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Will Low Oil Prices Increase Internal Instability In Conflict Countries?
Submitted by Ryan Opsal via OilPrice.com,
With over 1.6 million internally displaced in South Sudan, and another 600,000 refugees in neighboring countries, are oil price declines exacerbating humanitarian crises in oil-producing African countries, and can we expect further deterioration as a result of the recent price depression?
This is a worthwhile issue to explore given South Sudan’s overwhelming reliance on oil revenues to fill government coffers; a similar situation that can be duplicated throughout Africa with not only oil, but other commodities exports as well. But, do price changes really exacerbate these conflicts? The answer is: it depends.
For starters, commodities predation makes sense in any number of interstate conflicts, but how about civil conflicts? Much of academic research viewed civil conflicts as tightly bound to various grievances by internal factions within the state. For example, divisions in various ethnic groups and historical conflicts between differing factions come to mind as reasons many may give for civil strife. However, there is a strong competing claim in the literature, popularized by Paul Collier and Anke Hoeffler in the mid-2000s. Their claim is that “greed” and not grievance is a significant factor in fueling these disputes. Greed in the sense of this research refers to economic and financial gains being furnished to competing factions in civil wars. This approach is highly significant in that commodities exporters have a much higher probability of encountering civil war as a result of these economic payoffs to internal actors and furthers the robustness of our understanding of civil war.
One should not discount the myriad grievances present amongst the varying ethnic groups in South Sudan, but this research seems to be quite relevant given its oil exports and that much of the fighting and resulting population displacement have been localized in South Sudan’s oil producing regions in Unity, Jonglei, and Upper Nile. The conflict has significantly disrupted operations centered in these oil producing regions imposing significant strain on government revenues through forgone income from Nilepet and increasing risk to other overseas players in the sector which is dominated by China (in particular CNPC (PTR) and Sinopec (SNP), India’s ONGC (ONGC:IN), and Malaysia (Petronas), with marginal activity by France’s Total (TOT), Kuwait’s Kufpec, and Kuwaiti-Egyptian Tri-Ocean Energy.
So, how do commodities pricing impact these conflicts? Well, the same research provides an answer: not much. While commodities, such as oil, may act as a central component to contributing to conflict in the first place, shifts in the price of that commodity typically do not correlate with an increase or decrease in violence within the state. These resources remain a “prize” regardless of ongoing price fluctuations.
This means the recent depression in oil prices, even if it continues for some time, probably will not affect the level of internal conflict, and therefore should not induce further internal displacement. Importantly, if this does occur, it will be due to reasons other than the price of oil.
The timing is another important component. South Sudan’s oil income was already drastically cut back before the price drop in late 2014, which means fiscal adjustments, as well as the issuance of new debt, has already occurred. So, there was little modification to be had as a result of the forgone income from oil price decreases. In the year of its independence, South Sudan was producing nearly 350,000 bbl/d, and due to transit issues with Sudan, dropped to a trickle for 2012, and then in 2013 and 2014 resumed only to approximately 120,000 to 150,000 bbl/d.
So, there wasn’t really much oil income being transferred to the general population to begin with, so it’s not as if the population is forgoing income that may force displacement. Much of the oil income, since the inception of the state, has gone towards the military and fighting internal conflicts. For this reason, and others, oil funds simply were not making their way to the domestic population even before the price declines, which means the internal displacement is not a result of reduced benefits from the state.
There are, of course, some caveats to consider. One issue is the price drop may affect third party aid donors, negatively impacting South Sudan. Norway and Canada, two large aid donors to South Sudan both have their own oil-based problems. While both diversified, advanced economies, Norway and Canada still derive significant portions of their respective budgets from oil revenues, which have of course decreased. Norway contributed $83 million, and Canada $66 million, each in 2013 alone, and both are in the top 5 of South Sudan’s donors. And, although this hasn’t affected their announced aid budgets for 2016, it might impose large enough constraints causing aid decreases starting in 2017, further reducing societal benefits from aid flows.
Despite the potential contribution of oil to civil wars, if this humanitarian crisis worsens or expands, it will not be due to oil price fluctuations, but due to other factors, requiring an adjustment in political analyses in this situation, and others like it. As we have seen in the past, the key to these types of development situations is determining ways to reduce incentives for commodities predation – not an easy task for nations with limited resources and negligible institutional capacity.
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Even when oil was high venezuela was in trouble.
You forgot to tell us that: The problem with Venezuela is that the “oil” money leaves Venezuela, along with the oil.
But I thought that global warming...er, climate change was causing instability?
Let's flip the script here:
Will High Oil Prices Increase Internal Instability In Developed Countries?"
Sorry.
I had this idea that oil prices were artifically manipulated higher for the last 40 years and that laid waste to the economies of the developed world. And so now we find ourselves in our current situation.
Again, so sorry.
Will Low POIL Increase Internal Instability In Conflict Countries?
Let me see...yes.
I think that low oil prices will have an overall negative effect on conflict countries insofar that 'conflict' countries are those defined as oil rich and impoverished.
However, I cannot imagine what an $80/brl market would produce in terms of revenue for the ISIL and the DMZ Corp. In fact, if such a price existed today, would facilitation of such an illegal activity be that much more detectable due to the numbers?
Also, I like the Saudi push to lower crude prices to 'compete' or 'out compete' with US shale oil well ahead of mentions of an ISIL crude market. It's just to pave the road.
SWRichmond, I thought that global warming...er, climate change was causing instability?
Nice misleading post to promote propaganda.
Well, it might actually work, after all, in a nation (US) that over 70% of the population believe that jesus will come from the sky in a flying horse.
And over there, that will be over 70 virgins in paradise.
So, under these circumstances, any irrationality and misleading propaganda are possible.
You forgot to tell us what makes the “oil” money leave Venezuela.
Another worthless article from OilPrice.com. Low oil prices were engineered by the US and Saudi Arabia to hurt Russia and Iran. They are also hurting other countries like Venezuela, Nigeria and Brazil
Next youll claim that the us has not tried seriously to stop isis oil sales to turkey and israel!
Wait, it's not low oil prices that cause in stabilty.
It's Global Warming/Cooling/Climate-Change/Whatever-It-Is-Du-Jour.
It's true because Princess Charles said so.
Will Low Oil Prices Increase Internal Instability In Conflict Countries?
Duhh!
Oil is priced in a fiat currency that only the US can print/issue debt.
https://www.youtube.com/watch?v=02F-3l1EKsA
Would anyone be surprised to learn Israel is heavily involved in providing weapons to various factions in south sudan?
http://972mag.com/the-untold-story-of-israeli-military-exports-to-south-...
http://www.globalresearch.ca/the-plundering-of-south-sudan/5364376
http://antonyloewenstein.com/2015/06/10/the-sordid-connection-between-is...
sudan would likely be more fucked with higher oil prices.
Who gives a shit, I can fill up my hemi for 20 bucks bitchez!
As prices go lower and lower,and investment in drilling and exploration goes with it, imagine the future value of the oil assets that are being shaken loose at the moment.
Do any of you think this is really some short term political shit show?
No. Medium/long term play for global oil dominance by clued up bankster elite. Just watch and see who ends up owning all the future oil production and many questions will be answered.
The best cure for a price crash in a necessity is a price crash in a necessity.
No.
The low IQ and poor impulse control of black Africans---and the overpopulation that results---are the root causes of what intellectuals call Africa's humanitarian crises, and what normal people call "pretty much all you can expect from blacks left to their own devices."
Oil is only an issue to the extent Saudi money bankrolls jihad out there too. They bankroll it even in countries without oil.
If anything is aggravating the problem, it's Islam, which has always served as a perfect excuse for savages who prefer to stay savage to butcher anybody with the wit and will required to do any better.
Careful now
don't go shopping today.
NO - they'll just buy their own debt with $$$ that doesn't exist ... isn't that the going trend?
Oil price below a certain level causes instability in countries that sell oil. Oil price above a certain level causes instability in countries that buy oil.