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Tue September 6, 2011
How To Avoid The Oil Curse
One of the biggest problems any new government in Libya will face is something that doesn't seem like a problem: The massive amount of oil wealth the country possesses
Economists call it the natural-resource curse. Resource-rich countries often end up being ruled by dictators and autocrats. And the massive amount of money that floods into a country after oil discovery often has the perverse effect of putting existing industries out of business.
It's a curse that just a couple of countries have managed to avoid. The country that's managed it best, most people say, is Norway — a feat due in large part to the work of an Iraqi geologist named Farouk Al-Kasim.
In the 1960's Al-Kasim and his wife, who is Norwegian, decided to move to Norway. Their son had cerebral palsy and needed medical care.
Job-wise, Norway seemed like the worst place in the world for an oil guy.
"The National Geological Survey had already said that there is no hope in heaven of ever finding oil or gas," Al-Kasim says. He figured, worst case scenario, he'd drive a taxi.
But even though Norway's geologists had said there wasn't oil, companies were still looking for it. And so the Norwegian government hired Al-Kasim to review the reports the companies were sending in of their explorations.
What he saw was surprising.
"Remember, the country was saying there is no way there's oil out there," Al-Kasim recalls. "And here I am looking at data that says that they've already found it, four times over."
The finds still weren't big enough to justify a big commercial investment. But a year later, the Ekofisk oil field was discovered.
It was a massive find. Norway was officially rich with oil — and at risk of falling victim to the natural-resource curse.
Al-Kasim and a colleague wrote a series of proposals that found their way into a government plan that most people credit with saving Norway from the oil curse.
One radical solution aimed at preventing the oil money from destroying Norway's existing industries: Limit the amount of money the country made from oil in the short term. Don't drill everything at once.
"It was received with skepticism by the industry, who wanted Norway to go full-speed ahead," Al-Kasim said.
Despite the industry pushback, Norway handed out just a couple drilling permits a year.
In an even more stunning act of self-restraint, the Norwegians decided not to spend most of the oil money. Instead, they put it in an oil trust fund that's now worth hundreds of billions of dollars. The government only spends the interest that the fund generates.
Perhaps most shocking: Norwegian politicians have largely agreed to leave the principal untouched.
"The Norwegian miracle is that ... all the parties in parliament agreed on a policy, and they agreed among themselves that they will never use oil policy as a subject during elections," Al-Kasim says.
So, that's Norway's secret: At every step of the way, do the opposite of basic human nature.
Tell powerful oil companies, you can't get the oil right away. Tell taxpayers, you won't get the money from the oil right away. And tell campaigning politicians, you know that half a trillion dollars we have just sitting there in our oil fund? You're not allowed to talk about it.
Al-Kasim says he worries that Libya, like most countries, will find it difficult to emulate Norway's success. His main piece of advice for them: "For God's sake, don't go very quickly."