When governments impose economic nationalist policies to enhance local profits from resource industries they are implementing a strategy called ‘resource nationalism’. This is rationalised by the concept that laissez-faire policies are not developing natural resources to an extent that offers maximum benefits. Host states and governments should utilise their resources to improve specific national goals (Mares, 2010; Stevens et al. 2013, cited by Wilson, 2015). This essay will explore resource nationalism as a cyclical phenomenon. Meaning it will examine its reoccurrence. There is a current global resource boom which is part of the ambiguity of resource nationalism. Although resource nationalism is not a new phenomenon, the global resource boom has recently seen a clear comeback in resource nationalism (Joffe et al., 2009) which makes the triggers interesting to analyse.
According to the ‘market cycle theory’ resource nationalism is mainly connected to boom-bust cycle of world resource markets (Wilson, 1987), many triggers for resource nationalism are described as economic causes. However in this essay I would like to argue that the reoccurrence of resource nationalism is ambiguous and the political context behind resource nationalism is also very important. Resource nationalism is a cyclical phenomenon but is not triggered the same way throughout history and it will not in the future. The different causes and appearances of resource nationalism make it possible for it to reoccur. In the next chapter the different ways in which resource nationalism reoccurs will be explored to demonstrate the cyclical nature of the phenomenon.
To do so, this essay will first explain the terminology and the history of the phenomenon. Secondly, the economic triggers for resource nationalism will be discussed along with theoretical models from literature. After that this essay will move on to deeper dimensions and more influences around the phenomenon including politics, state rentier-ism and international oil companies versus national oil companies. Furthermore this essay will also attempt to explore future ideas that could arise amongst resource nationalism.
The strategy of states that are nationalising their resources is according to Wilson (2015) characterised by some main policies. These policies entail “targeting the ownership of resource industries, which mandate some form of local or state ownership, or in exceptional cases, the nationalisation of mining and energy enterprises,” (Mares, 2010, cited by Wilson, 2015).
States taking control of their resources can have economic benefits like subsidising energy to local consumers, national economical growth, rents for public purposes, changes to resource taxation and fiscal collection systems that “increase the share of the profits from resource production accruing to the state” (Walde, 2008 cited by Wilson 2015).” National oil companies are broadly
defined as companies that are owned, run by a national government, directly or indirectly (Kuzemko et al., 2016).
Before resource nationalism occurred for the first time in history, the energy order was internationally dominated by a cartel of Anglo Saxon companies, called the Seven Sisters (De Graaff, 2012). This cartel was mainly characterised by the controlled oil pricing. But this all changed in the period between the mid. 1950’s up to the 1970’s when the oil sector took a very different turn (De Graaff, 2012). Middle-Eastern and European producer states founded organisations to also represent their energy interests. Many resource-holding states outside of the West nationalised their industries, got rid of the foreign oil companies and went to renegotiate terms of contracts. Resource nationalism hereby caused the demise of the oil cartel the Seven Sisters. In the 1960’s this resulted into the formation of the Organisation of the Petroleum Exporting Countries (OPEC) and this led to non-Western oil producing states to increase control over volumes and prices of oil (De Graaff, 2012 and Kuzemko et al., 2016).
Economic triggers for resource nationalism
According to De Graaff (2012) the rise of resource nationalism is mostly described as forces of supply and demand which impacts the price of oil. An important component to resource nationalism is a strong negotiation position for states against firms. The negotiation position changes according to a number of factors and usually are not permanent. In the next passage the economic triggers will be covered more elaborately.
Market cycle model
According to the ‘market cycle model’ resource nationalism is linked with the boom-bust cycle of world resource markets (Wilson, 1987). According to this theory the world market cycle determines the outcome of state-firm bargaining in the oil industry. During periods when oil prices are high, governments have an advantage in bargaining. But in times of recessions with low oil prices, that power will not be with governments, but with firms who can then “successfully push states to adopt liberal energy policies,” for example by threatening to withhold investment (Wilson, 2015).
Low oil prices impacts states in such way that they have less ground to negotiate. Resource nationalism is viewed by the market cycle model as a cyclical phenomenon, which will rise during booms before subsiding and decrease during recessions (Joffe et al., 2009). The Market Cycle Model is widely used to understand contemporary patterns of resource nationalism. Scholars have extended the market cycle model theory beyond the oil industry, to account for state interventions across a wide range of mining and energy sectors (Lee, Preston, Kooroshy, Bailey, & Lahn, 2012 cited by Wilson, 2015). According to Vivoda (2009) this also corresponds with Wilson’s model of the politics of the world oil market, the petri-political cycle. The petri-political cycle model states that the likelihood and direction of market politicisation are a direct function of the boom-bust phase of that particular market (Vivoda, 2009).
Obsolescing bargaining model
Another approach, also described by Wilson, is the obsolescing bargaining model that was first developed by Vernon (1971) and Mikesell (1971). This theory also includes that state-firm bargaining leads to resource nationalism, but here it defines the ‘maturity’ of the nation and its resource industry as key to the bargaining position. In the obsolescing bargaining model it is determined that resource projects in an early stage will have to negotiate with the firms who will
have the upper hand. These young developed resource projects have a lot of uncertainty and capital mobility, that causes young industries the need to offer more attractive conditions in order to entice investors. However when there is no pressing need for investments, states have more ground in negotiations. Obsolescing bargaining models were mainly used to account for mining nationalisations by third world governments in the 1970’s (Bergsten, Moran and Horst, 1978, cited by Wilson 2015). The obsolescing bargaining model was originally used to explain the widespread nationalisation (Vivoda, 2009). The pitfall of companies doing business with young industry firms is when investments are complete there is a possibility of creating ‘sunk assets’. When uncertainty for instance reduces mining and energy projects which firms can not relocate (Wilson, 2015). The obsolescing bargaining model concludes that the key driver of resource nationalism depends on the industrial maturity of resource industries.
The economy can steer resource nationalism with commodity prices as well. When commodity prices are high, there is more leverage for resource-rich nations to negotiate simply because their assets are worth more. But the moment of leverage is not consistent since the prices are not consistent (Bremmer and Johnston, 2009). For example, the current wave of resource nationalism is empowered by the relative absence of similar oil prospects available at a comparable cost, but this dynamic is limited to oil. While the peak-oil worries of firms are driving growing industries, there is motivation to accept tougher terms from host governments. However the same cannot be said for other resource dynamics such as copper, uranium, natural gas or gold (Bremmer and Johnston).
Neo-liberalism and resource nationalism
Global capitalism also creates a context for economic and social organisation of production and formation of oil prices which is important to analyse (De Graaff, 2012). Back in the 1960’s the global geopolitical order was structured by the Cold War which prevented Soviet resources from entering the international oil market. The large global demand for oil, which was partly due to the Cold War, resulted in a tight oil market. The first wave of resource nationalism, as described above, was also a revolt against and for liberation of Western dominance by the Middle-East (De Graaff, 2012). In this case it was mainly the revolt against European powers, especially when the Middle- East oil producers were becoming independent states, post-colonialism empowered their state- owned national oil companies. They were however still dependent on technology and capital which they did not posses yet and was only available through international oil companies (De Graaff, 2012). Many national oil companies began to outsource crucial exploration functions to oil service providers. The oil service market grew dramatically and their role became increasingly dominant which gradually extended their global research. This is also a factor that helped to develop the power of the national oil companies in stead of the international oil companies. International oil companies became more obsolete as the national oil companies could now depend on energy service companies to provide them technological knowledge and management expertise (De Graaff, 2012).
This resulted in the fact that national oil companies aren’t just growing on their own but are also merging with private service companies. According to De Graaff (2012) this can best be described as “a hybridisation of relations between the major players in the global sector”. The resurgence of resource nationalism and the challenge to neoliberal foundations of the global order since 1997
has been characterised by the trend of transnationalism (De Graaff, 2012). This significantly altered the structure of the global oil sector. In Kazakhstan for example this era can be described as predominant for oil majors such as ChevronTexaco, ENI, Exxonmobil, Shell, BP and BG. They translate into a number of product sharing agreements that were set up (Kalyuzhnova and Nygaard, 2008). In this case it’s oil majors that set up a contract with Kazakhstan that would state that the oil is owned by the government but the foreign oil company will operate at its own risk and expense and receives a specified share of production as a reward.
Resource Nationalism and politics
But resource nationalism is not merely economics, it is more complex than that. Adding another aspect of resource nationalism, Wilson (2015) states the political context that surrounds resource policy, to the focus of interest. “The role of political factors, such as domestic political systems, regime type or governments’ policy objectives, is not systematically explored.” However there is literature that does cover some examples. We can identify a few different types of resource nationalism where political context is involved.
One form political resource nationalism can take is that of revolutionary resource nationalism (Bremmer and Johnston, 2009). Revolutionary resource nationalism is much less frequent than economic resource nationalism. But there are a couple examples that show how revolutionary resource nationalism is linked to broader political and social upheaval (Bremmer and Johnston, 2009).
One example is Russia after the Soviet Union collapsed in the 1990’s. First Russia privatised its resource industry. It was only when Putin came to power and he was smart to recognise that the goals and interests of international oil companies were not coherent with those of Russia. So he decided to close the door to major international oil companies and nationalise Russia’s resources (Vivoda, 2009). The energy police changed course to neutralise opposition in the political regime (Wilson, 2015 and Bremmer Johnston, 2009). Energy nationalisation had granted the Russian government control of resource rents to boost financial resources and rapid expansion of social welfare programmes, which made Putin and his regime popular (Kononczuk, 2012).
Another example of this took place in Venezuela. Resource nationalism became an important feature for the “Bolivarian Revolution”, where it was used to shift political and economic power under the Chavez presidency (Bremmer and Johnston, 2009). Chavez has eliminated generous terms with international oil companies producing in ‘Venezuela’s Orinoco Tar Sands’ where one percent royalties were paid. The heavy-oil projects had fallen under state control which increased regulation (Vivoda, 2009).
Even unstable political regimes are using resource nationalism to attempt to consolidate power, as seen in Guinea (Wilson, 2015). In 2008, Guinea experienced a coup that has put in the current Conde government into power during a “widespread ethnic violence” (Carvalho, 2011, cited by Wilson. 2015), and the new regime almost immediately released a review of the nation’s existing mining concessions and started nationalisation its resources.
Resource nationalism is also connected to rentier political structure. A rentier state is according to Shambayati (1994) defined as “any state that receives a substantial portion of its income in the form of external rents.” In rentier states governments will execute direct ownership of resources to control the societal distributions of rents and keep the political position of ruling elites in place (Wilson, 2015). An example of this are the six members of the Gulf Cooperation Council: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and United Arab Emirates. They are responsible for one fifth of the world oil production and one tenth of the world gas production. Almost 50% of the GDP of these members is accounted for by the energy sector (Wilson, 2015).
International trade in oil and gas is also subject to tight governmental export controls, which is put in place to facilitate their participation in the OPEC oil cartel, especially during the late 1960’s. The operations of private energy firms are heavily restricted, making the Golf Cooperation Council arguably the most nationalistic resource producers of the world today (Wilson, 2015). All of its members are monarchies, which are structurally dependent on oil revenues for both economic survival and societal legitimacy in their countries by distributing rents to social groups and then in turn the royal family receives support. In the 1970’s after their independence of the European colonial powers, the nationalisation of their oil industries was mainly a state-building exercise (Wilson, 2015). This was important to provide financial resources to public institutions including military, health, education and welfare services which were financed by resource rents (Wilson, 2015). Through the state ownership of resource production this also provided the governments the ability to manage the energy production and the rate in which this took place (Commins, 2012, cited by Wilson, 2015).
International versus national
As resource nationalism is occurring, national oil companies are arguably getting stronger. Simultaneously this means that international oil companies, who throughout history also held strong positions, are losing power. This happens as a cyclical phenomenon through several decades. In periods like the 1970’s and the early 1980’s, there was a high degree of disharmony between actors with incompatible interests and host states and national oil companies were dominant (Vivoda, 2009). This was mainly caused by international oil companies making deals with oil exporting countries, such as production sharing agreements, that were not strategic.
However due to the ever changing environment of these phenomena this period was followed up to the 1990’s by a cooperative era, due to relatively harmonious relationships and compatible interests between actors and the international oil industry. In this period the International oil companies were powerful (Vivoda, 2009). This had something to do with the oil price drop in 1986 and the prices remained low until years after. It was therefore beneficial for states to privatise their oil industries. Another way to deal with low oil prices was for national oil companies to redefine their role by turning the state-owned companies and to make the government control less direct (van der Linde 2000: 7-8, cited by Vivoda, 2009). The 1990’s experienced a major boost in privatisation of national oil companies when centrally planned economies commenced a process of transition towards a market economy (Vivoda, 2009). “Most Organisation of European Cooperation and Development (OECD) governments increased oil taxation and, thus, captured an increasing share of economic rent, which was diverted primarily away from product governments”. According to Vivoda (2009), the factors that had the most influence on the balance of power in the oil industry
after the late 1980’s were the low oil prices and therefore the host countries in need of foreign investors, the lack of competition from other companies such as national oil companies, and international oil companies were able to use alternative investment options. Moving along this timeline to the present the demise of international oil companies has been boosting national oil companies. The main reason for this has been the high price of oil. During periods of high oil prices, governments will alter their contracts to external outsourcing and their oil taxation (Vivoda, 2009).
A critical note on the competition between international oil companies and national oil companies can be made according to De Graaff (2012). She argues that there actually is a gap in research because there are no studies on the relations between national oil companies and international oil companies. Resource. nationalism and thereby the growth of national oil companies are also a result of global expansion and dependencies on private energy companies. The two groups are often put against each other and the power one side loses and one side gains is always analysed. But we can also look at shared properties and interdependencies of these actors which will tell us more about their dynamics (De Graaff 2012). For example, the global expansion of major non- Western national oil companies is a result of their integration in the global oil sector and their increased cooperation between state owned and private energy companies.
Having established the impact of resource nationalism on international oil companies is a big challenge for the international industry (Vivoda, 2009). It has become increasingly difficult for international oil companies to find ways to reinvest their profits. And it will be more and more difficult to provide a value proposition of natural resource owners unless technological knowledge is required. The next time oil prices will drop another major merging amongst international oil companies and the disappearance of international oil companies is expected (Stevens, 2008, cited by Vivoda, 2009). The trend of internationalising national oil companies are still states as threatening for major international oil companies. According to Vivoda (2009) one option to make the international oil companies more competitive would be to include the home governments and to try to transform themselves into hybrids. This would be particularly entering in the United States and the United Kingdom. The idea of western oil-importing governments to nationalise departments of their international oil company has been considered before. The United States actually came close to founding its national oil company during the second World War to ensure access to foreign oil reserves, especially in Saudi Arabia, by having a direct ownership of oil majors. The idea of a national oil company by the United States has also been discussed recently although it’s according to Vivoda (2009) very radical and unlikely. The advantages would be that United States would be able to respond more directly to energy policy, improving energy security and home government support. This idea is only making its comeback since the international oil companies are losing their bargaining advantage, which would make this more likely to happen.
Finally, for major oil companies there is yet one other strategy: renewable energy (Vivoda, 2009). Major international oil companies have been investing billions in other energy sources such as gas, hydrogen, biofuels, wind and solar energy. According to Vivoda (2009) these investments illustrate the desperation of this situation. The costly investments are made upon the assumption that oil prices will not drop in the future. The recent drop in oil prices however has already had a bad
impact on the prospects of these investments. As Vivoda (2009) states, the new projects are already likely to blunder.
As mentioned before we cannot just examine the economics behind resource nationalism. As mentioned above the political context is just as important. An example of this is the current situation in Mexico where the price of gasoline was raised by 20% to cover shortfalls of the federal budget. This is particularly not taken well by the public as it has affected them directly. The President, Enrique Peña Niece promoted a reform to decline oil output by allowing foreign participation and promised Mexicans would pay less for energy (Agren, 2017). This case of nationalised energy will likely not be solved politically nor economically.
This essay has discussed Resource Nationalism as a cyclical phenomenon. Resource nationalism is when resource-rich states nationalise their resources to improve national goals. The argument of this essay was to show that resource nationalism does not only occur on economic terms. Examples like the market cycle theory, the obsolescing theory, the commodity prices and neoliberalism its influence on resource nationalism has shown some impact on resource nationalism. However it is worth bringing resource nationalism to another level and to study the political context of this happening. There were examples of political resource nationalism that was revolutionary and based on political popularity. Also historically and maybe in the future we can identify other cases of political resource nationalism in rentier states. It shows in this essay that economics and politics are intertwined in the cycle of resource nationalism. The other major resource nationalism discussion that is still happening today is the power struggle between international oil companies and national oil companies. Currently we can identify the national oil companies gaining a lot of power as international oil companies and their services become obsolete due to energy service companies. A critical note has however been made that there is a lack of study of the relations between national and international oil companies. Future perspectives on resource nationalism do however include the major challenge of international oil companies. A way for them to avoid a disappearance is to merge with home governments, for example the United States and the United Kingdom. It’s unlikely to happen, but there are advantages to hybrid of national and international oil companies.
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