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Issue Report

Collection of full-length papers and in-depth analysis of economic and management issues.

The New Resource Nationalism and Oil Security

The New Resource Nationalism and Oil Security

LIM Soo-Ho

Aug. 23, 2011

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Originally released on July 7, 2011

"Resource nationalism" refers to the expansion of government intervention in the use of natural resources, as well as the "weaponization" of natural resources to accomplish political aims. Resource nationalism experienced its first peak in the 1960s and 70s, before nearly dying out after neoliberal reforms in the 1990s. Today however, roaring demand for oil in emerging markets has put resource nationalism back on the map.

The resource nationalism of the twentieth century was characterized by a heavy ideological orientation intent on overthrowing the "old order" and establishing a new one. Twenty first century resource nationalism in all its varieties, however, is more intent on reaping immediate national gains rather than changing the world. The "revolutionary resource nationalism" of countries like Venezuela, for example, despite renationalizing oil production, has shown distinctly pragmatic tendencies. The "legacy resource nationalism" of oil producers that had previously banned foreign investment outright, has in turn shifted to allowing limited foreign investment to increase production. Although there are signs of cartels emerging between nationally owned oil companies, there are also simultaneous moves towards expanded cooperation between nationally owned oil companies and international oil firms, with little of the conflict between the "global north" and the "global south" that characterized resource nationalism in previous times. There has also been relatively little potential thus far for oil producing nations to engage in weaponization of their oil resources.

Is there then, any cause for concern regarding the new resource nationalism? In fact, concerns are genuine. The reality is that the world has entered a new era of persistent high oil prices. According to the IMF, the world began facing long term high oil prices from the beginning of the 2000s. This indicates that oil prices are reflecting a fundamental disparity between slow growing supplies and rapidly growing demand. Oil prices will thus remain high over the long term, regardless of temporary fluctuations caused by speculation, changes in the economy, or sociopolitical instability. The IEA moreover, has stated that high oil prices will not only continue, but will rise even more.

High oil prices are both expanding and encouraging resource nationalism, while resource nationalism in turn is pushing up oil prices. This is because producing nations have restricted price elasticity for production, investment and consumption. The potential is thus high for a feedback loop to develop between higher oil prices and resource nationalism. If this happens, the latent resource nationalism that has been dormant since the twentieth century may return to cause lasting disruptions to the global economy. Responses to resource nationalism thus must be devised from a long term perspective.

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