The paradox of easy wealth, weak nations, and the silent advantage of scarcity
For decades, oil has been viewed as the ultimate economic blessing. A natural lottery ticket. Black gold beneath the soil promising prosperity, power, and permanence.
And yet, history tells a far more uncomfortable story.
Many of the world’s most oil-rich countries — Venezuela, Nigeria, Iraq, Angola, Libya — have underperformed economically, politically, and socially over long periods. Meanwhile, countries with little or no natural resources — Japan, South Korea, Germany, Taiwan — have built resilient, innovative, and wealthy societies.
This contradiction is known as the resource curse. But the phrase understates what is really happening.
This is not a curse.
It is a structural distortion.
The Core Problem: Easy Money Changes Incentives
Oil revenue is fundamentally different from most other sources of income.
It is:
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Large and concentrated
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Collected by the state, not citizens
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Independent of productivity, innovation, or skill
This breaks the most important economic feedback loop in a society:
Taxation → Accountability → Institutions
In a normal economy:
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Governments depend on taxes
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Citizens demand services and transparency
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Institutions gradually improve
In an oil-based economy:
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Governments don’t need citizens
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Citizens don’t need to be productive
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Institutions stagnate or decay
This creates what economists call a rentier state — a system where wealth comes from extraction, not contribution.
Dutch Disease: When Success Quietly Destroys the Future
One of the most damaging effects of oil wealth is something called Dutch Disease.
Here’s how it works:
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Oil exports bring in large amounts of foreign currency
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The local currency strengthens
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Manufacturing and non-oil exports become uncompetitive
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Industry collapses
The economy slowly becomes:
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Over-dependent on oil
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Hollowed out elsewhere
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Fragile to price shocks
When oil prices fall, there is no diversified engine left to absorb the shock.
Case Study 1: Venezuela — From Riches to Ruin
Venezuela has the largest proven oil reserves in the world.
And yet:
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GDP collapsed by over 75% between 2013–2020
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Hyperinflation destroyed savings
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Millions emigrated
What went wrong?
Oil revenues allowed the state to:
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Fund massive subsidies
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Avoid tax reforms
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Destroy private enterprise
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Centralize power
When oil prices fell, the system collapsed — not because oil disappeared, but because everything else had already been destroyed.
Oil didn’t fail Venezuela.
Oil masked failure until it was irreversible.
Volatility: The Enemy of Long-Term Planning
Oil prices are:
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Cyclical
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Geopolitical
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Outside national control
This creates boom-bust fiscal behavior:
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Overspending during booms
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Debt accumulation during busts
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Cuts to education and infrastructure when stability is most needed
Long-term investments require predictable cash flows. Oil provides the opposite.
Case Study 2: Nigeria — Wealth Without Development
Nigeria has earned hundreds of billions of dollars from oil exports.
Yet:
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Manufacturing remains weak
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Power shortages persist
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Poverty rates remain high
Why?
Oil:
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Employs very few people
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Concentrates revenue in the state
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Encourages corruption and elite capture
Unlike manufacturing, oil does not create:
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Broad employment
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Skill development
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Political accountability
As a result, wealth exists — but it doesn’t circulate.
Oil and Power: Why Corruption Thrives
Oil revenues are:
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Centralized
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Opaque
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Politically controlled
This creates incentives for:
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Crony capitalism
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Military influence
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Authoritarian governance
Countries that rely on millions of workers (factories, services) must negotiate with society.
Countries that rely on oil wells negotiate only with elites.
Power becomes concentrated, and resistance becomes dangerous.
The Rare Exception: Norway
Norway is often cited as proof that oil wealth can work.
That’s true — but the reason matters.
Norway:
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Built strong institutions before oil
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Created an independent sovereign wealth fund
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Barred politicians from direct access to oil revenue
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Saved most of the wealth instead of spending it
Oil didn’t build Norway.
Norway’s institutions contained oil.
Timing and governance made all the difference.
The Deeper Truth
Oil wealth substitutes extraction for thinking.
Countries that lack resources are forced to:
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Educate their population
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Compete globally
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Build export capability
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Innovate continuously
Countries that find oil often delay these painful but essential processes.
Scarcity builds capability.
Abundance often postpones it.
Why This Matters Today
The oil era itself is becoming unstable:
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Energy transition
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Climate constraints
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Peak demand uncertainty
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Stranded asset risk
Countries that failed to diversify now face:
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Fiscal stress
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Social unrest
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Geopolitical decline
Meanwhile, human-capital economies accelerate.
A Final Perspective
Saudi Arabia has oil in the ground.
India has gold in lockers.
Japan has skills in its people.
Only one of these compounds without depletion.
Natural resources can make a country rich.
Only institutions make it strong.
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