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231. The Revived Bretton Woods System, Liquidity Creation, and Asset Price Bubbles

Author:
Harris Dellas and George S. Tavlas
Publication Date:
09-2011
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
In this article, we argue that the present constellation of exchange rate arrangements among the major currencies has led to the creation of excessive global liquidity, which has contributed to asset price bubbles. Although the exchange rates of many of the major currencies—including the U.S. dollar, the euro, the yen, and the pound sterling—float against each other, the currencies of many Asian emerging market economies and oil-exporting economies are pegged to the dollar. Dooley, Folkerts-Landau, and Garber (2004a) labeled this system “Bretton Woods II” (BWII). The original Bretton Woods regime (BWI) lasted for about a quarter of a century. Dooley, Folkerts-Landau, and Garber (DFG) argue that the present regime, despite its large global imbalances, will also be sustainable.
Topic:
Oil
Political Geography:
United States

232. Will Oil Drown the Arab Spring?

Author:
Michael L. Ross
Publication Date:
09-2011
Content Type:
Journal Article
Journal:
Foreign Affairs
Institution:
Council on Foreign Relations
Abstract:
Summary: No state with serious oil wealth has ever transformed into a democracy. Oil lets dictators buy off citizens, keep their finances secret, and spend wildly on arms. To prevent the “resource curse” from dashing the hopes of the Arab Spring, Washington should push for more transparent oil markets -- and curb its own oil addiction. MICHAEL L. ROSS is Professor of Political Science at the University of California, Los Angeles, and the author of the forthcoming book The Oil Curse: How Petroleum Wealth Shapes the Development of Nations. Even before this year's Arab uprisings, the Middle East was not an undifferentiated block of authoritarianism. The citizens of countries with little or no oil, such as Egypt, Jordan, Lebanon, Morocco, and Tunisia, generally had more freedom than those of countries with lots of it, such as Bahrain, Iraq, Kuwait, Libya, and Saudi Arabia. And once the tumult started, the oil-rich regimes were more effective at fending off attempts to unseat them. Indeed, the Arab Spring has seriously threatened just one oil-funded ruler -- Libya's Muammar al-Qaddafi -- and only because NATO's intervention prevented the rebels' certain defeat. Worldwide, democracy has made impressive strides over the last three decades: just 30 percent of the world's governments were democratic in 1980; about 60 percent are today. Yet almost all the democratic governments that emerged during that period were in countries with little or no oil; in fact, countries that produced less than $100 per capita of oil per year (about what Ukraine and Vietnam produce) were three times as likely to democratize as countries that produced more than that. No country with more than a fraction of the per capita oil wealth of Bahrain, Iraq, or Libya has ever successfully gone from dictatorship to democracy. Scholars have called this the oil curse, arguing that oil wealth leads to authoritarianism, economic instability, corruption, and violent conflict. Skeptics claim that the correlation between oil and repression is a coincidence. As Dick Cheney, then the CEO of Haliburton, remarked at a 1996 energy conference, "The problem is that the good Lord didn't see fit to put oil and gas reserves where there are democratic governments." But divine intervention did not cause repression in the Middle East: hydrocarbons did. There is no getting around the fact that countries in the region are less free because they produce and sell oil.
Topic:
NATO, Government, and Oil
Political Geography:
Iraq, Ukraine, Middle East, Kuwait, Libya, Vietnam, California, Saudi Arabia, Spain, Lebanon, Egypt, Jordan, Bahrain, and Tunisia

233. South Sudan: Compounding Instability in Unity State

Publication Date:
10-2011
Content Type:
Working Paper
Institution:
International Crisis Group
Abstract:
Unity state confronts a set of challenges unparalleled in South Sudan. Some exemplify concerns that register across the emerging republic; others are unique to the state. Situated abreast multiple frontiers, its political, social, economic and security dilemmas make for a perfect storm. Some have festered for years, while more recent developments—prompted by the partition of the "old" Sudan—have exacerbated instability and intensified resource pressure. Recent rebel militia activity has drawn considerable attention to the state, highlighting internal fractures and latent grievances. But the fault lines in Unity run deeper than the rebellions. A governance crisis—with a national subtext—has polarised state politics and sown seeds of discontent. Territorial disputes, cross-border tensions, economic isolation, development deficits and a still tenuous North-South relationship also fuel instability, each one compounding the next amid a rapidly evolving post-independence environment. Juba, and its international partners, must marshal attention and resources toward the fundamental sources of instability in places like Unity if the emerging Republic is to realise its full potential.
Topic:
Security, Development, Economics, and Oil
Political Geography:
Africa, United States, and Sudan

234. Oil Resources, Militancy, and the Post-Amnesty Challenges in the Niger Delta, Nigeria

Author:
J. Tochukwu Omenma
Publication Date:
10-2011
Content Type:
Journal Article
Journal:
Journal of Security Sector Management
Institution:
Centre for Security Sector Management
Abstract:
This paper argues that the exclusionary system of the indigenous people of the Niger Delta from the production and the distribution of oil resources is a factor that drives the militancy in the Niger Delta. The conceptual background to this argument is based on the analysis of the unmet demands of the Niger Delta people, which is cashed in on by the politicians and the youths to disrupt social order. The amnesty programme, as implemented by the government, is considered palliative if placed side by side with the critical demands of the oil communities. This paper identifies some technical problems of the post amnesty programme, which constitute a challenge to sustainable peace. However, the author concludes that the main sources of threat to the fragile peace in the region are the non-involvement of the oil communities in the rehabilitation process; the revenue derivation percent; and the rebellious character of Henry Oka's faction of MEND. To mitigate conflict in the long run depends on the capacity of President Jonathan Goodluck to mobilize material and human resources to improve on the lives of the Niger Delta people.
Topic:
Oil
Political Geography:
Nigeria

235. Going Global: Chinese Oil and Mining Companies and the Governance of Resource Wealth

Author:
Jill Shankleman
Publication Date:
11-2011
Content Type:
Working Paper
Institution:
The Wilson Center
Abstract:
This report is the result of a six-month research project undertaken at the Woodrow Wilson International Center for Scholars in Washington, D.C. The focus of the work is on the impact of China's oil and mining companies' recent overseas expansion on the governance of resource wealth. The paper covers four topics: The structure of the Chinese oil and mining industries, focusing on overseas operations; the emergence over the last ten years within the large-scale, OECD-based extractive industry, of a “new model” for resource extraction focusing on minimizing negative social and environmental impacts and on resource revenue transparency; the development of corporate social responsibility concepts in China, and the extent to which this is leading Chinese oil and mining companies to apply the “new model” for resource extraction, and the role of Chinese infrastructure loans to resource-rich developing countries in resource wealth governance.
Topic:
Economics, Government, Industrial Policy, and Oil
Political Geography:
China and Washington

236. China's Energy and Security Relations with Russia: Hopes, Frustrations and Uncertainties

Author:
Linda Jakobson, Paul Holtom, Dean Knox, and Jingchao Peng
Publication Date:
10-2011
Content Type:
Working Paper
Institution:
Stockholm International Peace Research Institute
Abstract:
Fifteen years have passed since China and Russia formed a 'strategic cooperative partnership' in 1996, and 2011 marks the 10th anniversary of their 2001 Treaty of Good-Neighbourliness and Friendly Cooperation. Considering the significant changes that have taken place in China and Russia over this period, it is well worth assessing the meaning of the China–Russia 'strategic partnership' and their declared 'good-neighbourly' relations.
Topic:
Arms Control and Proliferation, Energy Policy, Oil, and Bilateral Relations
Political Geography:
Russia and China

237. An Evaluation of Overseas Oil Investment Projects Under Uncertainty Using a Real Options Based Simulation Model

Author:
ZhongXiang Zhang, Lei Zhu, and Ying Fan
Publication Date:
11-2011
Content Type:
Working Paper
Institution:
East-West Center
Abstract:
This paper applies real options theory to establish an overseas oil investment evaluation model that is based on Monte Carlo simulation and is solved by the Least Squares Monte-Carlo method. To better reflect the reality of overseas oil investment, the model has incorporated not only the uncertainties of oil price and investment cost but also the uncertainties of exchange rate and investment environment. These unique features have enabled the model to be best equipped to evaluate the value of oil overseas investment projects of three oil field sizes (large, medium, small) and under different resource tax systems (royalty tax and production sharing contracts). In the empirical setting, China was selected as an investor country and Indonesia as an investee country as a case study. The results show that the investment risks and project values of small sized oil fields are more sensitive to changes in the uncertainty factors than the large and medium sized oil fields. Furthermore, among the uncertainty factors considered in the model, the investment risk of overseas oil investment may be underestimated if no consideration is given of the impacts of exchange rate and investment environment. Finally, as there is an important tradeoff between oil resource investee country and overseas oil investor, in medium and small sized oil investment negotiation the oil company should try to increase the cost oil limit in production sharing contract and avoid the term of a windfall profits tax to reduce the investment risk of overseas oil fields.
Topic:
Development, Economics, Energy Policy, International Trade and Finance, and Oil
Political Geography:
China, Indonesia, and Israel

238. Direct Redistribution, Taxation, and Accountability in Oil-Rich Economies: A Proposal

Author:
Shantayanan Devarajan, Hélène Ehrhart, Tuan Minh Le, and Gaël Raballand
Publication Date:
12-2011
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
To enhance efficiency of public spending in oil-rich economies, this paper proposes that some of the oil revenues be transferred directly to citizens, and then taxed to finance public expenditures. The argument is that spending that is financed by taxation—rather than by resource revenues accruing directly to the government—is more likely to be scrutinized by citizens and hence subject to greater efficiency. We develop the case as follows: First, we confirm that public expenditure efficiency is lower in oil-rich countries compared with other developing countries. Second, we develop a theoretical model to explain why citizens' scrutiny over public expenditure can be increased by transferring oil revenues to citizens and then taxing them. By receiving transfers and then paying taxes, citizens are better informed about the level of government revenue, and they have an incentive to ensure that their taxes are spent on public goods. Third, we show empirically that enhanced citizens' scrutiny is associated with more efficient government spending decisions and that accountability is stronger in countries that rely more on taxation to finance public spending. We conclude that, while it may be difficult to implement such a proposal in existing oil producers, there is scope for introducing it in some of Africa's new oil producers.
Topic:
Economics, International Trade and Finance, and Oil
Political Geography:
Africa

239. Saudi Arabia in the New Middle East

Author:
F. Gregory Gause III
Publication Date:
12-2011
Content Type:
Working Paper
Institution:
Council on Foreign Relations
Abstract:
There is arguably no more unlikely U.S. ally than Saudi Arabia: monarchical, deeply conservative socially, promoter of an austere and intolerant version of Islam, birthplace of Osama bin Laden and fifteen of the nineteen 9/11 hijackers. Consequently, there is no U.S. ally less well understood. Many U.S. policymakers assume that the Saudi regime is fragile, despite its remarkable record of domestic stability in the turbulent Middle East. “It is an unstable country in an unstable region,” one congressional staffer said in July 2011. Yet it is the Arab country least affected in its domestic politics by the Arab upheavals of 2011. Many who think it is unstable domestically also paradoxically attribute enormous power to it, to the extent that they depict it as leading a “counterrevolution” against those upheavals throughout the region. 2 One wonders just how “counterrevolutionary” the Saudis are when they have supported the NATO campaign against Muammar al-Qaddafi, successfully negotiated the transfer of power from Ali Abdullah Saleh in Yemen, and condemned the crackdown on protestors by Syrian president Bashar al-Assad, and how powerful they are when they could do little to help their ally Hosni Mubarak in Egypt.
Topic:
Security, Foreign Policy, Diplomacy, Economics, International Trade and Finance, Islam, Oil, and Bilateral Relations
Political Geography:
United States, Middle East, Arabia, and Saudi Arabia

240. Oil Exporters to the Euro's Rescue?

Author:
Philip K. Verleger
Publication Date:
12-2011
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
When a boat springs a leak far from shore, it is customary for all hands to man the pumps—be they friends or enemies, passengers or crew. Every individual's survival depends on the actions of his or her compatriots. So it is with the global economy today.
Topic:
Debt, Markets, Oil, International Monetary Fund, and Financial Crisis
Political Geography:
Europe