Corruption is an issue I care about deeply, and this will be one of a series of writings on it. This particular post is focuses on politico-economic corruptions with oil companies, and is written in a documented research format. (For other articles on corruption in China, see here)

Oil companies are constantly seeking new ways to acquire new resources and to expand overseas. Oil companies are no exceptions. In their case, the quest for greater access – in the form of drilling rights to oil and gas fields across the world – to resources has been intense and lead them to deal with governments around the world. However, this also presents an ethical dilemma: many of oil fields are under the ownership of governments that are often perceived as corrupt by international standards (as measured by the Corruption Perception Index[1]), so should big oil and gas companies deal with these inherently inefficient governments? On one side, oil companies have a duty to its shareholders to maximize value and a need to maintain its global competitiveness through investments; on the flip side, businesses should not provide funding to fuel corruption and social inequality, give aid indirectly to groups that threaten American national security, or to further human rights abuses as a result of economic exploitation. To narrow down the scope of this discussion, I would like to focus on the role of the six “Supermajors” in the oil industry: BP, Chevron, ExxonMobil, Royal Dutch Shell, Total SA, and ConocoPhillips, and their interactions with two countries in particular: Nigeria (ranked 144 out 175 based corruption levels, with 175 being the worst) and South Sudan (173 out of 175).

Let’s examine the societal impact that private oil companies have on the people in the countries they operate by presenting some facts. Oil industry is a multi-trillion dollar industry, and they operate in all regions of the earth.[1] In the example of Nigeria, Shell, ExxonMobil, Chevron, and Total all have stakes in Nigeria, with both on and off-shore oil production facilities, concentrated in the Niger River Delta. The companies are partnered with the Nigerian National Petroleum Corporation (NNPC), a state-owned enterprise. Nigeria, as a member of OPEC, maintains at least 51% ownership in all its joint ventures with foreign companies.[2] Foreign expertise in the oil industry is crucial for the development of Nigeria’s offshore drilling platforms, and much of Nigeria’s future earnings from oil likely will come from these areas in the Gulf of Guinea. Currently, oil and gas exports accounts for around 95% of Nigeria’s exports and 76.39% of federal government revenue, pumping hundreds of billions of dollars into the economy.[3]

These numbers all seemed great; and if indeed this is all the things that oil companies had done – creating jobs and helping provide a source of government revenue – then we have nothing to blame the Big Oil for. However, the presence of foreign companies on Nigerian soil is far detrimental than it appears at first sight. As oil increased in importance (from 3.43% of GDP in 1965 to 37.44% in 2009[4]), it fuels increasing corruption by giving an extraordinary amount of power to the government officials in charge of handing out government contracts. Kickbacks and briberies are commonplace and oil companies are unscrupulous in giving out sums of money to officials, in exchange for favorable deals. Government officials are intimately connected to the military and other social elites, giving the oil companies a leverage in influencing the politics of the nation as well. Nigeria underwent a serious of military coups since independence in 1960, and much of it occurred with the knowledge or the tacit approval of foreign oil companies, ensuring that their own interests are protected above all. This fueled an enormous amount of corruption at the very top of society. As an example, former dictator Sani Abacha, who ruled the country from 1993 to 1999, is estimated to have stolen the equivalents of 2-3 % of the nation’s GDP for each year he was president.[5]
As we can see, the presence of oil companies introduced an element of instability to the post-colonial landscape by giving rise to a plutocracy that are self-promoting and cares nothing for the nation. Moreover, oil companies, by interacting with these corrupt countries, are also destabilizing them. It causes social unrest between different groups in the county: oil vs non-oil producing regions, the business interests vs subsistence farmers. The Supermajors are extremely influential in world affairs by virtue of their size and the different areas that they operate. With this great power also comes a great responsibility: to promote the interests of the people living in the areas that they are operating. Energy companies are already under intense criticism for not being responsible, and it is time for oil companies to become more responsible stakeholders in society. From this perspective, oil companies should limit their interactions with corrupt governments such as that of Nigeria’s and restrict their investments to countries that score high on their political transparency. Companies should take into consideration processes of government approval of projects, have a basic idea of where the revenue is going, and refrain from bribery (this last point is somewhat unnecessary since bribery is already illegal under the Foreign Corrupt Practices Act in the US and elsewhere, but stricter enforcements are necessary.) Only through this careful evaluation of government transparency can the “oil majors” ensure that their investments are not only benefiting themselves but also others in the community that they are involved in.

Besides giving rise to further corruption in society, by interacting with corrupt or underdeveloped countries – they are often the same since one often leads to the other – oil companies also indirectly retards the growth of a domestic economy. Nigeria, for example, went from exporting large amounts of agricultural products such as coffee and grain, to becoming a net importer of food, even while millions of acres of its own land lay fallow due to a lack of investment in agriculture.[6] The presence of oil and natural resources shifted the focus of the company away from developing its industrial and agricultural base to becoming dependent on a commodity that fluctuates daily in the international market, a classic example of the resource curse. This causes a lack of diversification for the economy and contributes to volatile economic growth for the region.[7]

Once again, we must consider the role of the oil company as more than simply a profit-generating entity that can neglect its surroundings. Companies exist in their environment, and I believe that people tolerate the existence of corporations because of the possible benefits it brings to society. The vast majority of the people of Nigeria, a nation of over 170 million people, are not deriving any benefits from the black gold beneath their feet and off their shores. They had come to resent the oil companies for being the source of their misery and the ongoing crisis in the Niger delta (political and economic). This resentment is often expressed in the forms of oil stealing, negligence while working, and forms of demonstration. This causes disruptions in oil supplies and greater costs for oil companies to run their operations. Furthermore, tying into the overall theme of corruption, we see a relationship of how economic underdevelopment contributes to corruption: poorer people tends to favor extreme solutions to their problems, causing them to seek “strongman” to rule the country in the hope of solving their problem (or as President Truman once said, “The seeds of totalitarian regimes are nurtured by misery and want”[8]); this in turn causes concentration of power and wealth in the select few, who evolves into self-serving oligarchy; the oligarchy is afraid of losing that power and uses oppression to cement their rule, causing suffering to millions, and eventually a new leader will arise who will promise change, but who in fact only looks out for his own interests; and the cycle begins anew. Throughout this entire cycle, oil and oil companies are the lubricants that makes the machinery of corruption run. Oil companies in a country like Nigeria fosters corruption, increases reasons for oppression, and while at the same time harms the structure of an economy. It is advisable for oil companies to stay out of the market altogether, or at least not to return until conditions have changed and civil society had become stronger.

A final point arguing against the involvement of Big Oil overseas would be the existence of terrorists groups and parties hostile to the US that might benefit from the petrodollar flowing into their economy. In Nigeria, the Islamic terrorist group Boko Haram (whose name meant “Western education forbidden”) is busy stealing oil through breaking pipelines, taking control of oil fields and illegally refine oil [9]. Boko Haram, with links to the international terrorist group Al-Qaeda, presents a security threat to both the people of Nigeria and nations around the world. The group appeals to those Nigerians who felt cheated out of the benefit brought about by the exploding oil wealth in the country. The money gained from the oil refinery has given the group the means to recruit new members and increased its militancy, as demonstrated by the recent kidnapping of over 200 schoolgirls in northern parts of the country.[10] Oil companies can stop all of these by not conducting business in the country where terrorists groups operate, as listed by the US State Department. By not conducting businesses in those countries, we are decreasing the power of terrorist groups to obtain funding and eliminate some of the social inequalities that gives rise to terrorism in the first place.

Now that we have discussed several of the key points against oil companies operating overseas, let’s look at the pro-Big Oil side’s counterarguments.

The six Supermajors, whether they are the French company Total or Exxon of the US, exists in the structure of a corporation. A corporation is a separate entity distinct from its owners, but at the same time having many of the same rights as people, as the Supreme Court decision “Citizens United v. FEC” reaffirmed and expanded in 2010. Rights are necessary because companies need to be able to enter and enforce contacts with different parties with limited outside interference. These rights, as applied to businesses, essentially meant that they should be free to select who they would like to do business with without their home government come in and meddling with their decisions. From this point of view, even though governments that own the oil fields may be corrupt, this should not prevent companies from trying to enter their markets in its search for natural resources. Political goals and even human rights and global development should not be the main concerns of these businesses, and governments should not limit business operations based on these non-business goals. Corporations have a fiduciary duty to their shareholders and oil companies believe that as free entities, they should be able to pursue their interests in foreign countries. As many of the oil companies are struggling to remain competitive amid high costs, they are looking to get access to as much raw materials as possible at the lowest possible price. Furthermore, in regards to their social responsibilities, Big Oil lobbyists argue that by producing oil in foreign countries, they will eventually help the citizens of those countries by providing them with revenues for them to develop, while at the same time people in the developed world benefits by having access to cheaper fuel prices.

Another key point oil lobbyists make is that the Big Six are facing new challenges from a number of sources. Most significantly, many national oil companies (NOCs) have emerged as important players around the world. These enterprises are often state-owned, working on oil fields at home while at the same time expanding in underdeveloped areas in Africa and elsewhere. The largest among these include Rosneft and Gazprom in Russia, Petronas of Malaysia, China National Petroleum Corporation and other Middle Eastern and Indian oil concerns. In the past, the Supermajors are able to fend off these challenges because they possess the skills and technologies to outdo these competitors. But today, developing nations are catching up to the skills needed to be successful. In order to respond to these challengers, the pro-oil side argues that the oil companies must expand more overseas to markets that have been previously overlooked. However, often this is impossible because the US government has placed sanctions on certain countries, due to a variety of political reasons.

One example is South Sudan, where prior to its independence from the Republic of Sudan, US companies are not allowed to do business with due to the prevalence of state-sponsored terrorism. In 2011, Southern Sudan became an independent nation and US companies are eager to get in on this new market. However, they are still prevented from doing so; this is because South Sudan lack the proper infrastructure for transporting oil and requires pipelines through the Sudan, which is on the sanctions list by the State Department. South Sudan has also been considered to be a major violator of human rights due to the ongoing civil wars in the country. Despite these concerns, oil lobbyists pointed out that other Asian companies are not bound by these restrictions and are gobbling up oil fields in large tracts, and providing 98% of government revenue for South Sudan in the meantime.[11]

Why should Asian NOCs be allowed to invest in a corrupt government while Western companies are not? Oil lobbyists argue that this is unfair for American/European companies since they are being placed at a disadvantage by for political reasons. They argued that by staying out, we are not helping solve the human rights issue since other companies will simply step into the void, while at the same time, Western companies are missing out on a valuable opportunity to grow.

All of the arguments made in favor of oil investments in corrupt governments overseas all have good merits and deserve our considerations. However, each one also have its faults, and I will address each one individually.

Firstly, oil companies pointed out the divide between politics and business and urged governments not to interfere in the economic sphere. This division simply do not exist in real life; if anything, the natural resource extraction business depends on the protection and promotion of governments more than any other industry. Since the 19^th century, oil and gas companies have often been the instigators of legislations and works closely with governments: the help the British governments provided to Anglo-Persian Oil Company (later BP) when faced with a possible nationalization in Iran[12], the substantial tax cuts of the Bush Administration on the oil industry are all some of the examples of businesses working with governments to secure their interests[13]. The hypocrisy is evident: even though the oil and gas industry actively lobbies the governments to help them, at the same time they continue to resist any form of government regulation. In this sense, we see that the oil company’s freedoms are not really affected, but rather, Big Oil have entered a sort of contract with national governments whereby oil company will get their interest promoted in exchange for some regulations, such as not doing business in countries with poor human rights records. This arrangement, in my view is fair, and Big Oil are not getting their rights violated, as they have often claimed.

Secondly, oil companies argues that if the West did not invest in African oil, then other Asian countries will simply step in. However, we need to remember that many of these Asian countries, such as China and Malaysia, also have human rights violations of their own, from cracking down on journalists to prohibiting the freedom of assembly. Can the United States and other western nations, areas with decades if not centuries of respect for human dignity, be held to the same standard as these countries? Oil and gas companies are our nation’s representative overseas, and what they do or don’t do reflect back on their country of origin, either enhancing or endangering the moral power of the United States and the West as a symbol of freedom in international relations. From another view, as countries in the developing world democratize and cast off their legacy of oppression, would the governments and people of those countries want to deal with companies that had fostered their oppression in the first place? Probably not. The developing nations also represents the biggest emerging market (Nigeria’s population are expected to more than double to 440 million by 2050[14], even exceeding that of the United States at the time), an area that oil companies simply cannot ignore. Oil companies need to consider this in the future, and good relations with these nations is crucial for Big Oil’s long term vision and success.

Finally, Big Oil companies argued that they need to bring benefits to all stakeholders. However, I would like to argue that not all stakeholders are of equal importance. It might be true that shareholders in the company can get some extra dividends through an investment, and certain government officials can become rich. But what about the millions in Nigeria or South Sudan that are living on less than $1 a day, and who are trapped in a cycle of poverty? Indeed, oil companies are neglecting the single most important stakeholder in oil development projects, which is the people who are living in the area affected the activities of oil companies. Imagine this: if a company comes by and decide to occupy large amounts of land without due compensation, pollutes the land and rivers with refinery wastes, and do not bring any job opportunities to the displaced peasants, would you support the company moving in? I would imagine not, and yet this is precisely what is happening in the Niger River Delta.[15] Can a company be said to be a responsible member of society if it brings nothing but misery to the area where it is present, no matter how much wealthier they are making executives back at home? In this situation, it is only ethical for companies to limit its investment or not invest at all.

To sum up, I believe that it is inherently unethical for Western oil companies to invest in overseas asset in corrupt/underdeveloped countries. As my examples have shown, the presence of oil companies in these regions will likely lead to economic underdevelopment, further human rights abuses and exacerbate political corruptions. In order for oil companies to be considered responsible corporate citizens, it is imperative for them to refrain from doing businesses in these regions.

[1] http://www.aei.org/publication/energy-fact-of-the-week-as-a-separate-country-the-us-oil-and-gas-industry-would-be-the-16th-largest-economy-in-the-world/

[2] http://www.nnpcgroup.com/NNPCBusiness/BusinessInformation/OilGasinNigeria/IndustryHistory.aspx

[3] http://www.ceicdata.com/en/blog/oil-dependence-hindering-nigeria%E2%80%99s-emerging-economy

[4] http://www.ccsenet.org/journal/index.php/jsd/article/viewFile/14891/10727

[5] http://www.unodc.org/unodc/en/frontpage/nigerias-corruption-busters.html

[6] http://www.ccsenet.org/journal/index.php/jsd/article/viewFile/14891/10727

[7]ITracy_l_moodledata_temp_turnitintool_793995179._60_1384335874_2108.pdf

[8] http://www.digitalhistory.uh.edu/disp_textbook.cfm?smtID=3&psid=1235

[9] http://www.trackingterrorism.org/article/new-financing-options-boko-haram/oil-theft

[10] http://www.huffingtonpost.com/2014/11/01/boko-haram-kidnapped-girls-married_n_6086420.html

[11] ITracy_l_moodledata_temp_turnitintool_793995179._60_1384335874_2108.pdf

[12] http://www.sjsu.edu/faculty/watkins/mossadeq.htm

[13] http://www.pbs.org/now/shows/347/oil-politics.html

[14] http://www.pewresearch.org/fact-tank/2014/02/03/10-projections-for-the-global-population-in-2050/

[15] http://epu.ac.at/fileadmin/downloads/research/rp_0707.pdf

[1] http://www.transparency.org/cpi2013/results