03/21/2006 06:09 am ET Updated May 25, 2011

Oil and the Wheels of Corruption

Over the weekend the Italian oil firm ENI confirmed that its Nigerian pipelines had been hit by an "act of sabotage". Nigeria, Africa's biggest oil producer, has seen a 20% cut in output since militants escalated attacks on foreign oil companies since the beginning of the year. The militant insurgents who, as example, forced Royal Dutch Shell to shut down some of its facilities in Nigeria last month had real grievances. Nigeria is the sixth-biggest oil producer and a major member of the OPEC oil cartel, collecting the royalties on 2.36 million barrels of oil a day; but the people of the Niger Delta, where the oil is pumped, are among the world's poorest. While much of the money flows into their rulers' pockets, they are left with little but resentment and environmental problems.

Nigeria is ranked as the world's second most corrupt nation by the Berlin-based watchdog group Transparency International. Literally billions of dollars were stolen in the regime of former dictator Sani Obacha, and little has changed under current President Olusegun Obasanjo. Oil provides two-thirds of Nigeria's federal revenues and trickles down through state and local officials. And those in power blithely raid the public treasury to enrich themselves and maintain their grip. Only pennies on the dollar actually benefit the common people. Corruption infects everyone with a shred of power: Traffic cops and customs officials demand bribes; people pay to jump the queue to get a telephone line.

Promises of a more equitable distribution of income never materialize. The oil companies wink at what happens to their royalties, and try to pacify the militants by making "development grants" to schools and hospitals in the oil-producing region. But these become token payments, paid directly to the most demanding groups. And insurgents who began by demanding justice are in turn corrupted, kidnapping oil workers for ransom and stealing oil from pipelines to sell on the black market.

In its first 35 years as an oil producer, Nigeria took in about $350 billion in royalties. But the number of Nigerians living on less than a dollar a day nearly doubled, from a shocking 36 percent to a horrendous 70 percent. Non-oil industry collapsed; so did agriculture, and the country switched from exporting food to importing it. Violence became endemic and crime ran rampant. Disputes over control of oil have spurred six successful coups, a civil war that killed a million people, three decades of military dictatorship, and the assassinations of two national leaders.

It's an old, sad story. Oil, hailed as a panacea to cure poverty, is in reality a toxic substance, the fool's gold of Third World hopes. In oil-boom states from Chad to Angola to Nigeria, oil's riches sap initiative, reward crooks, and entrench despots. And even in nations that seemingly thrive on oil -- including Saudi Arabia, Kuwait, and the United Arab Emirates -- the toxic fumes take a toll. Wealth sates ambition and weakens enterprise. Idle citizens in sinecure jobs watch imported "guest workers" take care of the drudgery. Princes spend recklessly on luxuries and government boondoggles, and stay in power by stifling dissent and civil liberties.

Healthy democracies, with their traditions of trust, reliable contracts, honest courts, and social loyalties, can take an oil windfall in stride. But in less developed nations, the sudden wealth sweeps away every incentive for sound growth and development and creates only three kinds of citizens: tyrants, criminals, and paupers. It was one of OPEC's founders, Venezuela's Juan Pablo Perez Alfonso, who presciently called oil "the devil's excrement." He didn't know the half of it.