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Oil Price Shocks and Conflict Escalation: Onshore vs. Offshore

Jørgen Andersen (), Frode Martin Nordvik and Andrea Tesei

No 16454, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We reconsider the relationship between oil and conflict, focusing on the location of oil resources. In a panel of 132 countries over the period 1962-2009, we show that oil windfalls escalate conflict in onshore-rich countries, while they de-escalate conflict in offshore-rich countries. We use a model to illustrate how these opposite effects can be explained by a fighting capacity mechanism, whereby the government can use offshore oil income to increase its fighting capacity, while onshore oil may be looted by oppositional groups to finance a rebellion. We provide empirical evidence supporting this interpretation: we find that oil price windfalls increase both the number and strength of active rebel groups in onshore-rich countries, while they strengthen the government in offshore-rich ones.

Keywords: conflict; Natural resources (search for similar items in EconPapers)
JEL-codes: D74 O13 Q34 Q35 (search for similar items in EconPapers)
Date: 2021-08
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