The civil war in Libya, and the consequent spike in world oil prices, has cast a bright light on three important truths about global energy: first, Europe and the United States are increasingly dependent on oil imports from unstable regions; second, in many oil-rich countries, corruption and mismanagement of petroleum revenues can leave the population impoverished, as is so evident in the pictures from Libya; and third, oil revenues can embolden despots and lead to instability, which directly affects the national interests and economic growth of oil importing countries.
In recent years poor, unstable countries have become a major source of minerals and energy for the developed and developing worlds alike. Sub-Saharan African oil exports, for instance, have grown by 40 percent since 2000, and Europe now gets more than 20 percent of its imported oil from Africa. The U.S. imports more oil from Africa than it does from the entire Persian Gulf.
This has spurred strong economic growth in some developing nations, but often the growth has been uneven, with many resource-rich countries succumbing to corruption and political instability. Too often, oil money intended for a nation’s poor ends up lining the pockets of the rich or is squandered on showcase projects instead of productive investments.
This phenomenon, known as the “resource curse,” affects the consuming as well as producing countries. It exacerbates poverty which can be a seedbed for terrorism. It empowers autocrats and dictators like Gaddafi, and, as we are painfully experiencing now, it can roil world petroleum markets. Increasingly, the economic and energy security of Europe and the United States is tied to stability and sustainable growth in developing regions.
Recognizing this link, the United States last year took an important step toward combating the resource curse with the enactment of new disclosure requirements for oil, gas and mineral companies.
The legislation we authored, part of the financial reform bill, requires all petroleum producers and mining companies listed on U.S. stock exchanges to report their payments to each of the countries where operate. This includes a number of large foreign firms with securities listed in the United States.
This simple measure, supported by investors such as Calvert Investments and civil society groups such as Oxfam, Global Witness, and Bono’s ONE campaign, imposes little burden on the petroleum and mining industries, but will over time have profound and far-reaching implications for transparency and accountability.
In recent years, a number of international actors — including responsible oil and mining companies and citizens groups — have begun to tackle the resource curse problem by calling for greater disclosure and accountability of revenues through voluntary participation in the Extractive Industries Transparency Initiative. An Oslo-based international organization, EITI requires member countries and the companies they host to publish payments and receipts, and to have the results audited and certified.
The voluntary EITI approach has been enthusiastically endorsed by the World Bank, the IMF, and the G-20 group of major economies. Our legislation will help bring transparency to countries that remain outside the EITI system. As Treasury Secretary Timothy Geithner told Congress last month, such legislation can have “a very powerful effect, not just improving transparency about the resources these countries have available, but in improving the odds that they’re used for the benefit of their people.”
The next step is to make such U.S.-style disclosure the global norm. This would add more firms to the list of major U.S., European, Latin American and Asian companies already covered, and add muscle to the worldwide fight against corruption.
We therefore applaud the recent announcement by the British, French and German governments that they will support mandatory extractives disclosure at the European Union level. Officials at the European Commission are working to prepare the necessary legislation, but are eager to see the final rules from our own Securities and Exchange Commission to avoid creating incompatible regulations.
Unfortunately, the SEC has already missed the law’s April 15 deadline to publish the final regulations, and has indicated they may not be ready until December. Such a delay is cause for concern, and we have asked the agency for a precise timetable.
Europe’s support also reflects the growing consensus that transparency of payments to countries is materially important for investors. Last year, the Hong Kong Stock Exchange began obliging new applicant mineral companies to disclose payments to host-country governments, and the International Accounting Standards Board is considering making such reporting standard.
When energy supplies are endangered by political manipulation, terrorism, or depleted resources, American national interests are threatened, as are Europe’s. Our energy challenges are shared among nations, and their resolution requires both domestic action and international cooperation. A concerted global effort, led by Europe and America, to end the secrecy that often surrounds energy development is a good place to start.
Senator Richard G. Lugar (R-Indiana) is the Ranking Member of the U.S. Senate Foreign Relations Committee, and Senator Benjamin L. Cardin (D-Maryland) is the Chairman of the U.S. Helsinki Commission.