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In policy circles, it's common to talk of the "natural resource curse," the tendency of economies based on extracting natural resources to support dictatorships. But what happens in natural resource-rich states when the oil money diminishes?
Stories from two sides of the globe today address that very question. In Russia, after many years of increases, oil exports have leveled off, and the IMF projects they will stay flat for another five years or more. Meanwhile, in Venezuela the price of oil has dropped as the U.S. finds other sources that compete with heavy Venezuelan crude.
Both countries have essentially subsidized their regimes' popular support with oil earnings. In Russia, the sloshing about of oil wealth disguised the weakness of the economy. Now, as Bloomberg's Evgenia Pissmenia reports, the energy-export model Putin relied on has "run its course." In Venezuela, the decline in the price of oil has coincided with the death of the charismatic Hugo Chavez.
Vladimir Putin and Venezuela's new president, Nicolas Maduro, have approached the problem in similar ways, with price controls. Putin has decreed price freezes for state run utilities and railways. Maduro has demanded that stores cut prices across the board (leading to a run on air conditioners and flat screen TVs, doled out at 90 percent off under military oversight).
Venezuela's crisis is deeper, its economy much more damaged, and Maduro's solution is more extreme. In concept, though, both are similar: when oil is spinning off less profit, keep public support by giving away whatever there is to give. In Russia, that's coming largely from enterprises that the government has up to now sheltered, in Venezuela from businesses that opposed the government. Either way, the basic message is that when governments have gotten used to bribing a large segment of the public with oil revenue have to keep the money coming, even when the oil cash is not there.
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