It's not often that a change in accounting rules could reduce the probability of war. But that's exactly what happened at the U.S. Securities and Exchange Commission (SEC) last week.
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On Wednesday, the SEC finally enacted long-overdue regulations requiring any oil company that is publicly listed on a U.S. stock exchange to report the tax, royalty, and other payments it shells out to foreign governments where it operates. Previously, companies were able to conceal this information, enabling a culture of corrupt payoffs that kept the petrodollars flowing into authoritarian leaders' coffers -- even where it directly contravened U.S. interests.
Making this kind of financial information available to the public is an important step toward reducing corruption and increasing political accountability in developing countries where oil is extracted. This, in turn, will improve development prospects and counteract authoritarian tendencies, potentially even reducing rates of civil conflict. High rates of corruption in oil-producing states like Angola and Nigeria, for instance, have stymied development and contributed to human rights abuses -- some of which oil companies were directly responsible for. In Nigeria, for instance, Royal Dutch Shell is accused of complicity in dozens of murders and human rights abuses, the details of which have been laid bare in a U.S. Supreme Court case this year.
In Angola, both sides of the bloody civil war that lasted from 1975-2002 were financed by natural resource wealth: one by oil, the other by diamonds. The oil industry played a pivotal role in that war, generating critical funding for the eventual victors, the People's Movement for the Liberation of Angola (MPLA), as well as grievances that inspired separatist groups in the oil-rich Cabinda region to fight for independence from the rest of the country. The presence of oil companies also generated additional incentives for South Africa, Cuba, and the Soviet Union to intervene, as each stood to gain preferential access to Angola's oil in the event that its side won (though oil was not their only motive).
But the SEC ruling is not just beneficial to developing countries -- it is also in the interests of the United States and its allies. If oil money is not managed well -- and it rarely is -- it can get channeled into civil and interstate conflicts that threaten the United States or its interests. Research shows that oil-producing states led by revolutionary governments like that of ousted Libyan leader Muammar al-Qaddafi are more than three times as likely to instigate militarized international conflicts as a typical state. Oil income makes these petrostates aggressive, emboldening them to pick fights they might not otherwise attempt -- think Iraq's 1991 invasion of Kuwait or Libya's armed conflicts with Chad that lasted over two decades. And with 16 developing countries about to become new oil exporters, the likelihood of petro-fueled conflict is only getting higher.
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