Fall in Oil Prices Weakens African Governments' Bargaining Strength

The last decade’s high oil prices shifted power in governments’ favor. When petroleum deposits had been found and operations started, African governments were increasingly in the driving seat. This was demonstrated by frequent renegotiations of contracts and, sometimes, nationalisations. However, over the last half year falling world market oil prices are once again hollowing out governments’ bargaining strength.

Based on a review of the existing literature on contract negotiations in Sub-Saharan Africa the paper, the politics of oil, gas contract negotiations in Sub-Saharan Africa, challenges the notion that relations between governments and international oil companies are fixed. It identifies a number of factors that influence the negotiation of contracts. The world market oil price is but one of them.

In the end, contract negotiations processes involve trade-offs that are highly political. In developing countries the development of national oil companies, new industries and infrastructure is often a priority that affects the terms and conditions of operations. The widespread focus on transparency and the disclosure of contracts is commendable but may skew our understanding of the politics behind these processes.

The paper is part of the DIIS Report 2014:25, Policies and finance for economic development and trade