazakhstan - formally part of the Soviet Union, an emerging economy with massive oil revenues but also shocking poverty. The country's weak infrastructure is crumbling and the ordinary people of Kazakhstan have the least access to safe water of all the people of the former Soviet Union. In spite of the billions brought in by oil, and a special fund set up with oil revenues, one-third of the population live below the UN's US$1 per day absolute poverty line. Meanwhile, the autocratic president has put his relatives in most of the positions of power and he directly administers the oil fund. He is the richest man in Kazakhstan.

How the Iraqi people benefit from oil revenue will depend, according to our evidence, on how open, transparent and justly distributed the spoils of oil exploitation are in the future. If the crimes and misdemeanours of the past - where vast revenues funded a corrupt and totalitarian regime - are not to be repeated, Iraq's people must be allowed to scrutinise the spending of oil money.

So Iraq, as well as providing an example of what can go wrong in an oil economy, also offers a vital opportunity to demonstrate that pumping oil does not have to mean pumping more misery. If that opportunity is seized, then it would offer hope that the people of other oil-producing countries could also see a better future.

Christian Aid is therefore calling for a Global Oil Deal, a chance for the world to get it right on oil. An international commission should be established to review the overwhelming evidence that oil wealth is driving countries into poverty and to draw up new, global regulations to reverse this injustice. Poorer, oil-producing countries demonstrably cannot do this on their own.

Among the measures that should be adopted, we recommend:

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regulations requiring oil companies to publish what they pay to oil-producing countries

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transparency of oil money in these countries' budgets, with public-sector contributions to governments being used as the lever to achieve this

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a proportion of oil revenue being held in trust for the people of the country

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a system of restrictions and embargos within the oil trade to restrict the sale of 'blood oil'.

The opportunity is there, possibly the last opportunity. The dangers of continuing to get it wrong, as highlighted in this report, must not be ignored.

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1. Prospect of oil riches speeds the wheels of war, Sunday Business Post, 28 October 2001.

2. BP statistical review of world energy, June 2002.

3. Iraq’s beleaguered oil industry, BBC News Online, 23 January 2003.

4. BP statistical review of world energy, June 2002.

5. UNDP Human Development Index 2000.

6. UNDP Human Development Index 2002.