Johnny West is a man of many talents. An expert on oil, civil society, and governance in the Middle East who works as an advisor to the UNDP, he is fluent in Arabic, spent more than two decades in the Middle East as a journalist for Reuters, and has just published a highly readable book recounting his journey through the Arab Spring. On this week’s Wonkcast, we catch him between his travels to discuss a new working paper he’s written for CGD: Iraq’s Last Window: Diffusing the Risks of a Petro State. Johnny’s experience in the Middle East makes him think that the region just might be ripe for an Oil 2 Cash revolution that could help foster improvements in governance and reduce poverty.
He tells me that on a recent trip to Libya, while bouncing across the country on half-built dirt roads in the back of a pickup, he reflected on some startling calculations about the country’s oil industry. During the 42 years of Gaddafi rule, the dictator accumulated over $1 trillion in oil rents. At the same time, much of the country remains poor and a startling number of Libyans can neither read nor write.
This is the resource curse, the paradox that nations that have abundant natural resources often wind up with the worst governments and the poorest people. Johnny is a one of a growing number of Middle East experts who are intrigued by the idea that the oil curse could be turned into a blessing through the simple mechanism of distributing some or all of the revenue directly to citizens, then taxing back a portion of it. In Iraq’s case, the timing could be right because revenues are expected to increase dramatically in the years ahead.
“They currently produce 2.5 million barrels a day,” says Johnny. “They could easily go to 5 or even 8 to 10 based on geological assets they have. That means $2,000 in cash transfers per person per year by 2015 given expected increases in production.”
And the benefits from handing over resource wealth directly to the people in the form of cash transfers go beyond poverty reduction. Drawing on previous CGD research, Johnny argues that the dividends would help shore up the government’s legitimacy, strengthen civil society and citizen engagement, and potentially unify the country’s disparate ethnic and religious groups.
But making cash transfers work requires different strategies for different countries and the ability to identify windows of opportunity, since governments and leaders are typically loath to relinquish control over lucrative resource rents. “When we think we’re early in the curve in a country beginning to produce oil, we’re actually late in the curve,” says Johnny. That’s because most governments begin spending their expected oil revenue well before the oil is pumped from the ground.
The idea of oil to cash is not new. Nancy Birdsall and Arvind Subramanian, among others, suggested direct distribution of oil revenues soon after the overthrow of Saddam Hussein. This time, however, the politics may be right.
“There is a rising degree of interest within the Arab world in general,” says Johnny. “The Arab Spring has encouraged more thinking about public policy and there’s more recognition that we need to improve on poor policies to get better outcomes from oil wealth.” Also working in favor this time: recent advances in biometric technology and ubiquitous mobile phones.
Listen to the Wonkcast to learn more. If you have iTunes, you can subscribe to get new episodes delivered straight to your computer every week.My thanks to Will McKitterick for his production assistance on the Wonkcast recording and for assistance in drafting this blog post.