Karl: The Perils of the Petro-State

Karl, Terry Lynn. 1999. The Perils of the Petro-State: Reflections on the Paradox of Plenty. Journal of International Affairs 53, no. 1.

During the oil crisis of 73-4, many predicted that OPEC would become the most powerful bank in the world. Additionally, oil exporting nations were confident that their soaring revenues would provide for a type of developmental utopia, where all national needs were met and where investment in domestic production produced great wealth. The author of this article, however, wonders why oil reserves can be such a curse, and likens them to the touch of Midas. Though oil producing states are substantively diverse in terms of geography and demographics, they remain linked by their common reliance on energy exports, which creates its own unique set of problems.

These problems are quite similar, and all stem from an overreliance on one commodity for income. This produces a set of circumstances that change the incentives for quality behavior on the part of the leader. This also makes the country susceptible to shocks and gluts in the system. "In effect, rulers of oil exporters have no immediate incentives to be frugal, efficient and cautious in their policymaking, and they have no reason to decentralize power to other stakeholders" (37).

There is then a discussion of oil exporting countries' problems within the context of the Dutch Disease.

The author ends with a series of prescriptions as to what should be done to mitigate the above-stated problems.