Oil discovery, shifting power, and civil conflict

A former grad student, Curtis Bell, and I just finished a paper that provides (yet another) look (in a long line of them) at the link between resources and civil war, specifically fixed assets like oil. (Click here for a draft of the paper.) The argument is fairly simple: since oil wealth can directly strengthen governments against rebel challenges and increase the value of controlling the state, then the lag time between oil discovery and oil production should provide a window of opportunity for rebels to challenge the state before it becomes so wealthy that the status quo becomes obsolete and potential rebels find themselves in an even less favorable position.

We’ve got a fairly simple model of shifting power, bargaining, and war, where we show that the promise of increased wealth—i.e. the announcement of new proved reserves—increases the chances of conflict, but only when the state isn’t already wealthy (which would mean that further increases in resources aren’t that significant). Curtis got his hands on data for proved reserves around the world from 1981-2007, so we’ve got then-publicly available information that serves as a pretty good proxy for expectations over future government strength. Thankfully, our empirics bear the predictions out: poor countries with large announced discoveries of oil are quite vulnerable to civil conflict, but there’s no discernible effect for rich countries. There’s also an advantage here in that we’ve got a more precise mechanism behind oil wealth and civil war, which allows us to say something about when poor countries are more likely to see civil conflict, increasing our ability to predict—and maybe, just maybe—prevent civil wars.

In that spirit, we also decided to run some out-of-sample predictions for the years 2009-2010 and try to gauge the effects of a 50% increase in proved oil reserves for every country in the world, and we got some intriguing results.

Probably most intriguing is that West Africa, which is seeing a boom in exploration and from which the US and the West are expecting to get more oil in the future, is particularly vulnerable to civil conflict should there be a big find in the current time frame. Southeast Africa and chunks of south Asia are also potential hot spots should oil be discovered, and we talk (albeit briefly) in the paper about how, should poor countries be promised a windfall of resource wealth, international action to ameliorate the commitment problem—either helping temporarily strength the government or somehow making future commitments credible—might have some chance to be effective and stave off civil war. Of course, managing that window of vulnerability can be difficult and long and, as a result, expensive, but we prefer to open only one can of worms at a time…

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