The Resource Curse

Written By Nick Hodge

Posted February 25, 2011

The financially secure don’t loathe high oil prices. They welcome them.

That’s why you can always tell who’s living paycheck to paycheck when pump prices start creeping skyward.

They’re the ones ranting about Obama or the Saudis or the Big Oil companies, asking “why they don’t do something about these got-damned oil prices.”

But the problem isn’t high prices…

Even the parking attendant in my garage knew they were coming.

The problem is these people can’t afford it.

The resource curse

Eighty-one percent of Libya’s industrial economy is attributable to oil and gas. Another 17% comes from the service sector, which mostly provides oil and gas services like pipeline and port construction.

So 98% of the nation’s economy is petroleum-derived.

And one man has been in control of it all since 1969.

Economists call that the “resource curse,” wherein a country’s immense resources lead to political corruption. Its effects can be seen in Iraq, Saudi Arabia, Iran, Venezuela, Russia, and even in the payola that occurs in congressional resource committees.

People are greedy.

In Gaddafi’s case, he’s nationalized the entire oil industry and used the proceeds to buy guns, mercenaries, and citizen loyalty. And it’s worked for over 40 years.

He’s used that oil wealth (which he gained after a coup) to oppress his people and stay on top.

He doesn’t want Libyans to start businesses and gain wealth… They might use it against him.

So there’s little work in Libya that isn’t provided by the government; there’s a reason he keeps unemployment around 40%.

A weak flock succumbs to a strong leader.


Getting that oil wealth

Of course, the world market doesn’t care where the oil comes from.

Today, oil’s worth $97 per barrel whether it comes from Saudi Arabia, Russia, Iran, or Texas.

I’ve never heard anyone ask for “Fair Trade oil”.

But the brilliance of the United States is that we’re not run by an authoritarian dictator. We have liberties. We have freedoms. We can improve ourselves and our situations.

And for all of today’s political strife… all the ideological clashes… all the vitriolic rhetoric currently being spewed in our country…

We still have choices.

We can choose, like too many do, to stand at the pump and complain…

Or we can choose to take control, to take note of the world around us and use it to our advantage.

That’s the difference between Toledo and Tripoli.

So if you want to stand around and complain about food prices or pump prices or baggage fees, that’s your choice.

But I’d be using my freedoms to do something a bit more productive…

Investing in the ProShares Ultra Crude Oil ETF (NYSE: UCO), which is up 20% since Libyan unrest began and crude oil spike passed $100:

April Crude Oil

Investing in the U.S. drillers that are now even more profitable because of high prices.

Remember, oil from North Dakota is worth the same $97 per barrel as oil from Libya.

Maybe that’s why you won’t hear me complaining.

Call it like you see it,

Nick Hodge

Editor, Energy and Capital

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