Ending the Tyranny of Anonymous Commodities: Trade Rules Can End the Laundering of Stolen Goods and Improve Governance in Producing Countries

Philippe Le Billon  is Professor at the University of British Columbia with the Department of Geography and the School of Public Policy and Global Affairs.  His main research areas include the political economy of war, the governance of primary commodity sectors, and illicit financial flows.

Every day, consumers worldwide spend about US$11 billion on oil products. For those controlling its flow, oil provides a concentrated revenue stream without equal and a source of enormous social power. Economic development in the twentieth century owes much to the cheap and flexible energy that an expanding flow of oil has provided. But this development has come at a high price, especially for people in producing regions.[1]

Turning oil wealth into broadly based social development is a massive challenge for producing countries. Oil-field development requires large capital investment but creates relatively few direct jobs. Developing ‘through oil’ thus largely relies on the capture and allocation of oil revenues. While oil earnings are generally impressive, they are also highly volatile and often negatively distort the rest of the economy. Too often, oil wealth also disproportionately ends up with ruling elites and foreign corporations, despite oil being in most cases “public property.” These challenges require sound long-term policies, robust and accountable governance institutions, and a diversified economy able to withstand the effects of windfall. Yet oil wealth can work against these requirements by fuelling short-term populist policies or unrealistic long-term plans, concentrating rather than diversifying economic activity through overvalued currency and labour-market distortions, and weakening instead of consolidating institutions through corruption, bloated bureaucracies, as well as entrenched patronage and patriarchy.[2]

These challenges are often compounded by the destructive will and personal interests of rulers in oil producing countries. Oil wealth can sustain tyrannies by breaking the link between taxation and representation, supporting belligerent autocrats, and securing the support of foreign powers eager to selectively maintain rulers for the sake of oil supplies and lucrative contracts. In some of the worst cases, oil wealth sustains chronic insurgencies and enables aggressive leaders to take their country to war.[3] Not only is oil stolen from its rightful owners, the people, millions can die as a result of its proceeds being spent by corrupt and incompetent rulers.

Hundreds of scholars have examined these effects, including lack of accountability of resource-fuelled autocrats and rebels, the complicity of corporations and consumers, and the blowbacks resulting from dealing with resource-rich autocrats. In turn, the fair-trade movement, blood diamond & conflict mineral campaigns, and repeated UN embargoes have all pursued (at least in principle) the goal of reducing the suffering arising from the violence of commodity production, unaccountable supply chains, and abuses of power by commodity-funded rulers.

With ‘Blood Oil’, and the advocacy associated with the book, Leif Wenar raises further public awareness on these problems, and squarely puts international law governing commodity trade on the policy agenda. Wenar’s core argument is that ‘might makes right’ still constitutes the foundational norm of commodity trading: Whoever controls a country can sell its resources. His main call is thus to put an end to the unlawful control of resources by illegitimate and unaccountable rulers. The core solution, for Wenar, is a Clean Trade regime vigorously implementing a more expansive and robust definition of ‘stolen goods’.

The idea of restricting trade to ‘clean commodities’ is not novel, but such restrictions have so far fallen short of a systemic redrawing of trade rules around exporting regime characteristics. Campaigns on diamond trade first targeted the apartheid regime in South Africa before moving on to blood diamonds sustaining rebellions in Angola and Sierra Leone; yet the ‘Kimberley Certification’ scheme failed to move beyond rebellion to cover human rights and environmental abuses. Civil society organizations have also rallied against specific commodity exports, but these campaigns have generally targeted the complicity of individual western companies, rather than the resource ownership of rulers in exporting states. The United Nations Security Council imposed commodity sanctions in at least 26, though mostly on rebel groups rather than governments. Individual governments, and most notably the US, have also imposed unilateral sanctions on specific regimes, but selection criteria had more to do with US ‘national interests’ than with the security and well-being of population in exporting countries. More systematically, several schemes have attempted to limit commodity exports to those matching norms of good governance, but these have looked at practices within specific sectors, rather than the type of regime and the record of rulers in exporting countries.[4]

Overall, commodities still remain largely anonymous when it comes to their rightful owners and social impacts. This has no place in the workings of 21st century commodity trade; when so many traceability instruments and information channels are available to inform authorities and consumers about the provenance and impacts of commodities in producing countries. Voluntary instruments are likely to remain limited in their effectiveness, precisely because they are working in a competitive market characterized by an uneven ethical playing field. While some companies may see an interest in ‘clean-sourcing’, many will continue to look at the bottom line. More specifically, the oil market is relatively fluid, and do-gooders will carry the brunt of price differentials for ‘fair oil’ while others will reap the benefit of lower prices for ‘stolen oil’. State-led public policies on sourcing would be more effective, but decisions would come under pressure from many other dimensions, including supply security, affordability, and geopolitical concerns – reproducing many of the distortions observed for UN Security Council sanctions. The best avenue may rest in the legal domain: when claimants can get compensation for having their goods stolen by their illegitimate rulers, and corporate intermediaries in the receiving of stolen goods can be deterred through extensive fines. Corruption by international companies has not come to an end, but some progress has been made since heavy fines and costly reputational damage incentivized companies to change their practices.[5] The same can occur with stolen goods.

[1] Bridge, Gavin, and Philippe Le Billon. Oil. John Wiley & Sons, 2017.

[2] Ross, M. (2012). The oil curse: how petroleum wealth shapes the development of nations. Princeton University Press.

[3] Le Billon, P. (2012). Wars of plunder: Conflicts, profits and the politics of resources. New York: Columbia University Press; Colgan, J. D. (2013). Petro-aggression: When oil causes war. Cambridge University Press.

[4] Le Billon, P., & Nicholls, E. (2007). Ending ‘resource wars’: Revenue sharing, economic sanction or military intervention? International Peacekeeping14(5), 613-632; Carisch, E., Rickard-Martin, L., & Meister, S. R. (2017). Commodity Sanctions. In The Evolution of UN Sanctions (pp. 111-132). Springer, Cham.

[5] Samanta, S., & Sanyal, R. (2016). The Effect of the OECD Convention in Reducing Bribery in International Business. Global Business and Management Research8(1), 68; Arbatskaya, M. N., & Mialon, H. M. (2017). The Impact of the Foreign Corrupt Practices Act on Competitiveness, Bribery, and Investment. Available at SSRN: https://ssrn.com/abstract=3001262