Let Turkey and Kurdistan Get Closer

Massimo Morelli and Costantino Pischedda in The National Interest: Iraqi prime minister Nouri al-Maliki’s scheduled visit to the White House tomorrow has brought Iraq and its relations with the United States into the limelight. Much of theattention has focused on mounting Sunni resentment towards Iraq’s Shiite-led government, the spillover from the Syrian civil war across the border and the surge of attacks perpetrated by the al-Qaeda-affiliated Islamic State of Iraq and Syria (ISIS).Analysts have rightly pointed out the need for reinvigorated US efforts to persuade Maliki to reverse his long-standing exclusion of the country’s Sunni minority and concentration of power in his own hands. However, the ongoing policy debate overlooks the opportunities associated with recent developments in Iraq’s Kurdistan region. These opportunities are real and the Obama administration should capitalize on them...

Oil Security, China, and Taiwan

Council on Foreign Relations: In Oil Security and Conventional War, published today by CFR’s Program on Energy Security and Climate Change, Rosemary Kelanic models the fuel requirements in the case of an air war between Taiwan and China (the United States remains on the sideline in this scenario). Fuel could become a significant constraint on both parties, larger than is commonly expected...

Uganda risks 'resource curse' unless it tackles graft

Reuters: Uganda risks falling victim to a "resource curse" when it launches commercial oil production because its government lacks the political will to fight corruption, Human Rights Watch said on Monday. A growing abundance of mineral wealth has often led to more unstable government and falling living standards in countries that lacked the strong state institutions and rule of law to stop a small elite grabbing that wealth for themselves. With Uganda aiming to sell its oil by 2016 at the earliest, critics of President Yoweri Museveni say he has created a culture of impunity for cronies who steal public money...

Climate change: The Science May Be Settled, But the Economics Isn’t

Freakonomics: ... With human culpability all but certain and the potential for warming by 4.5°C in 100 years, economists can’t decide what should be done about it, or even whether any substantial effort should be undertaken to stop it. In delivering a keynote address to a large group of economists this summer, Harvard’s Marty Weitzman described climate change as a hellish problem that is pushing the bounds of economics. A year earlier, addressing an annual meeting of environmental economists, MIT professor Robert Pindyck suggested there was no strong economic argument for costly, stringent policies to halt expected warming. In contrast to the near certainty of climate science predictions, Pindyck said the economics of climate change is not well charted and that the case for aggressive climate policy relies on assumptions not supported by consensus. Pindyck and Weitzman aren’t “denialists” and they do favor some kind of policy response, as does the veteran economic advisor to Republican Presidents and aspirants, Greg Mankiw, a Harvard colleague of Weitzman who has repeatedly taken to the pages of The New York Times to advocate a carbon tax. But with a humility not common in the profession, economists acknowledge that the cost of even 5°C warming over 100 years is uncertain, and, as Pindyck says, perhaps unknowable for the foreseeable future...

The effects of terrorism and war on the oil prices - stock indices relationship

Energy economics: The effects war and terrorism have on the covariance between oil prices and the indices of four major stock markets - the American S&P500 and the European DAX, CAC40 and FTSE100 - using non-linear BEKK-GARCH type models are investigated. The findings indicate that the covariance between stock and oil returns is affected by war. A tentative explanation is that the two wars examined here, predispose investors and market agents for more profound and longer lasting effects on global markets. On the other hand, terrorist incidents that are one-off unanticipated security shocks, only the co-movement between CAC40, DAX and oil returns is affected and no significant impact is observed in the relationship between the S&P500, FTSE100 and oil returns. This difference in the reaction may tentatively be interpreted as indicating that the latter are more efficient in absorbing the impact of terrorist attacks.

Brazil’s oil auction

The Economist: A single bid for a vast field shows the weakness of Brazil’s state-led approach to developing its oil reserves.

Pungești-Chevron case. Behind the scenes of a huge scandal

PressEurop: Pungești, a poor town in Vaslui county in eastern Romania, has become the centre of the Romanian revolt against shale gas. Since October 14, locals have been protesting against an exploration project that was to be conducted by Chevron. On October 17, the American company announced that it would temporarily postpone the start of work.

The farmers in Pungești “do not want American prosperity, because their livelihood is dependent on agriculture, and their water would be poisoned,” explains România liberă. However, according to the daily, the protests have been orchestrated by the Orthodox Church, which is attempting to recover land that it had handed over to the American company — an allegation denied by the priests...

Making Earth's Riches Work for Poor and Fragile Countries

World Bank Event: At least 80 percent of countries considered fragile or affected by conflict are home to valuable extractive resources that the global economy hungers for. Earth’s riches like oil, gas, and minerals often fuel conflict, trapping all but the elites in poverty amid vast wealth.

Creating good governance, including citizen participation and ensuring that economic dividends translate into equitable development is key to managing the extractives industry, especially in situations where there is conflict. A high-level panel of industry experts and representatives from CSOs and resource rich nations will grapple with the challenges that define poverty or prosperity in a fragile country.

Are product spreads useful for forecasting the price of oil?

VoxEU: Recent work on forecasting oil prices raises the question of whether oil industry analysts know something about forecasting the price of oil that academic economists have missed. This column presents evidence that they do, but economists know how to improve further on these practitioners’ insights.

How the 1973 Oil Embargo Saved the Planet

Michael Ross in Foreign Affairs: Forty years ago this week, six Persian Gulf oil producers voted to raise their benchmark oil price by 70 percent. Over the next two months, the Arab members of the Organization of the Petroleum Exporting Countries (OPEC) cut production and stopped oil shipments to the United States and other countries that were backing Israel in the Yom Kippur War. By the time the embargo was lifted in March 1974, oil prices had stabilized at around $12 a barrel -- almost four times the pre-crisis price. In 1973, that oil shock looked like a triumph for OPEC and a calamity for the rest of the world. The OPEC states enjoyed enormous windfalls and new geopolitical influence, whereas the United States and other oil importers were hit by unprecedented fuel costs and painful recessions.

But over the last four decades, those fortunes have reversed: higher oil prices in the OPEC states have led to spiraling corruption, stagnation, and political repression. In the rest of the world, expensive oil triggered a surge of investment in alternative energy and drastic improvements in energy efficiency. The 1973 oil shock holds an even greater irony. The panic that it induced brought sweeping changes to global energy policies in the 1970s and 1980s in preparation for the imminent depletion of global oil and gas reserves, which turned out to be illusory. The effort to avoid that imaginary crisis helped the non-OPEC countries cope with a real one, leading to energy conservation and investment policies that fortuitously brought about enormous reductions in global carbon emissions. The OPEC members that created the oil crisis inadvertently gave the rest of the world a life-saving head start in the struggle to avoid, or at least mitigate, the threat of catastrophic climate change.

Institutional analysis and the “resource curse” in developing countries

Energy Policy: The present article examines the recent advances reported in the literature regarding the mechanisms underlying the “resource curse” in developing countries. By analyzing the Rule of Law Index, we investigated how the institutions responsible for allocating hydrocarbon royalties can help minimize the effects of the resource curse. We used a qualitative methodology based on case studies. The results show that evidence of legal violations on the part of these institutions and the lack of tools in resource-rich developing countries to uphold basic social and economic rights are associated with the resource curse. Our findings suggest that strengthening the institutions, closer monitoring of oil revenue allocations, and public participation can help to alleviate the resource curse.

World Bank, IMF Leaders Make Economic Case for Climate Action

World Bank: In a panel discussion on climate change, the heads of the World Bank Group and the International Monetary Fund said their institutions will offer the financial support and knowledge to put emerging economies on a green growth path. Panelists from India, Philippines, Peru, and Zambia stressed that there is no one-size-fits-all when it comes to tackling climate change. World Bank's vice president for sustainable development, Rachel Kyte, said that in addition to local adaptation programs, the Bank is also looking closely at mitigation of greenhouse gas emissions...

Why Energy Boomtowns Are a Nightmare for Law Enforcement

The Atlantic: In 2005, the Williston Police Department in Williston, North Dakota, received 3,796 calls for service. By 2009, the number of yearly calls had almost doubled, to 6,089. In 2011, the most recent year for which data is available, the Williston P.D. received 15,954 calls for service. Williston is in the Bakken region of North Dakota, whose oil and gas reserves have attracted thousands of out-of-state oil workers. And Williston hasn't even seen the worst of it. The police department in nearby Watford City received 41 service calls in 2006. In 2011 they received 3,938. That's life in an energy boomtown.

Time-Varying Effects of Oil Supply Shocks on the US Economy

AEJ Macro: Using time-varying BVARs, we find a substantial decline in the shortrun price elasticity of oil demand since the mid-1980s. This finding helps explain why an oil production shortfall of the same magnitude is associated with a stronger response of oil prices and more severe macroeconomic consequences over time, while a similar oil price increase is associated with smaller output effects. Oil supply shocks also account for a smaller fraction of real oil price variability in more recent periods, in contrast to oil demand shocks. The overall effects of oil supply disruptions on the US economy have, however, been modest.

Political foundations of the resource curse: a simplification and a comment

JDE: In this note we show how a considerably simpler model than the one in our original JDE 2006 paper generates all the same results. We also acknowledge an error in the specification of a utility function in our previous paper.

Fracking gave me gonorrhea

Vice: While critics accuse frackers of fouling air, drinking water, and farmland with swamp gas and carcinogens; prostitution, methamphetamine, and sexual crime have stalked drilling operations... “ There's like 80 guys for every woman,” said an industry veteran who has watched a rising sprawl of trailer parks, dive bars, and strip clubs consume the North Dakota prairie in recent years...

What shall we do with the bad dictator?

VoxEU (by Tim Willems et al.): The establishment of the International Criminal Court has increased the commitment of the international community to prosecute malevolent dictators. This column argues that such commitment creates perverse incentives that can provoke dictators to intensify violence in order to ‘blackmail’ international leaders into accepting a peace more favourable to the dictator.

Investor–State Disputes When Can Governments Break Contracts?

Journal of Conflict Resolution: Since 1990, governments around the developing world have broken contracts made with multinational corporations (MNCs), but the incidence of breach varies across countries and over time. I argue that shared firm nationality is a key determinant of contract sanctity. MNCs are likely to divert investments or exit in response to breach with a firm of the same nationality but unlikely to react in ways costly to the host government otherwise. At the level of the economy as a whole, host governments gain permissive space to trade-off among national groups of investors when a greater diversity of foreign direct investment nationalities is present. I use national-, firm-, and dyadic-level data from 1990 to 2008 to demonstrate nationality-tied firm responses to breach. Counterintuitively, deeper integration with more nationally diverse MNCs enables more breach, as governments gain space to prioritize other goals over the property and preferences of foreign capital.

Democracy and Reforms: Evidence from a New Dataset

AEJ Macro: Empirical evidence on the relationship between democracy and economic reforms is limited to few reforms, countries, and years. This paper studies the effect of democracy on the adoption of economic reforms using a new dataset on reforms in the financial, capital and banking sectors, product markets, agriculture, and trade for 150 countries over the period 1960-2004. Democracy has a positive and significant impact on the adoption of economic reforms, but there is scarce evidence that economic reforms foster democracy. Our results are robust to the inclusion of a large variety of controls and estimation strategies.

Mining and development

U of Ottawa paper: This research paper explores ways in which developed mining countries can contribute to sustainable mining development of less developed resource-rich countries. A descriptive study is made of Canada’s and Australia’s development initiatives in the countries where their mining companies operate. To do this, the paper constructs a framework of Sustainable Mining Development (SMD) against which the two country initiatives are measured.

This study suggests that while Australia’ Mining for Development initiative has chosen to put a bigger emphasis on working directly with other governments to support the development of host countries’ mining sector, Canada’ Building the Canadian Advantage initiative has chosen to work more closely with Canadian mining companies and NGOs.

Overall, both initiatives described in this study address certain challenges identified in the literature (section 1) and they are also aligned with the principles that define SMD. However their actions risk being too weak to have a significant impact in host countries and there are certain aspects of SMD that are ignored. While progressive capacity building of host countries’ mining industries has been expansively addressed by the Australian government (and to a limited extent by the Canadian government), there are many other challenges faced by developing mining countries that could be better addressed by both initiatives such as: promoting more revenue transparency and accountability in the industry, supporting host countries’ understanding of the costs and benefits of mining activities and, assisting in the development of mechanisms that ensure thorough compliance of mining regulations and monitoring of commitments and activities by foreign mining companies.

The Challenges of Electoral Competition in an Oil Rich State

The Monkey Cage: Due in large part to the continuing oil boom, Azerbaijan has accumulated a great deal of wealth in the last decade. The government’s annual earnings from petroleum exports varied between $15 and $20 billion in recent years. The assets of the state oil fund are now $34 billion. The influx of petrodollars stimulated voracious and visible government expenditure in a short period of time. The ruling family greatly benefits from this wealth personally and politically, as it has created both a patronage system to maintain loyalty as well as given the regime the resources to easily preempt any opposition... President Aliyev is likely to win [the forthcoming election] by a big margin, subject to electoral manipulation. But a 95% win would be too obvious and thus risky. Look for another high 80s. Less than 80% would make it appear as if Aliyev is less popular than in the 2008 election when he received nearly 90%.

Monetary compensations in climate policy through the lens of a general equilibrium assessment: The case of oil-exporting countries

Energy Policy: This paper investigates the compensations that major oil producers have claimed for since the Kyoto Protocol in order to alleviate the adverse impacts of climate policy on their economies. The amount of these adverse impacts is assessed through a general equilibrium model which endogenizes both the reduction of oil exportation revenues under international climate policy and the macroeconomic effect of carbon pricing on Middle-East's economy. We show that compensating the drop of exportation revenues does not offset GDP and welfare losses because of the time profile of the general equilibrium effects. When considering instead compensation based on GDP losses, the effectiveness of monetary transfers proves to be drastically limited by general equilibrium effects in opened economies. The main channels of this efficiency gap are investigated and its magnitude proves to be conditional upon strategic and policy choices of the Middle-East. This leads us to suggest that other means than direct monetary compensating transfers should be discussed to engage the Middle-East in climate policies.

Why Hasn’t Botswana Diversified out of Diamonds?

Why Nations Fail: Everyone agrees that Botswana has much better institutions than pretty much anywhere else in sub-Saharan Africa. A decade ago we argued in a joint paper with Simon Johnson that these institutions are the reason why Botswana has succeeded economically while most around it have failed.
Yet despite this and the fact that diamonds are running it out, it has struggled to diversify out of diamonds, and it also has very high levels of inequality. There has not been a resource curse in terms of economic growth, but the economy has not diversified out of diamonds and into more modern sectors either.
Why not if its institutions are good?

Efficiency and Equity Implications of Oil Windfalls in Brazil

Word Bank WP: Large oil reserves off the coast of Brazil may substantially increase the country’s oil revenue in the future. A natural resource “curse” could be the consequence if an appropriate share of the oil revenue is not invested. This issue is addressed in this paper for Brazil both theoretically and empirically by focusing on (i) the efficient allocation of oil revenue between investment and consumption; and (ii) because it may be efficient to consume a certain share of the oil revenue, the distributional implications across generations of higher public consumption. The main finding is that, if the Pre-Salt oil revenue brings the aggregate oil revenue in Brazil above 10 percent of gross domestic product, there will be scope for consuming a certain share of it while still maintaining efficiency. But unless oil revenue reaches 10 percent or more of gross domestic product, then all of it should be invested in order for the economy to approach the efficient investment level. If oil revenue as a share of gross domestic product was 10 percent, then the achievable growth in gross domestic product could reach 9.0 percent. The distributional implications are positive for all generations, but vary across generations depending on how much of the oil revenue is invested. As a result, transfer policies could be adjusted to ensure equality in its distribution.

Fracking taxes may be used to pay for cut in energy bills

The Telegraph: With 40 new fracking sites due to be set up in the next two years, ministers want to use the tax revenue from operators to reduce bills for hard-pressed households...

Are models that show the economic effects of climate change useless?

The Economist: 

The question is whether it is nevertheless useful to have some guide to the future cost of climate change, however inexact. Mr Pindyck’s answer is radical: forget the models. He calls them “close to useless as tools for policy analysis…their use suggests a level of knowledge and precision that is simply illusory.”

Lord Stern is a little more hopeful. He points out that scientists are producing a new generation of climate models and urges economists to do the same. But to work, he says they require sweeping changes to incorporate the idea that global warming can damage capital stock, productivity and growth. They would also, he says, need low or even negative discount rates, to reflect the possibility that future generations will be worse off than the current one. That is controversial: the use of a low discount rate in the “Stern review”, the 2007 study that used some of the models he now complains of, was heavily criticised. But as John Maynard Keynes is supposed to have said, it is better to be roughly right than precisely wrong—or not to make any estimate at all.

The global resource market and volatility

New working paper: In this paper, we focus on the role of the global resource market in a dynamic model that incorporates a renewable resource sector. In particular, we show that resource-abundant countries become more volatile when the resource sector has access to the global market. By contrast, if the resource sector does not have access to its market, volatility is greatly reduced. To confirm that our main finding is robust, we incorporate into our basic framework endogenous labor-leisure choice and investment in the natural resource.

An oil refinery in Nigeria

The Africa Brief: Africa’s richest man, Alhaji Aliko Dangote, has plans to build West Africa’s largest oil refinery and petrochemical and fertilizer plants. The proposed industrial complex is expected to produce 400,000 barrels of oil per day, 2.8 million tonnes of fertilizer per year and polypropylene, a plastic polymer used in many industrial products... Although Nigeria is Africa’s top crude oil producer, the country is heavily reliant on fuel imports for 70% of its domestic needs. According to Bloomberg, Nigeria’s four refineries, which are in a state of disrepair, produce only 445,000 barrels of oil per day...

Abandoning Fossil Fuel: How fast and how much?

OxCarre WP: Climate change must deal with two market failures, global warming and learning by doing in
renewable use. The social optimum requires an aggressive renewables subsidy in the near term and a gradually rising carbon tax which falls in long run. As a result, more renewables are used relative to fossil fuel, there is an intermediate phase of simultaneous use, the carbonfree era is brought forward, more fossil fuel is locked up and global warming is lower. The optimal carbon tax is not a fixed proportion of world GDP. The climate externality is more severe than the learning by doing one.

The New Climate Economics

Project Syndicate: In recent years, a series of extreme weather events – including Hurricane Sandy in New York and New Jersey, floods in China, and droughts in the American Midwest, Russia, and many developing countries – have caused immense damage. Last week, Mexico experienced simultaneous hurricanes in the Pacific and in the Gulf of Mexico that devastated towns and cities in their path. Climate change will be a major driver of such events, and we risk much worse.

This puts a new debate center stage: how to reconcile increased action to reduce greenhouse gas emissions with strong economic growth.

Politicized implementation of U.S. oil import quotas, 1959-1973

Knowledge Problem: The oil import quota system in place from 1959 to 1973 restricted imports to an amount equal to the difference between the federal government’s estimate of domestic oil demand and the estimate of domestic oil supply. But, of course, nothing in industry-protection policy can be easy, so the policy contained a number of adjustments and exclusions. Chief among exclusion was the “overland exemption” for imports from Canada and Mexico. Hilarity ensues...

Nigeria's looted oil

• BBC: The proceeds from stolen Nigerian crude oil sold each year on international markets are being laundered in world financial centres, a new report says.
• LLoyd's list:  ILLEGAL ship-to ship oil transfers and bunkering in Nigerian waters should make shipping “hang its head in shame”, an expert told an audience at a seminar for the London International Shipping Week.

Natural resources, physical capital and institutions: Evidence from Eurasia

World Bank WP: Natural resource abundance can lead to strong economic growth if resource rents are well invested in physical assets and other forms of productive capital. This paper focuses on the case of the resource-abundant economies in Eurasia, which has been less documented in the literature on natural resource-led development than other parts of the world. The analysis shows that the stock of productive physical assets is relatively low, contrary to common perceptions about the Soviet system. The infrastructure that was inherited from the Soviet system primarily serves to meet basic human needs; few assets support the development of competitive and sustainable economies. At a deeper level, the paper documents that low accumulation of physical capital over the past two decades has been driven by weak institutions and economic policies associated with the presence of resource rents, along with a poor public investment management process. This paper complements existing empirical studies by presenting evidence on the mechanisms through which natural resources and physical capital have interacted in setting Eurasian economies on a fragile development path.