“If there was any armed aggression against Venezuela from Colombian territory or from anywhere else, promoted by the Yankee empire, we would suspend oil shipments to the United States, even if we have to eat stones here.”
Hugo Chavez, former Venezuelan President
Resource nationalism describes a government’s effort to gain greater control or value from its natural resources. This can range from outright expropriation – when a government takes away a private company’s assets – to more creeping forms of appropriation – such as higher taxation or tougher regulation. Although resource nationalism may be driven by economic interest, improving bilateral relations, diplomatic ambitions and popular sentiment also play a role in nationalism policies.
In 1938, the Mexican oil industry was nationalised. Seen in the context of its people, it was viewed that, at last, a poor country, long buffeted by predatory foreign powers, had exercised its right to own the wealth of its subsoil, seeing off rich countries that treated access to these resources at low cost as their right. Meanwhile, in 1951, the Iranian government nationalised the assets of the Anglo–Iranian Oil Company (now known as BP). The decision was enormously popular within the country and seen as a long overdue staunching of its national wealth that could now be harnessed to fighting poverty in Iran. More recently, in Venezuela, the late Hugo Chávez grasped strategic assets to propagate his Bolivarian revolution. Bolivia and Ecuador followed his cue.
Resource nationalism may also result in higher and more volatile commodity prices. Higher political risks associated with conflicts of this sort will also compound uncertainty in global resource markets. Should fear of expropriation or resource nationalism keep investors away from attractive deposits and deter future investments, it could result in global supply constraints and higher commodity price volatility.
Although a government may appear to be good, transparent and welcoming to foreign producers, years later – once a mine or an oil well has opened – they may change their tune. This time inconsistency and resulting uncertainty may reduce longer term investment in the country’s resource productivity; leading to a loss of skills and capital from the private sector, reducing production and potentially leading to higher volatility.
A recent example of this process in action is Venezuela, where in 2003 Hugo Chávez, the president at the time, fired more than 18,000 employees of the state-run oil corporation, Petróleos de Venezuela (PDVSA), and banned them from working for any company doing business with PDVSA. At the stroke of a pen, the oil company lost approximately half of its managers and technicians. Despite the strong rise in oil prices since 2003, the loss of so many experienced workers was one reason why the country has failed to benefit and oil production in Venezuela has stagnated.
Countries such as Russia and Ukraine introduced export bans on agricultural commodities during the period 2008–12, a decision designed to protect domestic consumers from higher food prices. However, these export restrictions may have exacerbated concerns about global agricultural supplies and in turn contributed to higher global food prices.
Restrictions on agricultural commodity exports are legal under global commerce rules, even for those countries (such as Ukraine) that are bound by their membership to the World Trade Organisation (WTO). The General Agreement on Tariffs and Trade, the core treaty of the WTO, has banned “prohibitions or restrictions” on exports of commodities since 1947. However, it permits them when “temporarily applied to prevent or relieve critical shortages of foodstuffs or other products essential” to the exporting country. The treaty also fails to explain what it means by “temporarily” or what a “critical shortage” is, leaving countries ample room for manoeuvre.
What are the causes of resource nationalism? High commodity prices have been a significant driver of resource nationalism in the past, with foreign multinationals often accused of pocketing excessive windfalls or not doing enough to extract a valuable and scarce resource. However, as the shale revolution has taken hold in the US and the perceptions of the relative scarcity of oil and other commodities have changed, there are tentative signs that this may have reduced the ability of the governments of commodity producing countries to negotiate (or impose) better terms on international resource companies.
A decline in commodity prices doesn’t necessarily signal the end of resource nationalism though. A slowdown in economic growth may also drive resource nationalism because governments dependent on their sale try and get a bigger share of a shrinking pie.