5.9 - Impact of Natural Resources
Rentier states, like Iran, Nigeria, and Russia, get a sizable percentage of government revenue from oil and gas exports or from leasing resources to foreign countries. This can raise living standards, fund government programs, and reduce the need to tax citizens heavily, since massive resource reserves provide wealth directly. Oil and gas supplied about half of Russia's federal budget revenue in the early 2010s and still about 30 percent in 2024 (falling to under a quarter in 2025 as oil prices fell and the ruble strengthened), oil supplied roughly three-quarters of Nigeria's government revenue before the 2014 oil price crash and crude oil is still more than half of its exports, and Iran is heavily dependent on petroleum exports as well.
The Resource Curse
The resource curse refers to negative political and economic outcomes that show up despite (and often because of) resource wealth.
One major symptom is a lack of economic diversification: the economy becomes dependent on a single export, with other sectors like manufacturing, agriculture, and services left neglected, leaving the whole economy vulnerable to commodity price crashes. For decades Nigeria exported crude oil but imported most of its refined petrol, because its state-owned refineries barely worked, illustrating how lopsided this dependence can become. That began to change only when the privately built Dangote refinery near Lagos started producing petrol in 2024, though Nigeria still imported a large share of its fuel in 2025.
Government resources also concentrate on the single profitable export, with investment flowing disproportionately to the oil and gas sector while other industries can't compete for capital or talent, a phenomenon sometimes called "Dutch disease," where the resource sector crowds out everything else.
World market pricing also creates severe revenue fluctuations, since oil prices are volatile and government revenue swings wildly as a result, making long-term planning difficult and triggering budget crises whenever prices crash. Russia's 2014 oil price collapse devastated its budget, Nigeria faces recurring similar crises, and Iran's economy has been hit by price drops on top of sanctions.
Resource exports also tend to artificially strengthen a country's currency, making other exports uncompetitive and cheap imports hard for domestic producers to compete against, creating trade imbalances and general economic distortion.
Resource wealth also tends to increase rich-poor disparity, since oil wealth concentrates among rulers and connected elites who capture most of the resource rents, with little actually trickling down to the broader population despite the nation's overall wealth. Nigerian oil wealth has enriched the political elite while the majority remains poor, and Russian oligarchs control much of the resource sector while ordinary regions continue to struggle.
Resource revenue also reduces the incentive to modernize the broader economy, since there's less pressure to develop other sectors when oil revenue is already paying the bills, and it reduces the pressure to cooperate with international judicial bodies or institutions requiring genuine rule of law, since a government with independent resource wealth doesn't need international legitimacy as badly. Russia and Iran can both resist international pressure precisely because oil revenue funds their governments despite sanctions and isolation.
Resource wealth also tends to increase corruption, since oil revenue is opaque and easy to steal, patronage networks get funded directly by resource rents, and accountability mechanisms tend to stay weak. Nigeria's oil sector corruption is genuinely legendary, with officials embezzling billions, and Russia's state oil companies function essentially as piggy banks for regime insiders.
Resource wealth also reduces accountability more broadly, since governments that don't rely heavily on taxing their own citizens face less pressure to represent them, essentially reversing the old "no taxation without representation" logic; citizens can't use tax resistance to pressure a government that doesn't need their tax money in the first place, which is exactly the situation in Russia, Iran, and Nigeria.
And finally, rentier states tend toward the absence of democracy altogether, since resource wealth funds repression directly, reduces the need for democratic accountability, benefits elites who prefer the status quo, and gives the regime real economic independence from its own citizens that enables tighter political control. Russia's oil wealth funds Putin's regime, Iran's oil enables theocratic control, and oil politics has genuinely weakened Nigerian democracy.
Resource Nationalization
China, Iran, Mexico, Nigeria, and Russia have all nationalized resources for similar reasons: capturing government revenue directly, consolidating regime control over the economic commanding heights, reducing foreign influence by limiting MNC and foreign government power, and reinforcing legitimacy through nationalist appeals about resources belonging to "the people."
But the actual degree of control varies quite a bit across these countries. Mexico's Pemex was historically a state monopoly but has recently allowed private investment, a partial privatization attempting to balance state control against efficiency and capital needs. Nigeria's NNPC is formally state-owned, but foreign MNCs actually control operations through joint ventures, meaning formal nationalization coexists with practical foreign dominance. Russia exercises a high degree of centralized control under Putin, having re-nationalized after the chaotic 1990s privatization, with wealth now concentrated among regime-connected elites and state control functioning explicitly as a political tool. China exercises comprehensive state control, with state-owned enterprises dominating resource sectors and the party controlling all major natural resources directly. And Iran's National Iranian Oil Company is state-owned, with government control serving the broader theocratic regime. The pattern across all five is nationalization in name, but with genuinely varying degrees of actual state control versus foreign involvement in practice.
Mexico has partly pulled back from that opening since 2018. AMLO slowed new private contracts and poured public money into Pemex, and Sheinbaum's 2024 and 2025 energy reforms put Pemex back at the center, though private firms can still join projects through mixed contracts in which Pemex keeps at least a 40 percent share.
Privatization's Effects
Private ownership of natural resources decreases government control, since the state loses a major revenue source and can't use resources as directly for policy goals, with the economic commanding heights shifting into private hands. It also tends to increase wealth inequality, since private owners capture the profits and oligarchs often emerge from the privatization process itself, concentrating wealth in relatively few hands. And it can create a real risk of sovereignty loss, since foreign MNCs controlling strategic resources creates economic dependence that becomes political vulnerability, with corporate power directly challenging state authority. Russia's 1990s privatization created oligarchs and weakened the state so much that Putin reversed course entirely, re-nationalizing to restore control, and Nigeria's joint ventures are formally state-owned but leave MNCs like Shell and ExxonMobil exercising real operational control, a genuine compromise of sovereignty in practice. The trade-off is real: private ownership may be more efficient, but it concentrates wealth and reduces state autonomy at the same time.
Bottom line: natural resource endowments have genuinely mixed effects. Rentier states like Iran, Nigeria, and Russia fund government programs through oil and gas revenue but suffer from the resource curse: lack of diversification, revenue fluctuation, currency overvaluation, inequality, reduced modernization incentive, corruption, weak accountability, and a tendency toward authoritarianism. Countries nationalize resources for revenue and control, but implementation varies a lot in practice, Mexico letting private investment into Pemex (though it has pulled back since 2018), Nigeria dominated operationally by foreign MNCs despite formal state ownership, Russia highly centralized under Putin. Privatization decreases government control, increases inequality, and risks sovereignty loss. Resource wealth can be either a blessing or a curse depending entirely on governance, and in practice, the curse tends to prevail more often than not, undermining both democracy and development despite the underlying material wealth.
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