Mahdavi: The politics of resource expropriation – Why leaders nationalize the oil industry

ABSTRACT:

Why do leaders nationalize the oil industry? In line with a general utility-maximizing theory, I argue that leaders nationalize to maximize state revenues while minimizing costs. The latter includes international retaliation, domestic constraints, and perceived unfairness in profit-sharing with foreign operators. The empirical evidence presented in this paper lends support to four primary findings. Nationalization is most likely (1) in periods of high oil prices, when the risks of expropriation are outweighed by the financial benefits; (2) in non-democratic systems, where executive constraints are limited; (3) in “waves”, that is, after other countries have nationalized, reflecting reduced likelihood of international retaliation; and (4) in political settings marked by resource nationalism, measured by OPEC membership or when there exists a profit-sharing gap between host and foreign governments. The first two findings are consistent with previous empirical research, while the third finding reflects the “diffusion effect” theorized in prior work. The final result represents the original empirical contribution of this paper, that resource nationalism plays a role in determining the timing of oil nationalizations.

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