Russian Oil Sector & "Dutch Disease"

Abundance of natural resources might appear to be inherently beneficial to an economy that has access to them. Primary resources are one of the basic forms of capital (Gylfason, 2001), so low-cost access to them would seem to give an economy not only lower internal costs, but an inherent competitive advantage over other economies. Experience, however, shows that the opposite is often the case. Spain in the 16th century had access to vast quantities of gold and silver from the Americas, but far from booming the Spanish economy went into long-term decline (Benjamin, Devarajan, and Weiner, 1989).

Modern experience has reinforced this old lesson. Resource-poor economies such as Japan are often much more successful than those of more richly-endowed countries such as Brazil. This is so much the case that economists have even spoken of a "resource curse" (Usui, 1997, pp. 151-52):

The richer the natural resource endowment, then, first, the longer lax macro economic policies are tolerated; second, the less pressure to achieve rapid industrial maturation; third, the longer rent-seeking groups are tolerated (and the more entrenched they become); and fourth, the greater the likelihood of decelerating and more erratic economic growth (Usui, 1997, p. 152).

The negative effects of natural bounty have been felt in developed economies as well as Third World economies. In the early 1970s, the Netherlands -- a highly industrial

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on world oil markets. The leadership of OPEC underestimated the rate of Russian oil-industry recovery, and thus found itself at risk of being caught short by non-member Russia's actions in its own efforts to control world oil supplies (Whalen, Herrick, and Bahree, 2001). Accentuating the problem, from OPEC's point of view, is that several other major oil exporters, such as Mexico, made it clear that they would not reduce their own oil exports by a greater margin than Russia did. In the event, OPEC was "saved" in late 2001 by a Russian decision to impose a modest, short-term reduction in its oil exports. In fact, the degree of reduction was no more than the typical seasonal Russian export cut as heating-oil stocks are built up for the Russian winter. However, it was just barely enough for the OPEC ministers to declare that an agreement had been reached (Whalen, Herrick, and Bahree, 2001). Nevertheless, the 2001 experience indicated the degree to which Russia has "arrived" as a major oil-exporting nation, whose actions and prospects must be considered by OPEC, other oil exporters, and the oil-importing nations. Another dimension of the Russian oil industry is indicated by the headaches that US policymakers have encounter
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Approximate Word count = 2606
Approximate Pages = 10 (250 words per page)