Last week’s Deep Dive, on the origins of water conflict, looked at how future resource scarcity might lead to deeper political cleavages in some areas than in others. This week, we’ll look at areas where major discoveries of underground resources promise to turn areas of resource scarcity into areas of resource abundance. As has been covered previously in Critical State, development and conflict researchers are increasingly interested in the “presource curse” — a phenomenon in which a country suffers ill effects normally associated with natural resource wealth before the resource in question has even come out of the ground. The phenomenon is well-documented, but the mechanism by which it happens is not well-understood. Why does the mere promise of natural resource wealth seem to cause conflict and corruption, even before there are any gains from the resource to distribute?

A new paper by economists Victoire Girard, Alma Kudebayeva, and Gerhard Toews makes progress on answering that question by investigating a closely related question: How do people react to resource price shocks in countries where resource economies are already highly developed? When people work in, for example, the oil sector, how do they feel when the world oil price suddenly jumps and they might reasonably expect a financial windfall as a result? Those expectations are arguably similar to those experienced by people who are awaiting new oil extraction that will bring large levels of foreign investment to their country — that is, people in danger of falling victim to the presource curse.

Girard et al. use data from a household panel survey in Kazakhstan that asked people how satisfied they were with their incomes to see how people responded to potential oil windfalls. Oil is big business in Kazakhstan, and there is a major oil production industry in the western part of the country. Prior to the oil price boom of 2004, however, the industry was comparatively small, since the low world price of oil made it uneconomical to actually drill many of the Kazakh oil finds. As the price of oil increased, however, so did the size of the Kazakh oil industry, eventually contributing to an eight-fold GDP per capita increase between 1999 and 2010.

In parts of Kazakhstan where the growing economy was only indirectly affected by oil, everyone felt basically the same about their financial situations. Whether they worked in the public or private sector, people who made less money than the national average weren’t thrilled about it, while people who made more money were generally quite pleased. They felt that way when the price of oil was low, and they continued feeling that way when it went up — no real change.

In the parts of Kazakhstan where oil is actually produced, however, Girard et al. found some big distinctions between private and public-sector workers. Public-sector workers in oil-producing areas basically act like Kazakhs in the rest of the country — they like making more money than their neighbors, they dislike it when their neighbors make more than them, and the price of oil doesn’t change that calculus. Private-sector workers in oil-producing areas — that is, oil-sector workers — have a very different take. They still prefer to make more money than average, but their satisfaction is much more closely correlated to the world oil price than anyone else’s.

Not only do oil-sector workers care about oil prices, but they care in a somewhat counterintuitive way. Between 2001 and 2004, when oil prices were relatively low, oil-sector workers were generally more satisfied with their incomes than public-sector workers who made the same wage as them. Then, between 2005 and 2009, after oil prices shot up, oil-sector workers were much less satisfied than public-sector workers at the same wage levels.

There is a range of explanations for why people might be dissatisfied with their incomes as the value of national resource wealth grows, but most of them — anger over resource wealth leaving the country, for example — should affect people in every sector and region, not just oil-sector workers. The dissatisfaction within the oil sector, Girard et al. argue, derives specifically from the sky-high expectations brought on by the oil price boom. Even though the increased oil price did bring income gains within the industry, those gains could not keep pace with the beliefs workers had about how they would benefit from hundred-dollar crude.

If conflict and dissatisfaction in the runup to a resource boom derives more from high expectations than from actual resource mismanagement, then the managing of expectations is a paramount concern in conflict prevention. The idea, popular among development economists in the 2000s, that natural resource discoveries could be a cure-all in developing countries may have driven up expectations, heightening the chance of the presource curse taking hold. Resource wealth can drive short-term growth, but even the act of seeing it as a panacea can turn it into a poisoned chalice.

Rupa Shenoy spoke to experts about the future of the relationship between the US and Taiwan. The Trump administration has favored Taiwan, beginning with then-president elect Trump’s historic phone call with Taiwanese President Tsai Ing-wen in 2016, which seemed to signal a move away from the US officially considering Taiwan to be part of China. A second Trump administration would likely continue the policy of the first, experts said, continuing to expand relations between the US and Taiwan and putting further pressure on China. A Biden administration is more difficult to predict, as on one hand, Biden might be expected to walk back the more strident Trump policies, but on the other, the Democratic Party platform now no longer includes recognizing Taiwan as part of China, which may signal a shift toward a more pro-Taiwan policy.

Isabel Bernhard explained the implications of corruption allegations in the Mexican oil industry that could destabilize the US-Mexico trade relationship. In 2013, according to the former head of the Mexican national oil company PEMEX, the company paid bribes to Mexican lawmakers to ensure the passage of a law allowing foreign investment in Mexico’s oil sector. If the allegations are proven and the law overturned, it would invalidate a key provision of the US-Mexico-Canada Agreement (USMCA), the trade deal that replaced the North American Free Trade Agreement this year. Without the energy portion of the USMCA in place, many energy investments US companies have made in Mexico could fall apart.

Shirin Jaafari reported on the stakes of the US presidential election in Iran. Under the Trump administration’s so-called “maximum pressure” policy, the Iranian rial has lost half its value and unemployment was over 10% even before COVID-19 hit. President Trump shows no signs of stepping back from aggressive sanctions, but former Vice President Biden has promised to offer Iran “a credible path back to diplomacy” with the US. With the threat of ever more restrictive sanctions on the horizon, many Iranians are watching American political news very closely. According to a poll, 96% of Iranians say they are paying at least some attention to the presidential race.

Anyone who has actually spent time with hippos knows that this typology dramatically overstates how angry, dangerous, and good at swimming employees of the Defense Intelligence Agency are.

As though called forth by the knowledge that it is a US presidential election year, Joseph Kony is back in the news.

European politics is absolutely wild.

Billionaires have gotten so much richer during the economic and human destruction wrought by COVID-19 that the enduring sound of this era may be the audio from this totally normal and cool video.

Studying conflict can make for some interesting interactions with customs officials. Bonus points to Maaike, though, for reading Midnight Oil alumna Tanisha Fazal’s book, “Wars of Law,” in addition to her more suspicious literature.