the political economy of oil and gas in southeast asia

The Pacific Review, Vol. 23 No. 2 May 2010: 225–259

The political economy of oil and gasin Southeast Asia: heading towardsthe natural resource curse?

Benjamin K. Sovacool

Abstract The notion of the resource curse suggests that countries with large cachesof natural resources often perform worse in terms of economic growth, social devel-opment, and good governance than other countries with fewer resources. The theoryposits that countries depending on oil or other extractive industries for their liveli-hood are among the most economically troubled, socially unstable, authoritarian,and conflict-ridden in the world. This article explores whether the resource curseis occurring in relation to oil and gas production in Southeast Asia, where invest-ments in oil and gas infrastructure are expected to increase significantly. The articlebegins by conceptualizing the resource curse before explaining the factors believedto cause it. It then proposes metrics that can be used to identify the presence of theresource curse before testing these metrics on the five Southeast Asian countrieswith the largest rates of oil and gas production and reserves – Brunei, Indonesia,Malaysia, Myanmar, and Thailand – from 1987 to 2007. The article compares theperformance of these Southeast Asian countries with the five largest producers inthe Organization of Petroleum Exporting Countries as well as Brazil, China, India,the Russian Federation, and South Africa. The article concludes that the resourcecurse is not occurring in any of these countries, and that the theory may be too sim-plistic and deterministic to fully explain why some countries appear to be ‘cursed’with resources while others are ‘blessed’.

Keywords Resource curse; crude oil; natural gas; energy security.

1. Introduction

Emil Salim, the President of the Extractive Industries Review, an attemptby the World Bank to improve transparency and accountability in the

Dr Benjamin K. Sovacool is Assistant Professor at the Lee Kuan Yew School of Public Policyat the National University of Singapore. He is also a Research Fellow in the Energy Gover-nance Program at the Centre on Asia and Globalization.

Address: 469C Bukit Timah Road, Singapore, 259772. E-mail: [email protected]

The Pacific ReviewISSN 0951-2748 print/ISSN 1470-1332 online C© 2010 Taylor & Francis

http://www.informaworld.com/journalsDOI: 10.1080/09512741003624484

226 The Pacific Review

mining and energy sectors, once began a conference on governance with thefollowing statement. ‘Not only have the oil, gas, and mining industries nothelped the poorest people in developing countries, they have often madethem worse off’ (Steiner 2007: 2). Juan Pablo Perez Alfonzo, one of thefounders of the Organization of Petroleum Exporting Countries (OPEC),went even further and called oil ‘the devil’s excrement’ (Karl 2005: 21).Both statements imply that for many countries with relatively rich endow-ments of natural resources ranging from gems and copper to gas and crudeoil, those very commodities can become ‘curses’ to the government and itscitizens.

Indeed, a long line of political economists and theorists have stated dif-ferent variants of the ‘resource curse’ argument, which explains that nat-ural resource endowments can incite, prolong, and intensify governmentfailure and violent conflict. Stevens (2004) argues that large windfall rev-enues from oil or gas production can change government behavior, dam-age economic growth, and imperil development. Karl (1998, 2005) postu-lates that the consolidation and extraction of natural resources can createand solidify asymmetries in wealth that then contribute to rising incomegaps between the rich and poor, institutionalize corruption, and enable op-pressive regimes to maintain their political power. De Soysa (2000) notesthat civil strife and social instability are strongly associated with natural re-source abundance, particularly with mineral, gas, and oil exports. Silberfein(2004) states that resource based conflicts can become some of the mostintractable because participants often benefit from unstable conditions,which can facilitate access to resources, smuggling, and covert trade. Ben-eficiaries not only grow in their power but also become reluctant to ter-minate bloody conflagrations. Le Billon (2004) suggests that resources canbe used to finance conflicts (such as the civil war in Sierra Leone over di-amonds), or can be a motive for other countries to go to war (such as theIraqi invasion of Kuwait in 1990). Omorogbe (2006) expresses that a ma-jority of resource-rich countries have performed well below expectationsand capability and with little to show after decades of resource extraction.Esanov et al. (2006) comment that Azerbaijan, Kazakhstan, Turkmenistan,and Uzbekistan have performed worse than other countries in the CaspianSea and Central Asia because their energy resources have been appropri-ated by elites and stunted economic development.

For confirmation of the resource curse thesis, consider that in Saudi Ara-bia, proven crude oil reserves are the greatest in the world but per capitaincome has plunged from $28,600 in 1981 to $6,800 in 2001 (Baer 2003). InNigeria and Venezuela, also rich in crude oil and natural gas, real per capitaincome has regressed to levels of the 1960s. Algeria, Angola, the Congo,Ecuador, Gabon, Iran, Iraq, Kuwait, Libya, Qatar, and Trinidad and To-bago, countries with substantial endowments of minerals, gold, timber, anddiamonds, have seen real per capita income fall back to levels of the 1970sand 1980s as the extraction of these resources has increased. In late 1980s

B. K. Sovacool: Political economy of oil and gas in Southeast Asia 227

Afghanistan, Ahmad Shah Massoud was able to earn $50 million annuallyfor his ‘United Front’ campaign against the Russians by selling locally har-vested emeralds and lapis lazuli, and the civil wars in Zaire and the Congowere directly exacerbated by gold and diamond mining. These examples arenot anecdotal, and O’Lear (2004) has identified 10 serious civil wars andconflicts from 1990 to 1999 directly fueled by natural resources: copper fa-cilitated a secessionist revolt in Bougainville, Papa New Guinea; oil fundedfive separate civil wars in Angola, East Timor/Indonesia, the Kurkuk regionof Iraq, Southern Sudan, and the Xinjiang province of China; natural gas en-abled a conflict in Aceh, Indonesia; nickel a secessionist movement in NewCaledonia, France; gold financed a war in West Papua, Indonesia; andphosphates contributed to conflict in the Western Sahara and Morocco.Controlling for ‘structural attributes’, Humphreys et al. (2007) estimatethat resource-rich countries as a whole have shown less economic devel-opment than resource-poor countries from 1975 to 2000. Auty (2006) com-pared the economic performance of developing countries ‘rich in resources’with those ‘poor in resources’ and found that resource rich countries had amedian gross domestic product (GDP) per capita of about $200 less thanresource poor ones.

The theory of the resource curse is worrisome and alarming for South-east Asia for at least two reasons. First, resource extraction is anticipated toincrease dramatically throughout the region. Southeast Asia is where signif-icant investments in oil and natural gas are being called for to satisfy robustregional economic growth, diversify oil and gas supply outside of the Mid-dle East, and satisfy demand for imported fuel in China, Japan, and SouthKorea. Regulators have rushed to invest in oil and gas, and by 2030 some an-alysts expect that Southeast Asia will become ‘the Persian Gulf of Gas’ andbe responsible for one-quarter of the world’s gas production (Tan 2008).The International Energy Agency (2008) anticipates the need to invest tril-lions of dollars in electricity and energy supply in Southeast Asia by 2030,and the Asian Development Bank and World Bank expect to spend morethan $50 billion in infrastructure lending between 2005 and 2015 (Bapna2006).

Second, corruption and poor governance are prevalent in Southeast Asia.One World Bank survey recently detailed that large-scale infrastructureprojects in Southeast Asia, because of their capital intensive nature, practi-cally invite corruption. The survey documented that in Indonesia, a physicalaudit of roads built under the oversight of village heads uncovered missingmaterials worth 24 per cent of total expenditures; in Cambodia and Laos,up to one-third of electricity generated was stolen; and that an average firmworking in Asia expects to lose 11 per cent of its budget for infrastructureprojects on bribes (Kenny 2007).

If rapid resource extraction threatens to fundamentally alter the politicaland economic structure of exporting countries, and investments in oil andgas infrastructure will only accelerate resource depletion and increase


corruption, then it is essential to explore the dynamics of the resource cursein Southeast Asia. This article begins by conceptualizing the resource cursebefore explaining the factors believed to cause it. It then proposes metricsthat can be used to identify the presence of the resource curse beforetesting these metrics on the five Southeast Asian countries with the largestrates of oil and gas production and reserves – Brunei, Indonesia, Malaysia,Myanmar, and Thailand – from 1987 to 2007. The article then comparesthe performance of these Southeast Asian countries with the five largestproducers in the Organization of Petroleum Exporting Countries as wellas Brazil, China, India, the Russian Federation, and South Africa. Suchan investigation adds important depth to discussions of the resource cursebecause so far exemplars of scholarship have mostly ignored SoutheastAsia (with the exception of Malaysia and Indonesia) and instead focusedon Africa and the Middle East. Moreover, most debates about the resourcecurse frame it in somewhat abstract terms that make it difficult to com-prehend and even more challenging to measure. One value to this articleis that it proposes ways of defining and quantifying the presence of theresource curse (or lack of it) that may be useful to policy-makers and otherscholars studying extractive industries around the world. The article alsoprovides a way of concretely testing the validity of the resource curse asa concept 30 years after its inception for the performance of 15 countriesfrom 1987 to 2007.

2. Conceptualizing the natural resource curse

Put simply, the resource curse suggests that countries with large caches ofnatural resources often perform worse in terms of economic growth, so-cial development, and good governance than other countries with fewer re-sources (Humphreys et al. 2007). The theory posits that countries dependingon oil or other extractive industries for their livelihood are among the mosteconomically troubled, socially unstable, authoritarian, and conflict-riddenin the world (Karl 2005). These resource-rich but practically-poor countrieshave slower than average economic growth and little industrial diversifica-tion. The ‘curse’ or mismanagement of their resources expands outside theextractive industries sector and slowly degrades social welfare. Resourcecursed countries also display rising levels of poverty and inequality, de-teriorating environmental quality, institutionalized corruption, and an in-creased frequency of conflict and war (Karl 2005). Ross (1999) elaboratesthat three separate strands of the resource curse theorem exist. The ‘cog-nitive’ strand implies that windfalls from resource extraction produce my-opic disorders among policy-makers. The ‘social’ strand suggests that wind-falls empower recipients that then favor growth-stunting and self-servingpolicies. The ‘statist’ strand argues that windfalls weaken the state institu-tions necessary for long-term economic development. Many investigations


weave all three strands together. The inverse of the resource curse also ap-pears justifiable: lack of natural resources has not prevented Hong Kong,Singapore, South Korea, and Taiwan from achieving booming export in-dustries based on solid manufacturing sectors and rapid economic growth(Humphreys et al. 2007).

The problem, in essence, is that many of the most valuable resources suchas diamonds, gold, oil, and gas are worth so much money that their extrac-tion can be severely mismanaged but still create profits for companies andgovernments (Maassarani et al. 2007: 139). Resource cursed governmentstend to manage natural resources opportunistically rather than strategically.That is, government officials view them as a mechanism to create immedi-ate wealth rather than a long-term but depletable asset that should be care-fully managed over time. Resource depletion therefore tends not to servethe public interest, and instead consolidates wealth among a very narrowclass of bureaucrats and managers. Moreover, the immense value of thoseresources can mask mismanagement and inequity. As one high ranking ex-ecutive for a large transnational oil company told the author, ‘high prices[for natural resources] cover a multitude of sins.’

The easiest resources to control – the ones most germane to the resourcecurse – are ‘point’ resources, resources spatially concentrated in small ar-eas, relatively easy to monitor, and extracted through capital intensive tech-nologies. ‘Point’ resources contrast ‘diffuse’ resources, which are spatiallydistributed and therefore more ‘lootable’, exploited by less capital inten-sive measures, and more difficult to consolidate (Le Billon 2004; O’Lear2004). Point and diffuse resources can contribute to different patterns ofcapital ownership and distribution of resource benefits. While both can becorrupted, or rapidly extracted or pillaged to serve limited ends or means,point resources are more prone to the resource curse.

Because of their spatially concentrated nature, point resources are wellattuned to highly centralized control. Ruling elites can extract them by con-trolling small geographic areas, and the revenues generated by even mod-els levels of extraction can be significant. Karl (2005) argues that point re-sources are ‘easily’ the worst managed, for they can be extracted from anarrow geographic or economic base and have the strongest correlationwith poor growth. Diffuse resources such as coal, charcoal, wood, diamonds,gems, cobalt, gold, silver, sapphires, rubies, and other small, strategic, orvaluable metals are more difficult to track and govern due to their dis-tributed nature. While sapphires and rubies provided the Khmer Rouge inCambodia and Karen in Burma with significant revenues during 1990s, theirextraction could only occur by controlling vast amounts of land through al-most complete authoritarian control.

Five distinct and interrelated conditions appear to explain the struc-tural social, political, and economic factors behind the resource curse(Humphreys et al. 2007; Bapna 2006; Stiglitz 2005; Karl 2005; Stevens 2004;Sachs and Warner 1999; Karl 1998).


Figure 1 Real and nominal global crude oil prices, 1980–2009 (in US dollars perbarrel). Source: U.S. Energy Information Administration (2008a).

First, those countries most susceptible to the resource curse haveeconomies that are not diversified and remain heavily dependent on a fewextractive industries. When the price of these few commodities fluctuateswidely, the sudden price gyrations and boom and bust cycles erode bud-getary discipline, decrease expenditures for public sector investment, andcomplicate efforts at state planning. Oil prices, for example, have been in-credibly volatile from 1980 to 2008 (see Figure 1). Mikesell (1997) calcu-lated that between 1972 and 1992, regions with high primary mineral andoil exports experienced periods of trade volatility two to three times greaterthan average industrialized economies over the same period. The volatilityof any mineral commodity is exacerbated by banks and financial institu-tions. When commodity prices fall or interest rates rise, lenders are quickto call in their loans (a general maxim of bankers is that they always preferto lend to those that do not need their money). When prices fall, resource-dependent countries also need more money, but this is usually when bankswant their money back. Capital flows and the decline of oil prices, for exam-ple, tend to be pro-cyclical, worsening the fluctuations brought about by theinitial fall in the price of oil. Falling prices also tend to incentivize increasedamounts of resource production to maintain stable levels of revenue, pre-cipitating greater environmental damage, economic concentration, and de-pletion of the resource. When prices are high, leaders face expectations thatthey should increase spending, embark on capital intensive projects, and re-ward productive components of the economy with subsidies (Tsalik 2003).


Second, mineral and commodity exports can cause economic consolida-tion and the ‘Dutch disease’, or rapid inflation and increases in the exchangerate of local currency, rendering other exports less competitive (Corden andNeary 1982). (Economists and historians call this the ‘Dutch disease’ afterNorth Sea oil and gas production had rapid negative effects on the exchangerate and inflation in the Netherlands in the 1960s). In essence, the primaryresource being exported then crowds out other sectors of the economy,causing even more economic concentration. In response, regulators oftenadopt policies that protect that very sector to a greater degree, reinforcingdependence on the resource and worsening the cycle. The risk of economicconsolidation becomes greater the more valuable the natural resource, forunlike other sources of wealth and manufactured goods, lucrative mineralsneed only be extracted rather than produced to attain revenue. This creates‘enclaved’ spheres of economic activity without major linkages to other sec-tors and can take place without large-scale participation of the labor force.

Third, most extractive industries rely on sophisticated technology notowned or licensed by the host countries. Oil and gas production and mining,for instance, are very capital- and technology-intensive, meaning they cre-ate fewer jobs per dollar invested and require unique skills not well suitedfor other areas of economic activity. Resource-rich countries often sendhighly skilled labor abroad to train, and foreign workers are typically sentin to do the local extracting, minimizing the chance that exporting coun-tries will ‘learn by doing’ or own the intellectual property and technologyassociated with extraction.

Fourth, since most extractive industries and technologies are large-scale,capital intensive and foreign owned, few productive links exist between re-source extraction and the rest of the economy. Generally, the revenues flowdirectly to the government in the form of royalties, taxes, and profits. Thisconsolidates revenue among the existing political parties, worsens the gapbetween rich and poor, and also breaks the link between taxation, repre-sentation, and accountability, since most resource-rich regimes do not needto tax their own people. It also increases the changes of regulatory captureand rent seeking, since only a small number of officials need to be ‘cap-tured’ to facilitate large transfers of wealth. The concentration of wealthfrom resource revenues sometimes enables rulers to spend their money onsubsidies to friends, family, and political supporters. Karl (2000), for exam-ple, estimates that from 1974 to 2000 OPEC states spent 65 to 75 per centof their income in this manner.

Fifth and finally, large extractive projects frequently fail to benefit mi-norities and poor communities because these stakeholders have not partic-ipated in project selection and financing. The decision making processesin resource cursed countries tend to lack transparency and accountabil-ity, so vested interests determine what gets built and who benefits. Localcommunities and indigenous populations must then contend with the dam-ages from resource extraction while the political and corporate elite reap


the benefits. Moreover, when cost benefit analyses are conducted by thosein power, benefits are usually overestimated publicly while costs underes-timated. In the absence of effective oversight and regulation, companieslower their social and environmental standards to reduce costs and maxi-mize short-term returns. In the hazardous extractive industries sector, theconsequence of poor oversight can be severe and include acute and catas-trophic spills, explosions, accidents, and disasters along with chronic andgradually deleterious exposure to noxious emissions, noise, degraded habi-tat, and food and water contamination (Steiner 2007; Sovacool 2008).

Perhaps the extraction of oil and gas resources in Angola, Columbia,Nigeria, Saudi Arabia, and OPEC states as a whole bests exemplifies howthe resource curse can occur at multiple scales of governance, in many de-grees, and to a collection of different countries.

In Angola, which has extracted some of the world’s largest oil and gasreserves for 40 years, average life expectancy has plunged to 36.8 years in2006, the infant mortality rate has risen to 19 per cent, the country importsmost of its food, and almost three-quarters of the population live belowthe poverty line (Omorogbe 2006: 45). Proceeds from oil and gas produc-tion have nourished oppressive tendencies within the state. Oil revenueshave enabled elites to capture virtually all economic enterprises, and en-couraged violent contests for political power from a dissatisfied population.The United Nations has accused Angola of using state used oil revenuesto fund blood diamond operations, and the state has admitted to using oilrevenues to fund illegal cocaine operations throughout the Andean region(Auty 2004).

In Columbia, oil and gas profits have contributed to acts of terrorismand intensified military conflict. Guerilla groups reap an oil ‘war tax’ andearn $140 million per year from oil-related extortion and kidnappings. TheNational Liberation Army (ELN) and Revolutionary Armed Forces ofColumbia (FARC), the two largest rebel groups, have extracted war taxesfrom oil companies and local contractors through threatened sabotage andmurders, extortions, and bombings. When their threats have not gottenthem the leverage they desire, ELN and FARC guerillas have dynamitedstate oil and gas pipelines more than 1,000 times in 13 years, spilling 2.9 bil-lion barrels of crude oil and greatly damaging ecosystems and local waterresources. The economic losses alone from explosions on the Cano Limon-Covenas pipeline amounted to $1 billion from 1990 to 1995, or seven percent of Columbia’s entire export revenue over the same period. Paramil-itary groups have also built a cottage industry by stealing natural gas andgasoline by drilling holes in pipelines. Ecopetrol, one state oil company, es-timates they lose $5 million per month. Finally, oil and gas revenues providethe Columbian Army with significant income needed to purchase weaponsand train soldiers. A military tax of roughly $1 per barrel (or $12 to $30 mil-lion per year) allows the army to increase their troop presence and prolongtheir struggle against the rebels (Dunning and Wirpsa 2004).


In Nigeria, the thirteenth largest producer of petroleum in the world, oiland gas accounts for 80 per cent of all government revenues, 95 per centof exports, and 90 per cent of foreign exchange earnings. Oil productionhas generated billions of dollars in government revenues, but the country’saverage GDP in the past decade was less than its GDP in the 1960s andthe poverty rate increased from 27 per cent in 1980 to 70 per cent in 1999(Omorogbe 2006: 44). Rather than bringing peace and stability, oil pro-duction has exacerbated political flashpoints. A collection of smaller NigerDelta states have attempted to expand their access and control over oil andgas resources, struggling with minority groups clamoring for sovereignty.Militant youth movements have grown from the resulting insecurity andpromote intensified campaigns of interethnic violence (Watts 2004).

Saudi Arabia is heavily dependent on oil production, and derives 85 percent of its total export revenue from the oil industry, so much that everydollar increase in the price of a barrel of oil means a gain of about $3 bil-lion to the Saudi treasury. The Saudis have used their oil wealth not toimprove social welfare, however, and have instead consolidated it amonga very few number of families. Five extended families in the Middle Eastown about 60 per cent of the world’s oil, and the House of Saud controlsmore than a third of that amount. Per capita income in Saudi Arabia hasfallen significantly from 1981 to 2001, and seven out of 10 jobs in the coun-try are filled by foreigners (and close to nine out of every 10 private sectorjobs). The disparity in income between the rich and poor has generatedsignificant resentment towards the royal family, a resentment sharpenedby the belief that the Saudis have failed to protect Muslims in Palestineand elsewhere and have been corrupted by their money. Adding to the so-cial instability, Saudi Arabia has one of the highest birth rates in the world(37.25 births for every 1,000 citizens, compared to 14.5 in the United States),half the population is under 18 and another half is unemployed (Baer2003).

Finally, Karl (1998) analyzed the impact of oil production on the politicaleconomies of Venezuela, Nigeria, Mexico, Iran, Algeria, and Norway andfound that in only one, Norway, did oil extraction correlate with positive de-velopment. In each of the other OPEC countries, bottlenecks in production,declines in other economic activity (especially in the agricultural and indus-trial sectors), capital flight, double digit hyperinflation, and sudden declinesin living standards occurred. Karl hypothesizes that these countries havebecome ‘addicted’ to oil, creating lavish subsidies for oil companies andpursuing oil profits over the public good. She concludes that productionand dependence on oil has changed the entire political economy of eachcountry. The per capita GDP for all OPEC members from 1965 to 1998,for instance, decreased by an average of 1.3 per cent each year whereas percapita GDP for all other developing countries that did not rely on oil ex-ports as a whole grew by an average of 2.2 per cent over the same period(Karl 2005: 23).


While these examples may be convincing, the resource curse is by nomeans inevitable. Australia, Canada, Chile, and the United States are allworld leaders in mineral economies and manufacturing and have steadilyimproved per capita gross national product and living standards (Karl2005). Sierra Leone and Botswana are both rich in diamonds, but the lat-ter has had an average growth rate of 5.2 per cent between 1974 and 2002while the former has plunged into civil war and negative growth (Stiglitz2005: 13). In 1973, Indonesia and Nigeria had comparable per capita in-comes, and both were dependent on oil revenues, but by 2002 Indonesia’sper capita income was four times that of Nigeria’s (Nigerian per capita in-come actually fell from $302.75 in 1973 to $254.26 in 2002) (Stiglitz 2005:13).

Clearly, political economy and governance play a role in how susceptiblecountries are to the resource curse. Bevan et al. (1999) explain that Indone-sia fared much better than Nigeria in developing its resources and success-fully minimized the resource curse because of three political and economicfactors. Indonesian President Sukarno’s articulation of a clear vision ofsocial cohesion and fighting poverty in the 1950s and 1960s engenderedexpectations among the Indonesian population. This created a politicalenvironment where poverty alleviation could not be ignored, yet nosuch expectations took root in Nigeria. The occurrence of hyperinflationin the 1960s also made avoiding inflation an important social issue forIndonesians but not in Nigeria, and the rapid economic growth in theAsian region precipitated greater trade and investment for Indonesia whileNigeria’s neighbors struggled economically. Moreover, the presence of fiveinterrelated factors – volatility, inflation, knowledge transfer, economicconcentration, and lack of participation – illustrate that the resource cursecannot be reduced to institutional structure, politics, distribution of naturalresources, or standards of living. A combination of each plays a role,meaning the presence of the resource curse seems to be highly contingentand contextualized (Rosser 2006).

3. Measuring the resource curse in Southeast Asia

Given its complex and contextual roots, how can the resource curse be mea-sured? And is it occurring among Southeast Asian countries that have thelargest oil and gas reserves and rates of production?

The resource curse, according to the logic presented above, is ultimatelyconnected to geologic factors such as a country’s resource endowment; po-litical factors such as transparency, participation, and corruption; economicfactors such as diversification and wealth consolidation; and social factorssuch as life expectancy and standards of living. Countries suffering fromthe resource curse would be blessed with certain mineral resources, tendto have less transparency, more corruption, a less diversified economy andmore concentration of wealth, and undergo deteriorating social indicators


Table 1 Oil reserves for Southeast Asia

CountryTotal proven reserves

(billion barrels)Per capita reserves

(barrels)

Cambodia 0 0Brunei 1.2 3209Indonesia 4.37 20Laos 0 0Malaysia 5.36 212Myanmar 0.20 4Philippines 0.14 2Singapore 0 0Thailand 0.46 7Vietnam 0.6 7Total/Average 12.33 22

Source: U.S. Energy Information Administration (2007). Per capita reserves calculated by di-viding total proven reserves by the total population listed in World Bank (2008).

including higher rates of malnutrition, child mortality, and poor educationalperformance.

In the case of Southeast Asia, the five countries with the largest endow-ment of combined oil and natural gas reserves (both per capita reserves andabsolute reserves) and production are Brunei, Indonesia, Malaysia, Myan-mar, and Thailand (see Tables 1 and 2). Thirteen metrics can be used todetermine the extent that these countries’ resources have ‘cursed’ themby measuring three political dimensions (transparency, authorized levelsof oil and gas production), six economic dimensions (composition of ex-ports, composition of GDP, government revenues, per capita income, ratesof poverty, and rates of inflation), and four social dimensions (education,infant mortality, food security, and life expectancy) (see Table 3). For thesecountries to be suffering from the resource curse, we would expect trans-parency to decrease and corruption to increase from 1987 to 2007. Theamount of oil and gas as a percentage of exports would also increase, alongwith overall oil and gas production (which would be harvested at faster ratesto increase royalties, taxes, and profits). Oil and gas would be anticipated tocontribute to more GDP as economic activity becomes concentrated, gov-ernment revenues from the oil and gas sector would increase along withinflation and poverty, and per capita income would decrease. Finally, wewould predict that social indicators such as literacy and life expectancywould deteriorate, while infant mortality and undernourishment would rise.

Contrary to what the resource curse posits, none of the five countries ex-amined exhibited deteriorating trends in most of these metrics. While nat-ural gas and crude production did increase for all five countries, crude oilproduction remained almost flat in Brunei and exports actually remained


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Figure 2 Bruneian natural gas and crude oil production and exports,1980/1992–2007.

roughly constant or fell from 1987 to 2007 for Indonesia and Thailand (seeFigures 2–6). The 13 metrics, furthermore, quite clearly show that most po-litical, economic, and social indicators improved for all five countries overthe same period (see Table 4). While Myanmar performed the worst of allfive countries analyzed, for it was most reliant on oil and gas revenues andthe least diversified, even it displayed improvements in education, life ex-pectancy, and per capita GDP. When given a score for how well the groupof five Southeast Asian countries performed according to each metric, witha −1 indicating a deteriorating metric and a +1 signifying an improvement,they collectively showed progress in 47 indicators and regressed in only 17(data for two metrics did not exist).

However, the resource curse is not only about whether resource-richcountries will perform poorly in absolute terms, but also how well they do


Figure 3 Indonesian natural gas and crude oil production and exports, 1980/1990–2005/2007.

compared to other countries, both ‘resource rich’ and ‘average’. To typify‘resource rich’ countries, Table 5 presents data relating to the same politi-cal, economic, and social metrics for the five largest oil producers of OPEC:Saudi Arabia, Iran, Venezuela, Kuwait, and United Arab Emirates from1987 to 2007. These five countries produced about 70 per cent of OPEC’sdaily output of crude oil in 2007, and they also represented 43 per cent ofthe world’s total daily output. To exemplify ‘average’ developing countries,Table 6 presents equivalent data for five countries that are still ‘developing’but also relatively industrialized: Brazil, China, India, Russia, and SouthAfrica. These countries are often grouped together as ‘newly industrializ-ing’ and framed as definitively ‘developing’ (Bozyk 2006).

Interestingly, relying on the same scoring technique, the five OPEC coun-tries as a whole progressed in 43 metrics and regressed in 17 (data for


Figure 4 Malaysian natural gas and crude oil production and exports, 1980/1990–2005/2007.

five metrics was not available), and the group of developing countries pro-gressed in 56 metrics and regressed in only nine (see Figures 7 and 8). Whenmetrics are compared between groups of countries, a few trends emerge:

• In terms of transparency and political openness, Southeast Asian coun-tries performed better than both OPEC countries and developing coun-tries, scoring the highest average as a group on Transparency Interna-tional’s corruptions perception index;

• Southeast Asian average production of crude oil remained relativelyflat (slightly less than 420,000 barrels per day in both 1987 and 1997)compared to massive increases in production among OPEC members(a jump of more than 1.7 million barrels per day over the same pe-riod), yet natural gas production remained comparable to OPEC’s (off


Figure 5 Myanmari natural gas and crude oil production and exports, 1980/1992–2005/2007.

by only about 200 billion cubic feet per day for two decades) and bothwere dwarfed by production from the developing countries, mostly dueto Russia, which produced more natural gas than the OPEC and South-east Asian countries combined;

• A significant amount of GDP and government revenues among South-east Asian countries came from the oil and gas sectors, making themsimilar to OPEC countries (both sets of countries average more thanone-quarter of GDP and revenues from oil and gas) but unlike the de-veloping countries (which received less than 10 per cent);

• The most remarkable gains in gross national product (GNP) per capita,fighting poverty, and keeping annual interest rates low occurred in theOPEC countries, which saw incomes rise over the period by $8,844


Figure 6 Thai natural gas and crude oil production and exports, 1980/1990–2005/2007.

compared to $3,660 for Southeast Asian countries and only $2,746 forthe developing countries;

• All three groups of countries made progress on social indicators butthe developing countries had higher rates of child mortality (one-thirdhigher than the combined rates for Southeast Asia and OPEC) andlower life expectancy (9 per cent lower).

While this type of scoring is admittedly crude, it suggests that SoutheastAsian countries performed slightly better than the OPEC countries butslightly worse than the developing countries in the metrics related to theresource curse, although each group of countries made significant stridestowards improving various political, economic, and social metrics.

244 The Pacific ReviewT

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B. K. Sovacool: Political economy of oil and gas in Southeast Asia 249V

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Figure 7 Performance evaluation of average resource curse metrics for SoutheastAsian, OPEC, and developing countries.Notes: SEA = Brunei, Burma, Indonesia, Malaysia and Thailand; OPEC = SaudiArabia, Iran, Venezuela, Kuwait and UAE; DEV = Brazil, China, India, Russiaand South Africa.

4. Explaining Southeast Asian performance

The factors underpinning the success of the key Southeast Asian coun-tries do imply that certain social and political variables shape economicdevelopment and welfare outcomes. With this in mind, the following sectionsuggests that three factors, some unique to Southeast Asia, may explain whythey have avoided the resource curse so far: diffusion of resources, politicalinstitutions, and cooperative production.

First, point resources such as oil fields tend to be easily dominated byoligarchs and elites, but in Southeast Asia oil and gas reserves are morediffused over a broader geographic area than in other regions. Indonesia’soil and gas fields, for example, are spread across Riau province in CentralSumatra, the Java Sea, parts of the western Pacific Ocean, East Kalimantan,and Natuna, reserves that occupy more than 433,000 square kilometers ofonshore and offshore land. Other oil and gas fields, like those in the Gulf ofThailand, are jointly extracted by Malaysia and Thailand. The exceptions


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are obviously Brunei and Myanmar, two countries within Southeast Asiathat performed worse according to the resource curse metrics.

Second, political institutions and the openness of the political system canplay a determining factor in whether the benefits from natural resourcesare equitably distributed. Bulte et al. (2005) and Ross (1999) have notedthat political regimes that enforce property rights and exhibit a predictablejudicial system tend to avoid the resource curse. Sandbu (2006) theorizesthat a strong system of taxation can improve natural resource management,and Andersen and Aslaksen (2008) think that resource abundance is lessdamaging in parliamentary democracies. Robinson et al. (2006) hypothe-size that the overall impact of resource booms depends critically on thepresence of political institutions that are accountable, rational, and merito-cratic. The major oil and gas producing Southeast Asian countries, with theexception of Myanmar, are all relatively democratic and transparent, haverobust property rights, and respect rule of law, with moderate to strongcivil society groups and informed constituents. While certainly not uniform,these countries also all tended to focus intently on import substitution, in-dustrialization, economic diversification, and social betterment in the 1980sand 1990s.

Third, in their investigation of the resource curse Mehlum et al. (2006a,2006b) identify ‘producer friendly’ countries where rent-seeking occurs butis complementary to resource production, and ‘grabber friendly’ countrieswhere rent-seeking competes with production. Producer friendly nationsare those where governments enroll entrepreneurs and private actors intothe production process; grabber friendly ones are those that try to excludethem and keep resources to themselves, resulting in specialization but alsoconcentration, corruption, and personal enrichment. The presence of co-operative production, where extraction of a resource is a partnership, en-sures that revenues are distributed to a greater number of actors. Foreignmultinational firms can also serve as buffers against export instability (Ross1999).

Southeast Asian countries, even Myanmar, adhere to a model of co-operative oil and gas production. Rather than resist industrialization andcooperation with international firms, these countries have formed activepartnerships with major oil and gas companies to assist with exploration,production, and distribution. The single largest producer of oil in Indone-sia, for example, is not the state-owned energy company Pertamina but themultinational Chevron, followed by the corporations of British Petroleum,ConocoPhillips, ExxonMobil, and Total. The China National Offshore OilCorporation and PetroChina have strong roles in Indonesia, and American,Chinese, French, Indian, South Korea, and Vietnamese firms own substan-tial amounts of oil and natural gas in Myanmar. Indeed, as of early 2009, atleast 10 multinational companies and more than 70 subsidiaries were oper-ating in each of the five Southeast Asian countries selected here, implying


that each has attuned their oil and gas sectors to a cooperative rather thancompetitive or ‘grabber friendly’ model.

Clearly, the presence of diffuse resources, strong political institutions,and complementary production may be insufficient alone to militate againstthe resource curse, and a more comprehensive theoretical justification be-hind why Southeast Asian countries appear to have avoided it would makefor enticing research. It should be emphasized that the explanation pre-sented here is a preliminary one, in need of refinement and further scrutiny.Research exploring why the five OPEC countries selected for comparisonappear to be improving in their resource curse metrics would also make forfruitful scholarship.

5. Conclusion

First, the prevalence of the resource curse can be reasonably reduced to anumber of measurable factors. Countries suffering from the resource cursedisplay higher rates and levels of corruption, resource extraction, economicconcentration, government dependency, inflation, poverty, infant mortal-ity, and undernourishment; and exhibit lower rates of transparency andaccountability, per capita income, literacy, and life expectancy over time.Understood in this context, the resource curse serves as a useful frameworkfor highlighting how a relative abundance of natural resources is insufficientalone to promote economic development and explains why many resource-rich countries such as Algeria, Angola, the Congo, Columbia, Ecuador,Gabon, Iran, Iraq, Kuwait, Libya, Mexico, Nigeria, Qatar, Saudi Arabia,Sierra Leone, Trinidad and Tobago, and Venezuela have performed poorlyat various points in time.

Second, however, the resource curse does not account for the eco-nomic success of Australia, Botswana, Canada, Chile, Hong Kong, Norway,Singapore, South Korea, Taiwan, and the United States, countries that haveharnessed natural resources to improve economic diversification, raise stan-dards of living, and increase economic growth. The resource curse, further-more, does not match the political, economic, and social reality in the fiveSoutheast Asian countries with the highest rates of oil and gas extractionand production. The resource curse is too crude and deterministic a methodto adequately explain the political economy of oil and gas production inBrunei, Indonesia, Malaysia, Myanmar, and Thailand from 1987 to 2007.In each of these countries, including Myanmar, economies have becomemore diversified, per capita incomes have risen, and life expectancies andliving standards improved. Political transparency and accountability haveremained constant in Indonesia, Malaysia, and Thailand, and oil and gashave contributed less to government revenues over time in Indonesia andThailand. When compared to the performance of five OPEC countries(Saudi Arabia, Iran, Venezuela, Kuwait, and United Arab Emirates) and


a set of five developing countries (Brazil, China, India, the Russian Fed-eration, and South Africa), Southeast Asian countries have tended to per-form slightly better than OPEC but worse than the developing countries,although each group of countries has made remarkable progress at improv-ing political, economic, and social indicators. Ultimately, the situation infive Southeast Asian countries, five OPEC countries, and five developingcountries suggests that extractive resources themselves are neither a cursenor a blessing.

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