Understanding the Natural Resource (oil) curse

Aug 02, 2026 News

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What is the resource curse?

(Kaieteur News) – The resource curse (also known as the paradox of plenty), according to the Natural Resource Governance Institute (NRGI) refers to the failure of many resource-rich countries to benefit fully from their natural resource wealth, and for governments in these countries to respond effectively to public welfare needs.

Citizens in resource-rich states often look forward to improved development outcomes after natural resources are discovered. These nations however tend to have higher rates of conflict and authoritarianism, and lower rates of economic stability and economic growth, compared to their non-resource-rich neighbors.

CAUSES AND EFFECTS OF THE RESOURCE CURSE

Political scientists and economists argue that oil, mineral and gas wealth is distinct from other types of wealth because of its large upfront costs, long production timeline, site-specific nature, scale (sometimes referred to as large rents), price and production volatility, non-renewable nature, and the secrecy of the industry. The following are some of the causes of the resource curse.

Democracy: Natural resource wealth, particularly oil wealth, has made it more likely for governments to become or remain authoritarian over the past 30 years. Politicians and government officials are also less directly tied to citizen requests or demands. Further, when resource revenues are secret, citizens do not have a clear sense of whether the resource revenues are being spent well or not. Those who outline this theory suggest that the tendency toward authoritarianism can be mitigated by increasing transparency of revenues and strengthening the links between government and citizens through citizen participation in budgeting or direct distribution of wealth (e.g., cash transfers).

Conflicts: Another symptom of the resource curse is internal conflicts as different groups fight for control of the resources or use natural resources to finance their fighting. Since 1990, oil-producing countries have been twice as likely to have a civil war compared with non-oil-producing countries. Political scientists point to examples of the Democratic Republic of the Congo, the Niger Delta, Iraq, Libya and Angola to illustrate this tendency. Petro-aggression, the tendency of oil-rich states to instigate or be targets of international conflict, has been observed in some cases, such as with Iraq’s invasion of Iran and Kuwait, but researchers debate whether the data supports the conclusion that resource-rich countries do this at a greater rate than non-resource-rich countries.

Inefficient spending and borrowing: Revenue fluctuation from oil and gas can cause governments to overspend on legacy projects, such as airports and monuments, when revenues are rising, then be forced to make painful cuts when revenue flow declines. RGI said resource-rich governments have a tendency to over-spend on government salaries, inefficient fuel subsidies and large monuments and to underspend on health, education and other social services.

In addition, governments often over-borrow because they have improved credit-worthiness when revenues are high. This type of behaviour led to debt crises when revenues declined in Mexico, Nigeria and Venezuela in the 1980s. The private sector can be similarly impacted, as it can over-invest in boom times and then experience widespread bankruptcy during busts.

Weaker institutional development: Some researchers argue that institutions are weaker in resource-rich countries because it is easy for elites to capture or take large sums of cash. The theory suggests that large single-point sources of revenue, such as an oil project, can be managed outside the normal budget process and are relatively easily captured by powerful elites.

Examples of tools used to capture revenues include sovereign wealth funds, national oil companies and contractors for extractive operations. “As such, elites in natural resource-rich countries are less likely to invest in productive enterprises, such as job-creating manufacturing industries, and instead pursue rent-seeking, that is, fight for control of these resources,” RGI explained.

Additionally, the Institute said in some cases, politicians or government officials have also purposefully dismantled societal checks or created new regulations to get access to these resources or to provide access to friends or family, a process nicknamed rent-seizing.

“Some argue that elite focus on rent-seeking and rent-seizing promotes corruption and is damaging to institutional development. In turn, the theory suggests that countries with elite rent-seekers and rent-seizers tend to have weaker institutions and lower levels of public service delivery. Examples were noted in Afghanistan, Sierra Leone and Tunisia.

Dutch disease: A large increase in natural resource revenues can hurt other sectors of the economy, particularly export-based manufacturing, by causing inflation or exchange rate appreciation and shifting labor and capital from the non-resource sector to the resource sector, RGI explained. This is known as “Dutch disease.” While inflation and exchange rate appreciation can harm large swathes of the economy within a few years, their impacts can be felt for decades. The detrimental effect of natural resources on other industries has been well documented in Iran, Russia, Trinidad and Tobago, and Venezuela, all of which have either stunted manufacturing sectors or saw a precipitous decline in manufacturing.

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• Natural Resource, oil curse, resource curse, resource-rich countries

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