In fact, the opposite is often true. New riches carry dangerous promises, a phenomenon often referred to as the ‘resource curse’. It is wrongly believed that monetizing natural resources automatically boosts an economy and solves all its problems. It is true that given the extensive human capital that an oil and gas industry requires, directly (through oil and gas jobs) or indirectly (through the supply of goods and services to the industry), the unemployment rate will decrease. Moreover, national projects of great importance such as infrastructure, education and health can be financed as a result of exports revenues and the reduction of the energy bill. The inflow of foreign exchange from the sales of hydrocarbon to export markets also creates an efficient hedging against an eventual fluctuation in the balance of payments.
But to assume the great health of an economy just because a country has been blessed with hydrocarbons is too simplistic. Many countries offer a great example of why caution is necessary. For a country’s energy industry to benefit the economy as a whole, adequate policies, procedures and institutions need to be in place. Transparency, accountability and a strong corporate governance invite investors to participate in the development of a country’s energy resources. Strong regulatory and judicial systems are necessary tools to fight corruption, prevent political parties from achieving monopolistic ambitions and foster political stability creating an adequate atmosphere for energy prosperity. While Israel and Cyprus have strong judicial and regulatory systems and mechanisms, an effective application of the laws in place is paramount.