Sunday, March 24, 2013


I recently watched the movie Argo, and it reminded me of how bad things can go with negative US-interference. I am not sure how long it will ever take for Iran (as if it were one person) to forget and forgive what the US did over the years in its country. If you remember a large reason why the US leaders did not like the 1951-1953 government of Iran is because the democratically elected Prime Minister Dr. Mohammad Mosaddegh nationalized Iranian oil.

And that reminds me of Venezuela.

On the 5th of March, Hugo Chavez, president of Venezuela died from cancer. One thing I will always remember him for is nationalizing his country’s oil. Instead of talking about his life as a whole, I wanted to talk about what nationalization means a bit. Western (US and UK) opponents of the nationalization of oil will tell you that the reason they don’t want the oil nationalized is because it is communist or socialist and bad for the people of the country. I want to address that.

I believe the reason Western leaders don’t like it when other countries nationalize their oil is that it is bad for Western multi-national companies that profit in innumerable or corrupt ways that usually never end up benefiting the people of the country like it should. I’ve studied the various ways in which an oil company goes in and either prospects, discovers, and captures oil and other non-renewable resources as well as the ways the host country sells those rights and what it does with the money. There tends to be immorality and a lack of ethics on both sides (leaders of the host country and businesses seeking the rights). But do not ever let anyone tell you that nationalizing oil automatically spells doom.

It is true that generally, governments are not good at running resource extraction businesses whether they be petroleum, uranium, gold, silver, etc. Professor Paul Collier in Plundered Planet points to Indonesia’s oil company and Zambia’s copper company, both failures. But some have done it and done it well. The shining example in the world is Norway. Norway used to be the poorer country in Scandinavia and was a colony of Denmark and then united under Sweden. It had long been in the shadow of a much more powerful Sweden. Leaders in Norway saw oil as a chance to “catch up” in the region. After oil was discovered, Norway created a government-owned oil company that managed petroleum exploitation. Over time, the government built up the expertise in extracting petroleum from the North Sea, which eliminates the usual asymmetric information problem when an oil company (which knows much more) is bargaining with a government (which has oil in its land or seas but knows little about the costs or time required for prospecting, extracting, or pricing).

People will of course say that Norway is not a “developing” country so it doesn’t count. But Malaysia is a perfect example of a country, which nationalized oil when it was still a low-income country. Its national company now competes well with private companies around the world, and today Malaysia is often pointed to as a model growing middle-income country.

So let me say that is possible to be a poorer country, discover a valuable resource in your land or seas, create a state-owned company, and use it to bring back more profit to your people and raise the standard of living of people. It’s possible. It’s hard to do, but it’s possible.

To do it, Dr. Collier says you need honest leaders who are filled with a sense of purpose, like the Norwegian leaders who wanted to catch up. In Malaysia, it was the same. The minority Chinese ethnic group in Malaysia was much richer than the majority Bumiputra ethnic group, and Malaysia didn’t have many friendly country neighbours. For the people who ran the national oil company (most Bumiputra) oil was an opportunity, again, to “catch up.”

So if you have the proper climate and honest leaders united by a sense of purpose with a greater incentive to benefit the country rather than themselves, go for it. Be a revolutionary, nationalize your oil. Try to increase the well being of your country.

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