Where Oil flows...Debt grows

13 November 2006 | Washington, DC

BIC and partners challenge World Bank and US Government controversial support of Big Oil in November 14 Financial Times advertisement.

On November 7, Americans voted for an agenda that called for an end to the support of Big Oil and we urge Congress to act on this promise in the coming months.

"Oil Aid" is the government’s practice of diverting taxpayer money, intended for poverty alleviation, to instead subsidize the international oil industry.

According to the just-released Stern Report, climate change is “the greatest and widest-ranging market failure ever seen,” and it will have massive costs for the global economy. A major underlying reasons for this market failure is the perverse incentives and signals created by subsidies to the oil industry. 

Yet, as world leaders continue to search for solutions to the global problem of climate change this week in Nairobi, our public funds continue to flow into the pockets of the oil industry.

Since 1992, the publicly-backed World Bank has provided more than $5 billion in subsidies to the oil industry, while devoting only five percent of its energy budget to clean, renewable energy sources. The U.S. government has spent even more money subsidizing Big Oil internationally. America’s misguided policies have fueled global warming, encouraged oil dependence, led to increased conflict, and increased poverty and debt.

In addition, soaring oil prices are undermining the benefits of limited debt cancellation in many of the world’s most impoverished countries, particularly those that are oil importers. For example, the estimated cost of Tanzania’s oil imports rose from $190 million in 2002 to $480 million this year – for the same amount of oil. In comparison, debt cancellation is expected to only free up about $140 million for Tanzania in 2006. Furthermore, this cancellation doesn’t even touch on the debt held by large private banks in London, Paris and New York. At the same time, oil companies are raking in record profits, with ExxonMobil reporting profits of $4.7 million an hour in July 2006.

Publicly-supported international institutions routinely protect the interests of private investors, whether they are oil companies or Wall Street banks that profit from their activities. In Chad, the World Bank provided critical assistance to a project led by ExxonMobil that has only exacerbated conflict and poverty. As oil started flowing, Chad’s authoritarian president increased military spending and ripped up an agreement with the World Bank that was supposed to ensure that oil revenues were used to fight poverty. At first the Bank objected, but it backed down as soon as the president threatened to cut off the oil if his terms were not accepted.

In Ecuador, when the government wanted to use oil revenues to alleviate poverty, the International Monetary Fund (IMF) and World Bank withheld promised new lending in protest, pushing the country to instead pay its debt to the IMF, World Bank and other creditors.

Around the world, our tax dollars have been improperly used to subsidize Big Oil instead of providing clean energy for the poor, combating climate change, and ending our destructive oil addiction. It is time for G8 governments and institutions like the World Bank to stop using development assistance to support Big Oil. Broader debt cancellation and additional aid money should go where it’s needed - to initiatives that fight global warming, improve access to energy, and help countries overcome their dependence on oil. The time has come to end oil aid and focus instead on promoting renewables and energy efficiency.

Find out more and check out the FT ad on www.EndOilAid.org