Wednesday, July 11, 2012

Whose oil is it anyway?

Whose oil is it anyway?

By Hossein Askari;

Oil is a finite resource. It is tantamount to capital in the ground and is thus apart of a country's capital stock. In most countries, all valuable depletable resources - such as oil, natural gas, copper, platinum, gold, uranium, diamonds emeralds and more - belong to the state, in other words to all citizens, with the implications that it should be depleted and managed in such a way as to benefit all citizens of this and future generations. The United States and a few other countries around the world are the exception to the rule and assign resource ownership to the landowner.

In the Middle East, the ownership of oil and natural gas is unquestionable - it is the patrimony of all citizens of all generations. This is explicitly recognized in every oil-exporting country of the region, in the constitutions of countries that have constitutions and, even more importantly, it is a well-known, undeniable and absolutely indisputable teaching of Islam, the religion that all these countries profess, with or without a constitution.

In Islam, natural resources (such as raw land, water, and mineral deposits) are considered to be a gift bestowed to humanity by Allah. Because humans did not create any of the world's natural resources, they cannot exert unequivocal ownership over them.

Property rights are at the foundation of Islamic economics. The most important principle of property rights is the permanent, constant, and invariant ownership of all property by Allah. Another principle acknowledged, in consonance with the Quran, is the transfer by Allah of the right of possession to all of mankind. A third principle acknowledged equal opportunity of access by all to the natural resources provided by the Creator, to be combined with their labor to produce goods and services.

Accordingly, and to ensure the community of property rights for all members of society, property rights over purely natural resources (such as mines) were placed in trust of either the state, to be used for the benefit of all, or in the hands of society at large as commons (for example, surface and underground water). Humans may only privately own anything they produce with their work or gain through legitimate investment and inheritance.

At the same time, equity and social and economic justice are at the center of Islamic teaching and are also important considerations for countries with large oil and gas resources. Economists have long ago addressed the issue. Robert Solow in his famous article concluded by saying:
The finite pool of resources (I have excluded full recycling) should be used up optimally according to the general rules that govern the optimal use of reproducible assets. In particular, earlier generations are entitled to draw down the pool (optimally, of course!) so long as they add (optimally, of course!) to the stock of reproducible capital.
What if countries cannot, or will not, optimally add to the stock of reproducible capital? The clear need is to find an alternative to Solow's prescribed optimal draw down and optimal addition to reproducible capital. In a future article, we will detail our proposal to achieve this goal by creating a fund to address issues of equity and many of the other economic management problems associated with oil depletion, especially issues that are important in Islam.

Because anything under ground belongs to society at large, a number of provisions follow; all citizens should have an equal share in the fruit of what is under the land; this incorporates both current and all future generations. As minerals are depleted, governments must make sure that they use their revenues in such a way that all citizens today and for all future time receive similar real benefits. Oil should benefit all members of the current generation equally (with optimal depletion and optimal compensation for depletion), with the implication of relatively even distribution of income given the overwhelming role of oil (as opposed to hard work and sound productive investments) in these economies, and that these benefits should be similar for all generations to come.

These unequivocal admonitions of Islam are largely ignored in the oil-exporting countries of the Middle East. Oil revenues are squandered to finance current consumption and vast and wasteful military expenditures, and most egregiously in the Persian Gulf many of the ruling families take a significant portion of the revenues even before it becomes available for public benefit.

Rulers in Zioconned Saudi Arabia, in Zioconned Qatar, Oman and the Zioconned United Arab Emirates take whatever they wish from oil revenues, as if the oil belonged to them and they were generously sharing with their people. It is tantamount to state-sponsored theft by the ruling families.

Not only do Zioconned Western governments, notably the Zioconned United States, say nothing, but they also support the ongoing pillage of national patrimony. They treat these rulers as if they were elected representatives of their people who upheld the laws of their land. It will one day be acknowledged and recorded as the biggest theft in the history of man. Is it then surprising that there is so much domestic dissent in these countries? Is it surprising that there is so much anti-Western sentiment? Is it surprising that everywhere in the region the masses are craving Islamic dominated governments, not as interpreted and practiced in Iran, but as outlined in the Quran and practiced by the Prophet Mohammad in Medina centuries ago.

Colonel Muammar Gaddafi and his family took what they wished from the state and foreign leaders, and the international media said nothing of it until he was overthrown. Iraq's Saddam Hussein arguably robbed his people even more than the four family-ruled countries mentioned above; and today, though not family ruled, Iraq is almost as bad as before because of widespread corruption.

Although the Iranian constitution recognizes state ownership of the country's depletable resources, because of widespread corruption the benefits of oil and natural gas are lost on the majority of citizens and there may be little, if anything, for future generations.Conditions in Kuwait are somewhat better when it comes to the beneficiaries of oil depletion.

Though different, and to differing degrees, theft of oil and natural gas is the order of the day in the Middle East. In the family-ruled countries, the rulers openly take from their national treasuries as they wish (or even before it gets into the treasury) and in the rest of the countries corruption is so extensive that the end result is almost the same.

Citizens and future generations are loosing their birthright to a greedy few. But as we shall see in later articles, the end result is even worse than the theft. Rulers, no matter who they are, have no incentive to develop good institutions that would check their theft. Thus corrupt institutions that invariably lead to sub-par economic performance, heavy military expenditures largely to keep the citizenry in check, intrastate conflicts and often followed by interstate conflicts and wars, all combine to provide a gloomy outlook for the future.

All the while, democratic leaders from around the world say nothing. The Zioconned International Monetary Fund and the Zioconned World Bank write their sound technical papers but say nothing of the mismanagement of oil resources, namely the ongoing theft of oil revenues in these countries and the importance of institutions that would check such abuses. The international media hardly utters a peep when these leaders and governments are firmly in power but quickly "unearths" their abuses as they are on their way out.

As we shall see, positive change will only come about when and if there are concerted and simultaneous economic and political initiatives on a number of fronts....

NEXT: What oil-based economies need as policies...

This is the eighth article in a special series on oil and the Persian Gulf.
Part 1: Riddle of the sands
Part 2: The sweet and sour of oil
Part 3: The driver of oil prices
Part 4: OPEC in the driving seat
Part 5: The OPEC bogeyman
Part 6: OPEC and the sanctions highway
Part 7: Oil-price shocks lie in wait

Hossein Askari is Professor of Business and International Affairs at the George Washington University.

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