Venezuela in Crisis: What Does the West’s Waning Opposition to the Current Regime Mean for the Future of the Country?

Introduction 

Venezuela is a country full of striking natural beauty and one of Latin America's most urbanized places. It is the birthplace of Simon Bolivar, contains the Los Roques Archipelago, and is famous for its Pan de Jamon (bread filled with ham and olives) and Hallacas (corn or cassava dough stuffed with meat, olives, raisins, onion, and more.). However, in recent years, Venezuela has been plagued with social, political, and economic strife. 7 million people have left Venezuela, fleeing poverty and political crisis. Many are at risk of eviction, exploitation, and are forced into debt that they could never repay. Of course, the COVID-19 pandemic made things worse, plunging Venezuelans into an even deeper economic crisis. People are forced to flee in unconventional and unsafe ways, many falling prey to smugglers, kidnappers, and traffickers. While some Venezuelans make it to the United States, many go to surrounding Latin American countries, such as Ecuador, Colombia, and Brazil. Adding to their suffering, Venezuelan refugees are stigmatized and scapegoated by the countries they flee to, with limited job opportunities and access to public services, they are often left to fend for themselves. While host communities and countries remain committed to helping the refugees, the sheer numbers mean that resources are stretched thin and finances are almost nonexistent. Understanding the present reality for many Venezuelan citizens requires examining the external factors at play.  

In this article, I explore how a country with such a rich culture and economy, due to its oil reserves, came to be in such a perilous situation politically and economically. I will also discuss how the West’s initial opposition to the current Venezuelan government is fragmenting, after many years of strong condemnation. Finally, I will discuss what is next for Venezuela and how the international community is assisting in one of the biggest humanitarian crises of the 21st century. 

How did Venezuela get here?

There are two parts to how Venezuela got into its current situation, political reasons and economic reasons. However, they intertwine and together they have engulfed the country in a crisis that has caused millions of people to flee. The executive powers of the president are incredibly strong and have only been strengthened in the past few decades. Since 1999, Venezuela has been run by two individuals from the same political party: Hugo Chavez and Nicolas Maduro. Chavez was a socialist president from 1999 until his death in 2013. He emphasized key elements such as nationalism, a centralized economy, and a strong military that frequently engaged in public projects. His approval rating was quite high, reaching up to 80% public support. He ran on an anti-corruption platform which made him very popular. He increased social welfare programs and redistributed the country’s oil wealth. Riding this wave of popularity, Chavez’s party gained control of key institutions, such as the judiciary, electoral council, and the Venezuelan Supreme Court. Over time, the system of checks and balances became weakened and the president’s power was often left unchecked. When Maduro was elected following Chavez’s death, global oil prices decreased. Venezuela’s economy relies heavily on oil, which led the country into a 7-year recession. Basic goods were scarce and inflation skyrocketed. It was clear that Maduro was not as beloved by the public as Chavez was because there were many anti-government protests between 2014-2017. It did not help that Maduro ordered a brutal police crackdown on the protestors. During this time, many Venezuelans left the country to escape the economic repression and political crisis. 

Everything came to a head in the 2018 presidential election. Despite public discontent with Maduro, he was reelected president. This election was dismissed by citizens as neither free nor fair and many accused the government of corruption to help Maduro hold onto power. Many other candidates that planned on running were imprisoned or ran from the country out of fear of imprisonment. As discussed earlier, many of the institutions in Venezuela that performed checks and balances were under the socialist party’s influence. So when these institutions were called upon to investigate the claims of a corrupt democratic election, they refused and there was a lot of division. In January 2019, the speaker of the National Assembly, one of the only institutions that was still credible and influential, Juan Guaido, declared himself the “interim president” of Venezuela. He proclaimed the seat of president vacant because Maduro’s re-election was not valid. He predicted that he would be governing the country within a few months. In hindsight, this process would become extremely complex and detrimental to the people of Venezuela.

Venezuela’s economy is very dependent on the income from oil imports and exports. So much so that Venezuela could be thought of as a petrostate, where the government is dependent on oil, power is concentrated, and corruption runs rampant. The country is home to one of the world’s largest oil reserves and while that has been financially beneficial in the past, it has also been its downfall because there has been no diversification in the economy. The oil price in Venezuela has plunged from $100 per barrel in 2014 to $30 per barrel in 2016. Even though the prices have started rising again in recent years, Venezuela is still in an economic recession where conditions remain in turmoil. This is because of oil dependence, falling production rates, high levels of debt, and hyperinflation. Many experts believe that economic diversification will be difficult for Venezuela in the future. It would take an enormous investment to first put the oil sector back on track and then develop and cultivate other industries. 

The West’s Opposition 

More than 50 countries, including the United States and the United Kingdom, recognized Guaido as Venezuela’s legitimate president. Yet the international influence was limited, as the military stayed loyal to Maduro. He remained firmly in charge of the country with the support of China and Russia behind him. In response, the US put sanctions on the Maduro government making it harder for him to sell his country’s oil in 2019 on Petróleos de Venezuela (PDVSA). These sanctions cut off the US as PDVSA’s main destination for oil exports, which restricted Venezuela’s access to foreign currency. Because the economy was in freefall, Maduro loosened the foreign currency regulation brought in by Chavez. This helped a little with the economic crisis but the majority of citizens do not have access to foreign currency, leaving them to continue to struggle.. In August 2019, the US issued sanctions on Maduro’s government blocking and freezing the property and interests in the United States and within the control of US persons. In January 2021, the US imposed oil-related sanctions on Venezuela. The Treasury targeted three individuals, fourteen entities, and six vessels for their ties to organizations attempting to assist PDVSA. This network allegedly helped PDVSA sell oil to Asia despite the US sanctions. The Treasury argues that any profits from the sale of oil help to contribute to the corruption in Venezuela’s government. 

The United States and the international community have also condemned Venezuela’s current government for its human rights abuses. The government has been repressing dissent and opposition as they did during the protests between 2014-2017. There are violent crackdowns on peaceful street protests. Since 2014, more than 12,500 people have been arrested in connection to the anti-government protests. There has been imprisonment of any potential political opponents and the prosecution of civilians in military courts. On top of removing the checks and balances system, the government has also stripped power from the opposition-led legislature. There are shortages and scarcity of medical supplies, food, medicine, and a lack of access to essential healthcare. In 2018, 80% of Venezuelan households experienced food insecurity. The infant mortality rate has increased by 30%, cases of malaria by 76%, and maternal mortality by 65%. For more than a decade, the government has abused its power to regulate the media and has worked to reduce the number of media outlets that criticize them. Self-censorship is a serious problem for fear of the media outlet being suspected, flagged, or its journalists arrested. 

The humanitarian crisis, human rights abuses, and persecution of dissents have caused a refugee crisis. According to the United Nations High Commissioner for Refugees, more than 7 million people have fled Venezuela however it could be more as many who are not registered by authorities have also left. Many are vulnerable to exploitation and abuse while in other countries because they have limited access to jobs, healthcare, schooling for their children, and other public services. 

Is the Opposition fragmenting?

Despite initial opposition and sanctions by the United States and the international community, recently the opposition has been fragmenting and waning. They have recognized that these restrictions are only making the humanitarian crisis worse. In March 2023, the United States announced that it will be sending 120 million dollars in humanitarian aid to Venezuela. This is to help relieve the limited resources that are causing the current humanitarian crisis. In November 2022, the US announced that they will be easing oil sanctions after Maduro signs an accord to create an UN-administered fund to provide humanitarian aid to his people. This agreement is part of a long-term solution to finding a common path out of Venezuela’s complex economic crisis. This will include the relaxation of limitations on Chevron’s operations in Venezuela and would allow them to re-enter global oil markets. Canada, the United Kingdom, and the European Union have recently pledged to review their own sanctions in exchange for the release of political prisoners. The Biden Administration has signaled that they are prepared to ease up on their sanctions in exchange for concrete steps by Maduro and his government to not ban opposition parties from running against him in the 2024 presidential elections. 

What is next for Venezuela? 

So who is the president of Venezuela? Is it Maduro or Guaido? If you ask who the current president is, it is clearly Maduro who has the support of the military. If you ask who the rightful president of Venezuela is, that is a more complex question. What is next for Venezuela? How will they get out of the crisis that they are currently in? How are they going to fix the economic situation in their country so more citizens have to leave in order to survive? 

For one, the Biden Administration has signaled that they are prepared to ease up on their sanctions in exchange for concrete steps by Maduro and his government to not ban opposition parties from running against him in the 2024 presidential elections. In order to survive and fix its economy, many experts believe that Venezuela must diversify its income and end its dependence on the export of oil and natural gas. This has worked in other countries such as Norway and Saudi Arabia where oil accounted for a large part of their GDP. If strong democracy was redeveloped in Venezuela, with an independent press and judiciary, this could help hold the government and oil companies accountable.  They have to strengthen their political institutions so there are checks and balances within the government. Anti-corruption is important in order to keep the government accountable in the eyes of the public to win back their trust. Most of all, they must expand their social service programs as Chavez did early on in his presidency. The humanitarian and refugee crisis is an immediate threat to people’s lives, the short-term goal if you will. The long-term goal is to push Venezuela away from being a state reliant on one source of income. International aid and intervention can only do so much; governmental and institutional reform has to come from the Venezuelan government itself by recognizing the precarious situation of becoming a failed state they are in danger of falling into.

The Modern Midas: How Mineral Economies Hinder Political And Economic Progress

Upon cursory review, the prospect of striking large amounts of mineral wealth appears to be a cause for celebration, evoking romanticized notions of great periods of developmental transformation, like the California Gold Rush or the Texas Oil Boom. Such enticing imagery, however, only serves to veil the potentially regressive economic and social reality of such abundance. There exists a growing discourse validating the resource curse paradox, an economic theory that correlates a nation’s mineral plenitude with an inhibited rate of economic and social progress. While such a relationship might initially seem counterintuitive, upon the examination of the phenomena that underpin such a claim, one may find that there exists a substantial amount of evidence that warrants further consideration in the policy making process in relation to nations dependent on resource rents, especially those in the oil-saturated Middle East. 

Defining the Resource Curse and the Nature of the Rentier State

First coined in 1993 in his book Sustaining Development in Mineral Economies, economic geographer Richard Auty outlines the resource curse paradox, in which he notes that the economic and social welfare of nations wealthy in hydrocarbons and hard minerals were “inferior to those of non-mineral economies at a similar level of development” despite the flow of wealth one would expect from the additional means of taxation and foreign exchange. He explains that much of this dissonant relationship is due to the nature of a nation’s mining and extraction industries being more dependent on foreign capital than domestic labor, with most export revenue leaving the country to feed back into foreign capital investment and leaving the exporter with only residual tax revenue. Auty’s most compelling explanation of the resource curse’s hindrance to development, however, lies within his observation of how mineral economies are often at the mercy of the economic phenomenon known as the Dutch disease. Originally referring to the Netherlands’ lagging manufacturing sector, the term refers to a change in “exchange rate movements following a large inflow of foreign currency… due to a natural resource discovery… , foreign aid, or investment” and the subsequent detrimental economic impact on a country’s industrial and agriculture sectors. As a mineral economy subjects itself to large flows of foreign investment, its domestic currency appreciates to the level wherein the prices for non-mineral exports become too expensive to be competitive. Meanwhile, these periodic influxes of foreign wealth result in consumers demanding a “shift to the production of domestic goods that are not traded internationally” to accommodate increased consumer spending, ultimately resulting in all non-mineral market sectors collapsing in favor of consumer goods. Whilst there exists a counterargument that the flow of foreign capital would offset any need for other export industries through comparative advantage, one must not discount that, in allowing the Dutch disease to take root, developing nations with mineral economies leave themselves at the mercy of often volatile mineral markets amidst shrinking sectors that would otherwise ameliorate crises in the event of scarcity. There exists a visible testament to this in the form of Venezuela's ongoing financial crisis. From 2007 to 2017, Venezuela's liquid steel and automotive manufacturing industries fell by 93% and 98%, while its rice and corn production fell by 58% and 55%, respectively. Whilst these declining industries may have had their losses previously concealed with petrodollar-funded imports, the oil glut of the 2010s and subsequent reduction of Venezuela's imports by three quarters from 2012 to 2017 served to mark how truly fragile a mineral economy can be, as one may witness from the subsequent commodity shortages and scarcity that have greatly served to perpetuate the ongoing political violence. 

Whilst the long-term economic risks posed by a mineral economy’s unwillingness to diversify exports has the capability to drive developing democracies into economic ruin, it is this very same lagging development allowing other developing nations to perpetuate autocratic governments, particularly within the context of the petroleum-rich rentier state. Brought into modern discourse through the writings of former Egyptian Minister of Finance Hazem El Beblawi, the rentier state is characterized by its dependence on “external rent… to sustain the economy without a strong productive domestic sector”, more often than not through rents on mineral resources, with “the government [being] the principal recipient of the external rent”. Such a term is often used in the context of the various petroleum-exporting nations of the Middle East, particularly;Gulf States such as Saudi Arabia who possess oil profits that comprise over 90% of their respective budget revenues. Due to the state being the primary medium of distributing these mineral rents to its citizens, the government is able to freely “[distribute] favors and benefits to its population”. This, when coupled with the minimal or nonexistent taxation in most rentier states, creates an environment that is inherently contradictory to the democratic social contract of government representation at the cost of taxation. Instead, political apathy dominates as a citizen of a rentier state has little incentive to participate in civil society or agitate for social change. Furthermore, in the event that mounting political pressure does lead to calls for democratization, the state’s absolute control over mineral rents ensures that it is able to mollify any dissenting groups through favorable rent payments. One may see this phenomenon at work in the wake of the initial Arab Spring protests in Tunisia, after which the Kuwaiti government announced that each citizen would receive the equivalent of $3,500 and free food staples for 13 months, or through Saudi Arabia’s $10.7 billion social welfare increase following the fall of Hasni Mubarak’s regime in Egypt. This pacificatory of state patronage may also take a less overt form through government mandated employment, with rent-funded programs such as Saudi Arabia’s Nitaqat and Qatar’s Qatarization initiatives offering their citizens guaranteed job security in the public sector for the sake of preventing job insecurity from adding to the costs of living in an autocratic state. 

Preparing for a Post-Rentier Future 

Despite the elaborate way in which this unique form of social contract has upheld authoritarian rentier states for decades, there does exist a growing trend that indicates such regimes--particularly those in the Middle East--are to inevitably plan for a post-rentier future. With OPEC crude oil prices having fallen by 38% from 2019 to 2020 and the COVID-19 global economic crises resulting in economic contractions for the majority of rentier states, many rentier states both abroad and in the Middle East have found themselves unable to sustain their generous distribution of rents. Such crises serve a twofold detriment to the rentier state, as they not only highlight said governments’ atrophied public health institutions in favor of those that produce resource rents, but also the inability of such states to sustain its pacification measures when under economic duress. In such cases, upper-class citizens in rentier states who have offered guaranteed employment, namely the Gulf States, have engaged in an en-masse departure from their countries of origin in an effort to secure financial stability elsewhere, resulting in overwhelming waves of capital outflow. For a country directing their rents primarily towards the middle class, however, the consequences of this pressure to abandon the rentier system appear to be much more severe, resulting in explicit civil unrest. Nigerian President Muhammadu Buhari’s 2020 decision to cease the country’s long standing and popular subsidization of oil and electricity, spurred by the need to reallocate oil rents to combat the coronavirus, has resulted in the mass eruption of protests that threaten to undermine the foundations of the current Nigerian government. For increasingly youth-saturated rentier states such as Saudi Arabia, a nation with 25% of its population being below the age of 14, typical rentier systems of mollification such as state-mandated employment may find itself no longer able to guarantee employment to the eventual influx of youths entering the workforce. With the insidious regression caused by the resource curse made apparent, one must reconsider if the United States’ attempts to embargo foreign nationalized oil industries truly do serve only as mere economic retaliation. Though the United States has been criticized for its recently tightened sanctions directed towards Venuzuela’s state oil company, Petróleos de Venezuela, S.A. (PdVSA), for their admitted role in harming the nation’s economy through “accelerating a decline in oil production”, policy-makers must consider the true value of accelerating recovery at the cost of allowing Venezuela to depend on an industry responsible for siphoning its agricultural sector and leading it into its current crisis. 

Though the United States itself can hardly be considered a rentier state, policy-makers must be wary of its constituent states’ susceptibility to the resource curse, namely the states of Alaska, North Dakota, and Wyoming, who draw 72%, 54%, and 39% of their respective net tax incomes from mineral severance taxes. It is apparent that the same 2010s oil glut responsible for Venezuela's economic downfall has not left these oil-dependent states unscathed, with Alaska in particular, a state dependent on energy taxes for 90% of its general fund revenue, dropping by as much as 84% from its 2007-2013 average. Whilst the United States possesses the necessary economic and political institutions to mitigate persistent economic regression in such instances, it is necessary that policy-makers regard the reality that even the United States is not immune to the economic fragility wrought by the resource curse, and ensure that states that normally flourish from severance taxes do not do so at the expense of a diverse industrial base and neglected non-mineral industries. 

In light of how mineral wealth gnaws at the foundations of the democratic social contract and supports regimes built upon apparati of repression, one must use this knowledge to both understand future global trends concerning the rentier state and the operational possibilities such an understanding offers. For rentier regimes that have indicated that they are ready and willing to diversify their economy in preparation for a post-rentier future, it is recommended that the United States  accelerate this transition via selective multilateral trade negotiations. However, the United States must also prepare itself for the inverse concerning rentier regimes expected to enter a period of mass civil unrest following the collapse of the rentier system if it is to successfully prevent possible regressions into failed states.

Notwithstanding the presence of a strong social contract and relatively stable democratic institutions, the United States must nonetheless acknowledge its constituent states’ susceptibility to the economic vulnerability wrought by the resource curse, and is urged to take any steps it deems necessary to diversify its local economic sectors. In regards to its dealings abroad, however, it is apparent that the US may capitalize on the rentier state’s dependence on mineral wealth through embargoes on such goods, forcing any repressive regimes build upon the rentier system to diversify their economy and subsequently develop in a way that facilitates a civil society conducive to democratic ideals.

Rubles and Reindeer

The opinions expressed herein are the writer’s and do not reflect those of their employer.

I. Introduction

Last year marked the 100th anniversary of the Russian Revolution, which makes it an appropriate moment to discuss the plight of one of Russia’s largest indigenous populations who were victims of a modernizing and oil hungry Soviet Russia: the Khanty. According to a profile by the Guild of Inter-Ethnic Journalists, the Khanty currently have a population consisting of about 30,000 people, most of whom live in the region named for them, the Khanty-Mansi Autonomous Okrug (KhMAO). The Khanty are traditional, nomadic, reindeer-herding peoples that have long lived in western Siberia. As stated in a Russian state news profile, from 1930-1940 the autonomous okrug (or region) was “legitimized” by the Russian government, which intended to bring the Khanty into an official and governed status within the Soviet Union.

Today, the Khanty are one of the few remaining indigenous groups with their own autonomous region. Unfortunately for the Khanty, their historic region and home for centuries just so happens to sit on top of one of Russia’s three largest oil basins. In fact, 75 percent of Russia’s oil production comes from the region and the Western Siberia Oil Basin that lies under the KhMAO accounts for 67 percent of Russia’s oil reserves according to the International Journal of Energy Economics and Policy. The location of this particular oil basin puts the reindeer-herding Khanty in a precarious position and they are losing the fight for their traditional rights. They will continue to lose these rights as they confront a much stronger Russian government and Russian oil industry and there is not sign to this slowing down. The resulting environmental degradation that occurs all the while is a source of argument as well with the abuse of land and resources that could set the stage for worsening conflict. A Russian government that would support the ecology of the Khanty lands, assist representation and/or protect the local language would be the solution to this grievance; will the government actually do it is the true question.

II. The natives, oil and environmental degradation

The Khanty historically lived largely untouched alongside the Russian Empire in a fur-trading region with timber to trade, according to the region’s official website. Once oil was discovered in the 1930s and aggressively tapped in the 1960s, the once undamaged, scenic landscape yielded 70 billion barrels of oil over the following 40 years, as Paul Starobin wrote in National Geographic magazine in 2008.

A March 2017 Guardian article on the Khanty by Alec Luhn documented a specific grievance in the Khanty community that encompasses many of the problems they face (such detailed cases do not usually exist). A sub-region of the KhMAO, known as Surgut, is home to the oil and gas giant Surgutneftegaz, which was created as a combination of a few different state oil companies from the Soviet era. While this massive oil company continually drills into the Siberian land, a Khanty population of 4,000 in Surgut continues to hunt, fish, and herd reindeer as they have for centuries. With Russia’s economy in a slump, drilling increased in an effort to energize the economy with oil exports. As a result, the Kremlin knocked down Surgut’s protected status in 2013.

To compensate the Khanty for their land, Surgutneftegaz planned to pay individuals approximately 170,000 rubles (~$2,500) for the rights to their land. However, the contract that the companies have the natives sign is in Russian – a language in which many Khanty are illiterate. Lukoil, one of the largest oil companies in the world, offered 5 million rubles (~$84,700) to one family for a large parcel of land in another part of the KhMAO as reported by Georgy Borodyansky’s Open Democracy article from 2014.

Some land is worth more than others, but the variation in payouts illustrates that these companies have the ability and the will to pay off the population at any amount. Neither sum of money is enough to sustain the large family units the Khanty live in, especially when in some cases the population in question does not live close to another village, so they are unable to easily access food supplies and other goods. In fact, as Andrew Wiget and Olga Balalaeva wrote for Cultural Survival, a group that is known for research into indigenous populations, the food that the Khanty can gather from their limited river and forest land, they are legally unable to sell due to Russian government restrictions. These paltry payouts will not support them, nor are they able to support themselves. Though to the Khanty, money is not their utmost concern – the interruption of a lifestyle that they have maintained for centuries is.

A key issue regarding this situation is the local’s lack of voice in their local government. Lukoil was formed from Soviet state-owned western Siberian oil companies and Sugutneftegaz is another former state-owned oil conglomerate, which provides them strong government ties and influence. With the many sanctions hitting the Russian oil and gas industry, limiting technology to Russian domestic technologies, an oil company succeeding helps the economy keeps the country afloat. The head of Surgutneftegaz, Vladimir Bogdanov, is one of Russia’s wealthiest men. He is a member of the Khanty-Mansi okrug local government, and uses only Russian technologies and contractors. In fact, he employs a third of the city of Surgut’s 300,000 citizens as documented by Voice of America’s Russian service.

The aforementioned rollbacks on environmental protections are a result of Bogdanov’s clout. His domestic enterprise actually benefits from foreign sanctions and also from the powerless ethnic minority that is unable to push back due to oil’s economic importance. In fact, it is not only Bogdanov that represents the interest of oil in the local KhMAO government. A publication from Cultural Survival, noted in 1996 that not a single Khanty member was in the local representative council. The article goes on to describe how those who move into the KhMAO do so looking for oil work without any attachment or care for the community as a whole or the environmental situation at hand. Without a local voice, the risk of the land slipping further into ruin is more likely.

The degradation of environmental resources and general disregard for the Khanty’s lifestyle is the largest source of grievance between the Khanty and their Russian counterparts. The KhMAO suffered a great amount of damage due to the high oil yield the land has experienced. The landscape in 90 percent of the oil-producing areas has been damaged or destroyed, according to a Georgy Borodyansky’s 2014 Open Democracy article. In addition, there are constant forest fires that threaten the locals’ way of life and the lives of the reindeer they rely upon. Oil drilling fires and overall degradation have led to around 54 million acres of reindeer pasture being decimated according to an Ed Ayres piece in the World Watch journal.

The continuing uncertainty in environmental conditions led some of the Khanty victims to speak at the United Nations Conference of the Parties to the UN Framework Convention on Climate Change (COP 21) summit in 2015 to air their grievances to a larger audience. The locals’ calls to the Russian government for an alleviation of drilling activities only results in the government willing to make monuments or national parks out of little corners of affected lands and, of course, allow the oil companies to pay off the locals. Unfortunately, as Wiget and Balalaeva’s article notes, this solution is hardly helpful because oil drilling already blocks access to traditional religious sites that may not have appeared on maps when drilling sites were set up. The oil companies and the indigenous population have no common interests and the former are absolutely powerless vs the latter who have local and national government’s ear.

III: Potential for violence and mitigating the conflict

The conflict’s potential for violence appears quite low. Research on this issue has only revealed a small number of violent incidents, including a 1930s revolution against collectivization and a story recounting a Khanty man shooting an oil company employee’s dog for biting his reindeer in Luhn’s Guardian article. Since, Khanty are a religious, hunting and gathering group that are in an extremely disadvantageous position against the Russian oil companies and they have no reason for violence. If they even consider fighting back or staging another rebellion, the Russian military, which has been known to use violence in suppressing violent conflict (i.e. the wars in Chechnya and Dagestan), would swiftly crush any opposition and likely elect another regional leader into power that would gracefully change laws and allow for more drilling. The more likely battle is a cultural one in which Khanty could lose their language and perhaps become extinct as an ethnic group.

The Khanty language is not widely spoken and Russia’s dependence and promotion of Russian, Khanty as well as other indigenous languages are in danger. Many Uralic languages have already gone extinct (including some Khanty dialects) and very few people today speak Khanty, according to an article on the website Languages in Danger. With fewer children speaking the language, its potential for survival is extremely low. With language, a key identifier of an ethnic group’s existence, its extinction would be a blow to the Khanty’s survival. The Russian government’s efforts to save the Khanty language are just as paltry as the oil companies’ payouts. The possibility of Khanty people eventually taking their payouts, giving up their land and moving to cities to start a new life or joining an oil company to stay close to home are the greatest threat to the culture’s survival. And this is the grimmest part of the conflict between the Khanty, the Russian state and the oil industry. The way to transform the conflict is a proactive resolution and assistance in preserving the Khanty culture, as well as to open up more opportunities for the Khanty population itself. Currently there is no violence in the region but that is simply a sign of Russian government intimidation.

Wiget and Balalaeva previously noted that not a single member of the Khanty community was on the local government in 1996. With statistics hard to come by, it is likely that this situation has not improved. For the conflict to mitigate, the Khanty will need to have more representation in their local government.  The federally-appointed current governor of the KhMAO is a woman by the name of Natalia V. Komarova from Western Russia with a background in construction and economics. This illustrates how people not from the KhMAO region are deciding on what happens to it. Ms. Komarova made a statement through UNESCO’s Russia branch that focused on promoting sustainable development and water protections in the region, but made no mention of drilling or its ramifications. Russia’s UNESCO branch also hosted conferences with the local universities, which provides a good start to promoting sustainability, but did not produce results. Having Khanty members on local councils and in State Duma seats is important, as it would check Ms. Komarova’s power in regard to processes that endanger the local ecology. She has also served on the Duma’s committee on natural resources, which influences her decision making on what is best for the Russian economy; especially given her economic educational background. While the Russian government has allowed UNESCO to establish climate change groups at the local university, but Moscow is too top heavy for this to have any effect in the short term where short term change is necessary.

IV: Specific recommendations

The problem with offering recommendations for a solution between the Khanty and the Russian government-backed oil industry is that the damage is mostly done. The derricks have been raised, the land destroyed, water resources contaminated and reindeer population reduced. Furthermore, recommendations only offer an opportunity to control or mitigate the damage rather than solve the grievance. It is important to understand what will not work before designing recommendations that could help. When dealing with the Russian Federation, for instance, sweeping recommendations that limit or hurt the oil industry will likely receive swift vetoes, as the country depends upon the extraction of natural resources. Also, intergovernmental organization decrees (like the United Nations Human Rights Council) would be taken as an insult and/or violation by the Kremlin. Any effective response must come at the local and state level.

The responses and recommendations for resolving the Khanty’s grievance with the Russian state and the country’s oil industry in the country are as follows: 1) restore environmental protections on the land with local engagement; 2) mandate the Khanty have representation in the local government; 3) provide the Khanty language with protected status while creating more local schools that teach Russian as well.

1) Restoring environmental protections is the most crucial recommendation, as the land can become uninhabitable if drilling and oil exploration are to continue at the current pace. The Russian government should meet with the local population, understand their concerns and decide with them how to properly protect their land and reindeer. The reindeer are extremely important for the Khanty, but due to drilling, it is estimated the region’s reindeer population fell by 28 percent during the 1990s as John Ross noted in Smithsonian Magazine. Data on the current status of the reindeer population decline is not easy to find. However, if oil production has yielded 70 billion barrels in the past 40 years, it is unlikely the population decline has ceased.  Allowing the land to sink further into an oil-soaked ruin, in which the rivers and forests routinely catch fire will cause problems for the native population and Kremlin alike. Adding more bureaucratic hoops to the government’s process for approving drilling operations will at least slow down the degradation and possibly lead to the reconsideration of some oil drilling operations entirely.

2) As noted above, another key issue is the Khanty’s lack of representation in local government. Mandating two Khanty representatives in the office of the governor and encouraging others to run for local council positions is crucial. The reason for having two is that there would be a better dynamic for discussion and more diversity from even within the Khanty community. A federally-appointed governor like Natalia Komarova needs to be balanced by local, indigenous representatives. The same is true for oligarch Vladimir Bogdanov and local government member Vladimir Bogdanov. This sort of influence without Khanty opinions present is dangerous. Having political checks on this influence can mitigate the disparity the Khanty population experiences as a result of its minority status in the Russian Federation.

3) The Russian government needs to work on protecting the language while bringing the Khanty population in from the fringes of Russian society. The population of Khanty in the KhMAO is only 19,068 people (1.3 percent of the population) according to the 2010 Russian census. Declaring the language endangered would attract some needed attention to this issue within the country. The language issue is lower priority compared to the other two recommendations, as it relates to the culture’s survival, and not specifically the people. It is part of a greater challenge as Khanty typically live in more remote sections of the KhMAO, and have less access to public schools. Improving educational opportunities is essential in not leaving a population in the fringes of society.

V: Final words

When studying any Russian indigenous group it is important to understand that many of them are endangered to a severe degree. The fact that the Khanty population still contributes to a percentage of the overall Russian population is a positive sign and should lead to the Kremlin’s further preservation of it. Unfortunately, as Cultural Survival discussed in 2014, within Russia, the native population councils/forums are either relatively powerless or nonexistent. This will need to change if any of the recommendations made above are going to take place. The Khanty should be able to choose whether to integrate fully into Russian society or not. Living on top of an oil gold mine should not be the reason for their demise, but in this case it is. Currently, there is no violence and there likely will never be. The population could die out quietly, before it ever fights back against the government or oil industry. If the culture dies off, the Russian government would be to blame for being complicit in the booming oil industry’s abuses, given the oil companies’ Soviet history and close ties to the Russian state. The fate of the Khanty lies in the hands of the Russian government.

Warding Off the Resource Curse: How Ghana’s Political Institutions Help Manage Oil Wealth

As global energy prices begin to recover from a four year slump, oil majors are shifting their focus towards oil and gas deposits in sub Saharan Africa. The African continent is rich in energy resources, and extractive industries play a prominent role in several African economies. At the same time, however, major energy producers including Nigeria and Angola suffer from underdevelopment, conflict, and varying degrees of corrupt governance. This is likely due to the resource curse, which describes how resource wealth undermines political, economic, and social growth. With strong empirical and real-world evidence to support the existence of the resource curse, observers may be worried about the growing oil industry in Ghana, a country often lauded for its healthy democracy. Yet Ghana continues to sidestep this expectation of instability, and its experience with oil highlights how strong political institutions can channel resource wealth into development funds, turning a curse into a blessing.

The Resource Curse: Too much of a good thing

Existing literature identifies several paths through which resource wealth undermines economic growth. When commodities account for a significant portion of exports, global commodity prices drive currency value, undermining other export bases. Fluctuating global prices also reduce the potential for long-term macroeconomic planning, as constantly shifting revenue bases undermine budgeting. Finally, resource rich states face much weaker incentives to raise productivity, reducing investment in education. Tellingly, Nigeria, Africa’s largest oil producer, continues to struggle with development and poverty reduction even as oil exports reached $34 billion in 2017.

Moreover, resource wealth appears to undermine good governance. Leaders in oil rich states often depend on patronage networks for support, weakening representative rule. These governments break the social contract; without the need to secure public support, and with it, tax revenue, they forego spending on public goods. Since Chad developed its domestic gas market with international funding in the early 2000s, notorious autocrat Idris Debby has bolstered spending on those security services which are personally loyal to him, while reducing his dependence on popular support for continued power.

Despite the strong body of evidence supporting the resource curse, countries like Botswana, Chile, Malaysia, and Norway stand apart from Nigeria, Venezuela, and Algeria. While both groupings hold significant resource wealth, the former have used their wealth to substantially reduce poverty and increase output as a direct result; the latter grouping struggles with corruption, poverty, and political violence. This disconnect points towards a new academic discussion regarding the role of political institutions in mediating economic outcomes, popularized by Acemoglu and Robinson’s Why Nations Fail. Acemoglu and Robinson argue that political and economic institutions exert feedback on one another, and are either extractive, in that they benefit the ruling elite at the expense of the public, or inclusive, in that they have low barriers to participation and provide collective benefits. Even within democratic and inclusive governments, specific types of political formation affect the management of resource wealth. Political institutions which promote political cooperation, distribute revenue to the local level, and maintain accountable institutions can ward off the resource curse, as seen in the case of Ghana.

Ghanaian Petropolitics

In 2007, the Ghanaian government announced the discovery of the Jubilee oil field in the Gulf of Guinea. With an estimated capacity of two to five billions barrels of oil, oil exports will generate approximately one billion USD in annual revenue for the Ghanaian government until 2032. The initial discovery resulted in tempered enthusiasm. Politicians expounded the benefits of oil, promising high rates of growth and increased government spending. Members of civil society, such as communal groups, community-based organisations (CBOs), national CSOs, and networks and coalitions, warned of the potential risks for corruption and environmental degradation. Given the literature on the resource curse, Ghana stands to lose significantly if governmental institutions fail to effectively manage resource wealth, with potential implications for economic and political stability.

As a model of post colonial political and economic success, Ghana is a stable democracy with competitive elections and a vibrant civil society. The two main parties, the New Patriotic Party (NPP) and the National Democratic Congress (NDC) hold similar levels of support, and the electoral process is bolstered by strong norms of accountability, as ineffective politicians are often voted out. The military is civilian controlled and independent media is prominent. To match its healthy political profile, Ghana also benefits from a robust economy, despite its dependence on commodity exports and agriculture for revenue. Ghana’s profile makes it a darling of the international business community, with FDI experiencing strong growth over the last three decades.

Ghana rapidly developed a complex legal framework to govern oil wealth in response to the 2007 Jubilee field discovery. Civil society groups, with the case of neighboring Nigeria in mind, put heavy pressure on both parties to develop a transparent governing body to oversee the management of oil export revenue, resulting in the creation of the Petroleum Revenue Management Act (PRMA). Under the PRMA, 70% of oil export revenue is allocated to the annual budget, where it is distributed into categorical grants across the four “pillars” of development identified by the PRMA: amortization of existing loans, infrastructure, agricultural modernization, and capacity building. The remaining 30% of funds are distributed between two sovereign wealth funds, the Ghana Stabilization Fund (GSF), which receives 21%, and services debts and hedges against price fluctuations, and the Ghana Heritage Fund (GHF), which uses the remaining 9% of funds to invest in economic diversification and maintain good credit standing. However, as Ifediora points out, the existence of sovereign wealth funds alone does not guarantee accountable resource wealth management. Instead, countries must avoid volatile political party competition, decentralize governance, and ensure strong mechanisms of accountability within and outside of government.

The first factor, party competition, determines the degree to which politicians in resource-rich states prioritize funding on long-term development versus partisan goals. In countries where fierce political competition , parties focus on delivering short term benefits to core constituents, undermining much-needed investments in infrastructure and modernization. Mohan and Asante characterize Ghana’s two-party system as a “competitive clientelist state,” as free and fair elections contrast with parties’ use of political office to dispense patronage. Moreover, the Ghanaian constitution concentrates power within the incumbent party, which turns elections into winner-take-all affairs. This system may exacerbate the risk of the resource curse. Given the current state of politics, it’s likely that the NPP and NDC would use oil revenue to spend on influential voting blocs, notably public servants, without making the investments needed to sustain development. While the PRMA should keep politician’s hands out of the money purse, both parties have raided special funds for mineral wealth in the past. In addition, the winner-take-all system undermines macroeconomic planning. When a new party comes into power, key civil service positions experience high turnover. With opposing ideological views of the management of oil wealth, the NDC and NPP will likely politicize key government organs involved in the process, undermining economic planning.

Another area of risk lies in the lack of decentralization of political power in Ghana. Government centralization determines the ability for resource wealth to be effectively distributed to sub-national units. Fiscal federalism is designed to channel wealth to local institutions, which are often more effective than the central government at spurring local development. Ghana’s unitary political structure is designed to centralize governance and weaken Metropolitan Municipal and District Assemblies (MMDAs), as MMDA’s are given little discretionary authority and are often controlled by nominees appointed by the ruling party in Accra. Oil wealth risks further centralizing political authority. As a small number of actors in a political system gain access to increased revenue, the risk of corruption increases, and the incentives for the government to pursue decentralization decrease. In the case of Nigeria, politicians in Lagos derailed early efforts at widespread fiscal decentralization in order to secure control over oil wealth. In the long term, even if Ghanaian politicians pursue development with their newfound funds, programs will likely be top-down and centrally driven, instead of the locally tailored development initiatives proven to be the most effective way to achieve poverty reduction.

The third and final area of focus is accountability. While volatile political party competition and centralized government increase the risk of a resource curse, a strong civil society can use accountability mechanisms to mitigate the worst outcomes. When oil was discovered in 2007, Ghanaian civil society responded with several demands. In March 2010, political and environmental activists established the Civil Society Platform on Oil and Gas to educate voters about their rights and expectations with an oil-exporting government, and to create linkages between politicians, oil companies, and communities affected by oil extraction. The Platform rallied the necessary political support to pass the PRMA and create the Public Interest and Accountability Committee (PIAC), which is a thirteen-member independent body which audits government oil-wealth expenditure. In response to attempts by political parties to secure control over the PIAC during the drafting process, the Platform used social media and rallies to ensure PIAC’s integrity. As a result, 90% of all Platform suggestions were incorporated into the final versions of the PRMA and PIAC. Yet, in terms of their operational capacity, the PIAC remains underfunded and the PRMA is occasionally flouted. The strength of these institutions doesn’t come from their formal capacity, which is weakened by top-down pressure, but from their bottom-up linkages to civil society, which can engage in activism on behalf of these bodies when political parties mismanage oil wealth.

A case for limited optimism

In summary, Ghana will experience nominal benefits from oil wealth. Due to the presence of sovereign wealth funds and civil society pressure, the worst effects of the resource curse on Ghana’s political economy will be avoided. On the economic front, Ghana will successfully avoid revenue instability and investment crowd out. Its diversified commodity exports and GSF serve as cushions, dampening the negative effects of price volatility. Investment crowdout is a low risk, since the GHF is committed to reinvesting into the agricultural sector, which is typically the first victim of currency valuation in oil-exporting nations. Ghana should invest more heavily into commodities with inelastic prices to bolster existing efforts within the GHF to keep the cedi’s value stable. On the other hand, the emergence of oil will require careful management of debt. The PRMA allows the government to use oil revenue as collateral for international loans, despite the best efforts of the Platform to get the provision removed. Given parties’ propensity to spend heavily before elections, and the ever shifting price of oil, the NDC and NPP risk raising the debt level. Since the discovery of oil, external debt has ballooned by 200% to $14.8 billion. On the political front, Ghana will see more volatile electoral politics, although the worst risks of corruption will be avoided thanks to the efforts of civil society groups. Incumbent’s access to oil revenue will make patronage more convenient and favor short-term spending. As elections become more polarized, independent institutions like the military and judiciary will be subjected to increased political pressures, already a growing issue in the status-quo. Centralized decision making reduces the chance that oil wealth will reduce poverty at the local level. If Ghana does move towards decentralization, the state should work with local civil society to create accountable institutions at the subnational level to ensure that it doesn’t end up exporting corruption to local governments.

Ghana represents an effective application of good governance to resource management.  Despite the volatile structure of politics at Ghana’s core, the worst effects of the resource curse will be avoided, thanks to a combination of strong civil society and a few highly effective institutions. While a wholesale accountable government is the best possible scenario for a resource-rich state, it is not the only way to achieve accountable resource management. World Bank research highlights how the creation of just a few highly-effective institutions, or “pockets of effectiveness” can mimic these effects on a smaller scale. These islands of good governance can channel the positive effects of inclusive political systems without requiring serious governmental reform. In Ghana’s case, these institutions include the independent agencies set up by the PRMA, supported by civil society. Ghana therefore supports the growing body of economic literature which highlights the important role of institutions in managing sustainable growth. Policymakers should use Ghana as an example of how to implement effective reform to staunch the risk of a resource curse by supporting civil society and few strong institutions. While Ghana’s party system and unitary politics entail small risks, realistic development programs should focus on high-impact support to a few effective institutions instead of seeking wholesale reform of a political economy.

Oil and Opium: Exploitation of Natural Resources by the Taliban and the So-Called Islamic State

From Al-Shabaab’s exploitation of the charcoal market in Somalia to the Revolutionary Armed Forces of Columbia’s levies on mining activity in Columbia, extremist groups all over the world exploit natural resources as part of their funding strategies. This report will examine the natural resources harvested by the so-called Islamic State (IS) and the Afghan Taliban.

On the IS front, the oil fields of Iraq and Syria have turned into a lucrative funding mechanism for the group. The military victories of IS in the oil fields of Iraq and Syria left the group with an important network of oil-rich territory. Two thousand miles to the east, in Afghanistan, the Taliban has reaped significant payouts from their exploitation of the opium poppy industry. Both groups have a certain set of tradeoffs associated with their resource of choice, along with a portfolio of different buyers for their final product. The following sections will contain details regarding the oil and opium poppy production of each respective group, their buyer markets, issues related to each resource, and finally a discussion on how counter-terrorism strategies affect the local populations involved in the exploitation of each resource.

The Islamic State of Oil

IS has three primary revenue sources :  (1) taxes and fees, (2) confiscations, looting, and fines (3) and oil. Figure 1 illustrates how kidnapping ransom fees account for a small percentage of  IS’ revenue as well.

Figure 1: IS Revenue Sources

Oil was a smaller part of the group’s portfolio in 2014, but IS military victories secured a larger share in 2015. These temporary gains were short-lived, only to be set back by coalition airstrikes and military operations in 2016-2017. At the height of their success, the group was able to produce and sell up to $550 million worth of oil per year. After coalition air strikes against IS oil positions became more frequent and successful, revenue streams were reduced from upwards of $50 million a month to a meager $4 million.

In order to convert this oil into cash, weapons, or supplies, IS must find regional buyers for their product. The market for IS oil is muddled and contains some surprising partners.

Most of the oil produced is sold domestically. It is sold to IS fighters in order to power vehicles and homes, but also to civilians in areas under IS control. The group has monopolized the market in some areas, such as in Raqqa. While Raqqa was completely under IS control, the group could control a great deal of the goods being exported out of and imported into the city. This left little choice for consumers in the area, making IS the go-to seller for the purchasing of cheap oil.

Oil that cannot be sold domestically is sold to regional consumers. Senior U.S. Treasury official Adam Szubin describes how “a great deal” of IS oil is sold to the Bashar Al-Assad regime.  The rest of the oil is exported to foreign markets including Turkey, Kurdistan, Iraq and Jordan. The oil sold in these foreign markets is less profitable available than selling domestically. The oil must be smuggled and sold at a discount; meanwhile, much of the remaining profits go to intermediaries within the supply chain. Figure 2 illustrates a few of the various routes used to transport IS oil.

Figure 2: Oil Routes

Using oil as a major source of revenue has its pitfalls for the extremist organization. The fact that IS cannot sell oil openly in foreign markets limits the oil’s profitability. As mentioned before, the oil usually must be sold at a discounted rate, and the act of smuggling is expensive. Even more, coalition airstrikes severely hamper the productivity of the group’s oil industry. Under the airstrikes, the oil fields can only operate at a fraction of their typical capacity. Lastly and perhaps most importantly, IS does not have the technical specialists and manpower required to keep the industry functioning at a sustainable level. Even without the coalition’s airstrikes, productivity would still fall due to maintenance and logistical issues. With oil quickly losing its place among the group’s finances, it is likely that we will see an increase in other areas of funding such as kidnapping, taxes, or increased fines and extortion against populations still under IS control. These funding strategies will likely be more violent in nature since they depend on the abuse of local civilians and foreign kidnapping targets.

Figure 3: Russian Air Strike Destroys IS Oil Trucks, Along with a Civilian Family in Their Car

Opium and the Taliban

The Afghan Taliban benefited from opium poppy production and the opium trade for decades. By the end of the height of the Islamic Emirate of Afghanistan, when the Taliban controlled a significant portion of the country during 1996-2001, opium production decreased significantly due to a ban by the Taliban regime in 2001. 

Figure 4: Opium Production in Afghanistan

Despite these drastic reductions, the Taliban still earned significant sums from the opium production that remained. This was due to soaring prices caused by the supply shock. After the U.S. invasion of Afghanistan, poppy production returned to normal levels.

More recent studies show (although exact figures are elusive) that the Taliban may receive up to a third of their funding from opium poppy production. The UN Office on Drugs and Crimeestimates that the Taliban earned anywhere from $450 million to $800 million during 2005-2009. The extremist organization has developed a sophisticated taxation system on the production, processing, and transportation of opium. This taxation system includes direct levies on opium poppy farmers, tolls on transports, and protection fees for transports moving through Taliban controlled areas. The taxes range from a 10% tithe or ushr (a zakat on agricultural goods) on opium poppy, to a 20% zakat (a form of Islamic alms-giving, one of the five pillars of Islam)  on trucks transporting the harvested good. As previously mentioned, even when production is decreased, the taxes remain. This means that the Taliban still reaps significant sums from the industry due to the corresponding price increases associated with supply shocks.

The poppy plant accounts 13% of Afghanistan’s GDP. Since the plant sells for much more than the cost of the cheap labor required to produce it, it is popular amongst Afghan farmers. Afghan farmers and smugglers sell opium poppy and opiate narcotics all over the world. Figure 5 shows the typical trade routes of the crop.

Figure 5: Afghan Opium Poppy Trade

The destinations for Afghan opium poppy are much more widespread than the market for IS oil. This is likely because even the Afghan Government has a hands-off approach regarding opium poppy production. The Afghan Government taxes production in their territory as well, and these tax revenues are a significant source of income for local governments.

Civilians Caught in the Middle

The fight against IS and the Taliban includes cutting off their revenue streams. The coalition battling IS has been very effective in destroying sources of oil revenue for the extremist group. Destroying revenue from opium poppy production has been less effective, both due to the Afghan Government’s need for opium poppy revenue and the reliance on the crop by local Afghan farmers.

As one of the world’s poorest countries, shifting the Afghan economy from opium poppy production to another revenue source will take much more careful planning and strategy than simply destroying opium poppy fields in the same way that coalition forces have struck IS oil fields. The reliance of farmers on this crop will have to be replaced with a more favorable crop that is not detrimental to consumers around the world and also continues to bring in revenue for local farmers and local governments.

Even the fight against IS oil revenue leaves some civilians stuck in the middle. Since IS cannot maintain the oil fields on their own, many of them are operated by civilians. In fact, civilians are responsible for much of the refinement, transportation, and final sale of the oil leaving IS held territory. The Washington Post has reported that coalition attacks on the small makeshift refineries that Syrian and Iraqi civilians set up in IS held territory has contributed to the poverty in these areas by leaving civilians without any income and raising the price of oil.

Whatever the manner in which these two groups are stopped, it is important to remember that these wars take place in extremely poor areas populated by many more vulnerable civilians than enemy fighters. The same strategies that cut off the revenue streams of these groups may also harm the income of already poor local populations. In Iraq and Syria, returning control of oil fields taken from IS to civilian workers is vital to rebuilding the economy after the fight is over. In Afghanistan, cutting off the flow of funds from opium poppy to the Taliban would be a huge thorn in the side of the group, but equally important is maintaining the welfare of the Afghan farmers who rely on this crop for survival. A slow replacement of opium poppy with a more sustainable and less controversial crop, along with measures to cut the link between the Taliban and their revenue from agriculture in general would leave Afghanistan with a much more stable and prosperous agricultural industry, and in turn decrease the total supply of opiates flooding world markets.