Many oil-producing countries with the biggest reserves don't measure up to international standards for open governments and human liberties, putting US oil companies at risk of possible governance violations through their operations in those nations, Petroleum Industry Research Foundation Inc. (PIRINC), New York, reported.
"US companies face the problem of maintaining acceptable standards of corporate conduct in what can be challenging (international business) environments. In certain cases such as corruption, law and international agreements provide enforceable standards for US and other—but not all—companies," said PIRINC officials.
In recent years, civil suits have been filed in US federal courts against US-based international oil companies under the reactivated Alien Tort Claims Act of 1789, alleging their complicity in government violations of human rights in other countries.
Such lawsuits "put at risk only those reachable by US courts and worth suing," but they "do not offer guidelines as to what businesses must do to avoid being subject to such allegations," PIRINC officials said. "Eventually, the Supreme Court or Congress may be called upon to clarify the appropriate scope of legal responsibility and liability facing companies operating in difficult environments."
Governance standards
Researchers at the World Bank recently updated a set of indicators that some have described as the most effective measurement tool for tracking the quality of governance in nearly 200 countries. Those indicators are based on 25 separate data sources at 18 organizations, including the World Bank, and trace six areas of governance from 1996 to the present, with continual updating.
In its ranking of 28 top oil-producing countries among 170 nations tracked by the World Bank, PIRINC used three of those standards:
- "Voice and access," assessing citizen participation in the selection of a country's government and the independence of the local news media.
- "Rule of law," regarding crime, the judiciary, and the enforceability of contracts.
- "Control of corruption" among government officials.
Those indicators primarily impact economic conditions but also are relevant for human rights concerns, PIRINC said.
The three indicators not used by PIRINC are political stability, regulatory quality, and government effectiveness. However, officials said, "At least at the extremes, rankings for all six indicators are highly correlated. For example, the country at the top of the rule-of-law ranking, Switzerland, stands at or near the top of the other indicators as well. Those at the bottom—North Korea, Iraq, and Myanmar—don't do well in the other categories either, although Iraq's prospects for future promotion in the rankings may have improved following recent events."
Good governance producers
The PIRINC study divided large oil-producing countries into four groups, according to how well—or poorly—they comply with World Bank standards in the three categories. It found just five countries at the top in voice and access, as well as control of corruption: Australia, Canada, Norway, the UK, and the US. Together, those five produce about 21% of the world's oil, or 14 million b/d, said PIRINC.
Those same five nations also were at the top in the rule of law category, as were Kuwait, Qatar, Oman, and the UAE. "Nevertheless, production by this top quartile is still only about 19.5 million b/d, or about 27% of the world's total," said PIRINC.
Least compliance
At the opposite end of the scale, the oil-producing countries that scored the lowest in voice and access were Algeria, Angola, China, Iraq, Libya, Saudi Arabia, and Syria. Under rule of law, the lowest- ranked nations were Algeria, Angola, Colombia, Indonesia, Iraq, Libya, Nigeria, Russia, and Venezuela. The worst for control of corruption included Angola, Indonesia, Iraq, Libya, Nigeria, Russia, and Syria.
"Three countries fall into the fourth quartile for all three indicators—Angola, Iraq, and Libya, although in a post-Saddam Hussein regime, Iraq could move up," PIRINC reported.
It said, "With one exception, the (other) countries in the fourth quartile for one or more indicators are in the third quartile for the remaining indicators. The exception is Saudi Arabia, which is in the third quartile for control of corruption but ranks higher, in the second quartile, for rule of law."
A total of 12 oil-producing countries were listed in the bottom quartile under at least one of the three standards. "Those 12 collectively produced 31 million b/d in 2002, or about 46% of worldwide production," said PIRINC.
Oil reserves
Looking at the 25 nations with the largest proven oil reserves at the end of 2001, out of 170 nations tracked by World Bank, PIRINC still found the same five countries at the top in voice and access as well as control of corruption. "But with only 45 billion bbl, the five industrial countries' share of world reserves is far smaller, only 4%, well below their 21% share of world production," officials said.
The combined reserve volumes for the top ranked countries under rule of law jumps to 260 billion bbl with the addition of Kuwait and the UAE to the five industrial nations.
However, those countries in least compliance with World Bank's governance standards had even bigger combined reserves, including 400 billion bbl, 43% of total reserves, for the worst performers in voice and access; more than 300 billion bbl, 31% of total reserves, in rule of law; and 230 billion bbl, 22%, corruption control.