Publication Name

Eastern Caspian

Environment and Security

From an economic perspective, the World

Bank considers that oil-rich countries are

confronted with problems related to volatility

issues, quality of government spending, in-

flexibility of government policies in an uncer-

tain environment, and boom-bust economic

cycles (World Bank, 2005: 9). However one of

the key problems for oil producing countries

is the “Dutch Disease”, a situation that devel-

ops when the economy is overheated by an

increase in oil-related revenue and the associ-

ated fiscal, monetary, and credit growth. This

can lead to excessive appreciation of the local

currency, exerting negative pressure on sec-

tors such as farming and manufacturing.

Resources may also give rise to grievances

if state institutions, responsible for manag-

ing them fairly, engage in private accumula-

tion and even criminal dealings. The weak-

ness and failure of political systems is a key

factor in environmentally–related instability

and violent conflict (Kahl, 2006). This prob-

lem is aggravated by the fact that govern-

ments often rely on natural resources rather

than taxation for their sustained develop-

ment and prosperity.

States dependent on natural resources often

feel little need to respond to the demands

of their citizens and consequently tend to

use revenue generated by the extraction of

natural resources to secure their own pow-

erbase and the support of political allies

(Karl, 2000). In this case links between the

centres of political and economic power are

very close. This situation has been qualified

as the “resource curse” (Ross, 1999)

. An

important factor worth considering is that

the potential of natural resources to cause

conflict varies according to their character-

istics and distance from the political cen-

tre (Le Billon, 2001). Valuable minerals, for

example, are much more likely to produce

resource curses than agriculture because

governments typically own such resources

or otherwise control the bulk of their reve-

nue streams (Karl, 1997; Ross, 1999, 2001).

Likewise “honey pots” drive conflicts when

valuable natural resources are concentrated

in specific areas or otherwise easily seized

and controlled; therefore, concentrated re-

sources such as valuable minerals are more

likely to produce conflict than diffuse re-

sources such as cropland or freshwater. In

this context it should be remembered that

up to 80–90% of Kazakhstan and Turkmeni-

stan’s proven oil reserves are concentrated

in the Caspian region.

Societies and countries are not powerless

when confronted with tension, instability and

conflict. They have the capacity to deal with

such problems. How resources are managed

and revenue stemming from such resources

redistributed influences the overall stability

of a country. Institutions, particularly political

bodies, can work to defuse conflict. Exam-

ples from countries such as Norway or the

United Kingdom show that “Dutch Disease”

or the “resource curse” are not an inevita-

ble outcome for economies well endowed

with natural resources. In a well-managed

economy the extraction of mineral resources

can have a strong, positive impact on the

local economy even in peripheral regions

that may face strong centrifugal forces from

the national core region (Auty, 2006). Poli-

cies fostering broad-base, long-term human

capital investments not only enhance the

population’s opportunities to find employ-

ment (and improve workforce productivity

too) but also mitigate potential deterioration

in income distribution that oil inflows may

create. The main challenge for states is how

best to manage wealth generated by the

extraction of natural resources. Successful

countries are the ones that invest heavily

and well in broad-based human capital – not

just in a narrow elite (World Bank, 2005).

The “Dutch Disease”