La’o Hamutuk

Bulletin  |  Surat Popular  |  Topic index  |  Reports & Announcements  |  Updates
Reference  |   Presentations  |  Mission Statement  |  LH Blog  |  Search  |  Home

Corruption: Murky Business in Oil

by Miren Gutierrez,* Inter Press Service
20 August 2003

Transparency is not one of oil's properties; corruption seems to rise to its surface wherever it is found. Is oil intrinsically dirty?

ROME, Aug 20 (IPS) - "Oil rents have tended to impede democratisation and have sustained a long line of authoritarian rulers -- from the Shah of Iran to Sani Abacha (former Nigerian dictator) to the House of Saud to Saddam Hussein,” the independent watchdog Catholic Relief Services (CRS) says in a report 'Bottom of the Barrel'.

Several other reports point the same way. Oil and gas produce the biggest kickbacks after arms deals, Transparency International (TI) says in its latest report on bribery.

”A key factor is how a country makes its money,” writes Tina Rosenberg in The New York Times. ”Oil hurts. Countries that make their money from oil have usually neglected to develop a middle class and solid political institutions.”

Instances of oil staining whole countries abound.

Gabon, Angola and Nigeria, which discovered oil several decades ago have fared worse than many other African countries, the CRS report says. On the TI corruption perceptions index 2002 where 102 is the most corrupt country, Angola is at position 98 and Nigeria at 101.

In Angola, ”rising oil revenues have been diverted straight into parallel budgets of the shadow state,” Global Witness, a London-based non- governmental investigative organisation says in a report.

As in Angola, an overvalued exchange rate has shattered the non-oil sectors in Nigeria. Local revolts over control of oil revenues have brought sweeping military repression in the Niger delta.

”So overwhelming is mismanagement and rent-seeking that Nigeria has become virtually synonymous with corruption,” the CRS report says.

In Gabon, oil has been at the centre of a string of scandals that tainted the government of former French president François Mitterrand. His government stands accused of turning a blind eye to corruption after investigations revealed that Elf Aquitaine used Gabon's banks to launder money while paying huge bribes to the government.

”The reason corruption is so rampant in oil-exporting countries is not difficult to see,” Terry Karl, co-author of the CRS report says in a telephone interview.. ”There is no other commodity that produces such great profit -- and this is generally in the context of highly concentrated power, very weak bureaucracies, and weak rule of law. 'People rob', the finance minister of Venezuela once said to me many years ago, 'because there is no reason not to´.”

Of the eleven members of the Organisation of the Petroleum Exporting Countries (OPEC), Indonesia, Nigeria and Venezuela are listed in the TI Index. The TI report says these are among most corrupt in the world at positions 96, 101 and 81 respectively. The other OPEC members are Algeria, Iran, Iraq, Kuwait, Libya, Qatar, Saudi Arabia and the United Arab Emirates -- hardly examples of transparency.

Big oil names are also directly linked with corruption.

An investigation by La Prensa newspaper in Panama in 1999 -- echoed by The Wall Street Journal -- revealed that a joint venture between Mobil (since that year ExxonMobil) and Saudi Alireza paid 2.7 million dollars to three ”presidential” envoys to secure a contract at former U.S. military bases during the term of Ernesto Perez Balladares (1994-1999).

The Tengiz oil field on Kazakhstan's Caspian coast is one of the ten largest oil deposits in the world, and also the centre of a huge scandal involving ExxonMobil. This country is listed at position 88 in the TI index.

Investigative journalist Seymour Hersh reported in The New Yorker in 2001 that Jordanian businessman Farhat Tabbah had filed a lawsuit in London alleging that Mobil trader Friedhelm Eronat and a representative of the Kazakhstan government conspired to cheat him of millions of dollars in commissions for assisting in a profitable ten-year oil swap between Mobil and Kazakhstan.

The industry has long been swapping oil to reduce transportation costs. The arrangement provides a way to market oil from isolated fields. In a swap, the title to oil in one location is transferred to oil of equal value at another. This was done in the case of Iranian oil to beat a U.S. trade embargo.

James Giffen, an independent banker described by former CIA agent Robert Baer in his book 'See No Evil' as ”Mr Kazakhstan”, features prominently in investigations that Mobil violated the U.S. trade embargo.

Baer says Giffen was the de facto U.S. ambassador to Kazakhstan, and that he arranged high-ranking meetings, fixed deals, and got chunky commissions.

In April 2003, a grand jury in New York issued indictments against Giffen and Bryan Williams, senior executive in charge of Mobil's overseas crude transactions.

All the accused deny any wrongdoing.

The ties between big oil and political power also get too close for comfort. Nowhere are they closer than in the U.S.

During the period in which the bribery and the illegal oils swaps took place in Kazakhstan, Vice-President Dick Cheney was president of Halliburton. Halliburton, the world's biggest provider of oil services, is involved with ExxonMobil and BP Amoco in Kazakhstan.

ExxonMobil was sued for complicity in abuses committed by the Indonesian military forces in war-torn Aceh province, where a major natural gas operation is located. But in July 2002, the U.S. State Department urged Judge Louis Oberdorfer to dismiss the case as it could compromise U.S. interests, and discourage the Indonesian government from cooperating with it in the war against terrorism.

Big oil is also a big campaign donor. The energy industry provided the bulk of the 32 million dollars donated in 2000 for the presidential campaign of President George W. Bush, a former oilman, and the Republicans. One of the first contracts for rebuilding post-war Iraq was awarded to Halliburton, Cheney's employer between 1995 and 2000.

Are crooked politicians in oil-rich countries the real villains? Or the companies that feed them, or the organisations that finance them?

”High levels of non-oil international trade help, perhaps because trade has historically given powerful private citizens an interest in effective government, and leaders incentive to raise standards to international levels,” says Rosenberg. ”Singapore, Hong Kong, Chile and Botswana, all trading nations, are significantly less corrupt than their neighbours and cleaner than many wealthier countries.”

It is a mistake to think that oil itself brings corruption, says Karl. ”It's not really about oil, but about the pre-existing institutions that manage the generation of oil and the wealth distribution,” he says. ”If they are strikingly weak or authoritarian, you are likely to have corruption.”

Oil firms usually sign secrecy clauses that forbid them to reveal details of contracts with developing countries. But ”if the companies got together as an industry and said we'll only sign transparent contracts, governments would have no choice,” says Karl.

The CRS says the World Bank and the International Monetary Fund (IMF) have been too slow to recognise that corrupt governments are squandering oil revenues. Despite recent statements of support for transparency, the World Bank has yet to make loans conditional on full disclosure of contracts.

ExxonMobil has been involved in several scandals, but the International Finance Corporation (IFC) -- the private arm of the World Bank -- is financing a part of a 3.7 billion dollar construction project in Chad and Cameroon in which ExxonMobil has 40 percent (Petronas has 35 percent, and Chevron 25 percent).

British Prime Minister Tony Blair has backed an Extractive Industries Transparency Initiative in which he has called for a voluntary agreement to disclose payments in oil deals. Several oil firms and governments of developing country have made positive noises. But if oil firms do not support it en masse, the initiative is doomed.

* Miren Gutierrez is IPS Editor in Chief. (END/2003)

The Timor-Leste Institute for Development Monitoring and Analysis (La’o Hamutuk)
Institutu Timor-Leste ba Analiza no Monitor ba Dezenvolvimentu
Rua D. Alberto Ricardo, Bebora, Dili, Timor-Leste
P.O. Box 340, Dili, Timor-Leste
Tel: +670-3321040 or +670-77234330
email:    Web:    Blog: