How does the presence of oil resources in developing countries present a paradox?
On the one hand, oil and gas discoveries make the eradication of poverty and the development of strong economies a possibility. On the other hand, the "curse of oil" is evident in many oil-rich countries worldwide, with oil-producing states showing a high incidence of corruption and violent conflict, and low scores in education and health services and economic strength.
What are the links between oil and conflict in oil producing areas?
There are two principle links between oil and conflict in producing areas.
- The first and most important derives from competition for, and misuse of the income that oil production generates for the governments of oil rich states. Consider how competition between elites for control of this wealth was a key factor in the continuation of Angola's civil war long after the independence struggle and Cold War proxy conflicts were over. Also, oil wealth can mightily exacerbate secession tensions between oil-rich areas and the rest of the country. This was an important factor in Sudan's civil war, so much so that to make the 2005 north-south peace agreement, it was necessary to split oil revenues between the two sides.
- The second linkage between oil and conflict lies in the local tensions caused by the presence of the oil and gas industry in places where most people are poor, without the institutions and rights to protect them selves from pollution and land seizure, and unable to benefit from the industry's presence, because they lack education, skills and capital.
How can oil companies affect positive change?
Oil companies could contribute more to reducing conflict risks associated with their operations using four principal steps.
- Facilitate effective revenue management in the countries where they operate.
- Apply high standards of environmental, social, and human rights management to its operations in order to avoid creating grievances.
- Focus more social investment on employment creation to counteract grievances over the small number of jobs that oil exploration and production create.
- Ally with local governments and donor organizations to recast their investments as local economic development projects. This would mean aiming from the start to achieve the dual objectives of commercial success and being a catalyst for economic and social development, thus going beyond the "do no harm" philosophy to be a deliberate agent of transformative change.
Why should oil companies play a role in conflict resolution?
The business logic for oil company engagement in conflict prevention is twofold. Conflict in producing countries puts investments at risk, so it is worthwhile for businesses to undertake actions that mitigate this risk. Also, companies are under pressure from NGOs, socially responsible investment houses, and sometimes from consumers, employees, and shareholders, to demonstrate their social responsibility.
What factors limit the extent that business can reduce conflict?
Several factors limit the extent that oil companies can reduce conflict.
--Businesses and managers leading operations in any given country, have different levels of awareness of the risks that their operations might exacerbate conflict. A greater level of awareness exists in those companies that have been "hit," that is, where operations had to be stopped because employees or facilities couldn't be protected, as Chevron experienced in Sudan in the 1980s.
--Companies risk losing concessions if they are perceived as hostile to government or as breaching contractual terms.
- The "Insulation Effect"
--Case studies show that the industry is largely insulated from civil war, especially if operations are offshore, and that companies may not need to respond at all. Thus Angola's government secured large-scale oil investment while civil war was raging over much of the country.
How can oil companies mitigate the risks of the "resource curse?"
The solutions lie in establishing "democratic, consensual and transparent processes...to ensure that the fruits of a countries wealth are equitably and well spent." The solutions require two conditions:
- Transparency in all aspects of dealing with revenue; and
- Economic measures to control the use of revenue and insulate the nonoil economy from "Dutch disease" (whereby currency appreciation resulting form an influx of oil revenues makes the nonoil economy less competitive, leading to a decline in output and employment). There is also a need for mutually agreed-upon rules of revenue allocation, especially for oil-producing areas--an issue that is so politically charged that it has been neglected by policymakers and scholars.
What are the key components of corporate social responsibility (CSR) in the oil industry?
Social responsibility approaches found in the oil industry have three substantive components.
- Creating systems to avoid creating negative social impacts while contributing positively to the communities and societies where they operate. This involves doing impact assessments of new projects, consulting with neighboring communities and NGOs in order to understand what the unintended impacts of investment might be and how these can be avoided and financing community projects chosen to reflect community needs and priorities.
- Getting involved in "trisectoral" partnerships, made up of companies, governments, and NGOs, to develop and implement voluntary systems that address specific issues.
- Becoming explicitly involved, as a matter of enlightened self-interest in collaborating with governments, businesses and NGOs in activities aimed at preventing the "curse of oil" and ensuring that oil booms result in economic and social development.