Prosperity or Paradox? Managing Oil Wealth for Peace and Growth in MENA

Research explores how the Middle East and North Africa's vast oil wealth has failed to translate into equitable growth due to poor revenue-sharing mechanisms and weak institutions. The report urges transparent, rules-based fiscal governance to turn resource riches into inclusive, sustainable prosperity.

A flagship publication by the World Bank’s Middle East and North Africa Region, crafted with input from institutions like the Natural Resource Governance Institute (NRGI), the International Monetary Fund (IMF), and the United Nations Development Programme (UNDP), dissects a long-standing paradox that defines the Middle East and North Africa: immense hydrocarbon wealth coexisting with widespread inequality, fragile institutions, and recurrent conflict. The report provides a sweeping diagnosis of why the region, despite holding over half of the world’s oil and 40 percent of its gas reserves, has struggled to convert these riches into shared and sustainable prosperity. The central premise is simple yet profound: how wealth is shared across time, geography, and fragile societies ultimately determines whether it becomes a blessing or a curse.

Volatile Riches: A Fragile Foundation

Oil wealth in MENA comes with high stakes. Crude oil is among the most volatile commodities on the global market. Since 1990, price collapses of over 10 percent in a single month have been far more frequent than those seen with gold or copper. The financial volatility is compounded by the nonrenewable nature of the resource itself. Despite this, many MENA economies remain deeply tied to oil prices, failing to build effective buffers against cyclical booms and busts.

The report notes that while some countries, notably Saudi Arabia, Oman, and the United Arab Emirates, have made progress by bringing spending in line with sustainable benchmarks known as “permanent income levels,” others continue to overspend during oil booms, depleting reserves, and increasing long-term risks. In theory, Sovereign Wealth Funds (SWFs) could serve as a stabilizing force. MENA is home to six of the world’s twenty largest SWFs, most of them in the Gulf. Yet, their discretionary operations and lack of integration into national fiscal frameworks often limit their effectiveness. The report urges countries to adopt clear fiscal rules to guide spending, savings, and withdrawal rules that align with broader macroeconomic goals and improve predictability.

Geography of Discontent: The Uneven Spread of Wealth

Hydrocarbon resources in MENA are concentrated in a few countries and specific subnational regions within them. Yet, wealth-sharing mechanisms rarely reflect this spatial reality. Most MENA countries use an indirect, centralized approach to revenue distribution, where oil and gas revenues are mixed into general government budgets with little regard for the regions where extraction occurs. This approach has created pockets of discontent, particularly in communities that bear the environmental and social costs of extraction but see little benefit in return.

The report contrasts this with international examples, such as Canada’s overlapping revenue-sharing model and Nigeria’s hybrid approach that combines derivation-based and indicator-based formulas. Though not without flaws, these systems at least attempt to account for regional disparities. In contrast, budget transparency in MENA is the lowest of any world region. Countries like Jordan, Egypt, and Morocco have made strides in improving public access to budget data, but overall, information on subnational allocations remains scarce. This opacity has often fueled perceptions of mismanagement and exclusion, particularly in marginalized or resource-producing areas.

Fragility and Fuel: When Oil Funds Conflict

In fragile and conflict-affected states, oil wealth has more often fueled instability than development. In Iraq, Libya, Syria, and Yemen, control over resource revenues has become a source of political contestation and armed conflict. These countries lack the legal and institutional frameworks to ensure that wealth is equitably shared. Instead, oil becomes a prize to be captured by competing elites, feeding into cycles of violence and undermining governance.

The report highlights Indonesia’s Aceh province as one of the rare global examples where revenue-sharing played a role in a successful peace agreement. Similar strategies have failed in West Papua and many parts of MENA. Without transparent, rules-based systems backed by broad stakeholder consensus, wealth-sharing initiatives risk exacerbating rather than mitigating conflict. In post-conflict settings, where trust in institutions is fragile, establishing predictable, inclusive systems for resource distribution becomes even more urgent.

Transparency and Institutions: The Pillars of Good Governance

Across all models whether centralized or decentralized, direct or indirect effective wealth-sharing depends on strong institutions, transparency, and accountability. The report emphasizes the role of international standards such as the Extractive Industries Transparency Initiative (EITI) in improving governance. High-quality data, independent audits, and participatory oversight are essential for preventing elite capture and ensuring that wealth reaches its intended beneficiaries.

Institutional weaknesses are particularly glaring in fragile MENA countries. In these settings, poor data quality, discretionary allocations, and limited public engagement severely undermine the legitimacy of fiscal decisions. The report calls for robust legal frameworks, independent public finance institutions, and a renewed focus on building capacity at both national and subnational levels to manage and monitor resource flows effectively.

Toward a Fairer Future: Policy Recommendations and Hope

Despite the sobering realities, the report does not paint a hopeless picture. It offers a roadmap for reform that is ambitious but achievable. Countries should adopt fiscal rules that decouple spending from oil revenue volatility and promote intergenerational savings. Subnational equity must become a core principle of revenue allocation, whether through formulas, conditional transfers, or targeted investments. Transparency should be elevated from a technical ideal to a political necessity. And in FCV contexts, wealth-sharing should be designed as a conflict-resolution mechanism involving broad-based consultations and third-party monitoring.

MENA’s resource-rich states still have the opportunity to transform their extractive wealth into long-term national assets. This means investing not just in physical infrastructure, but in human capital, institutions, and social cohesion. While the transition toward a low-carbon future adds urgency to these efforts, it also presents new opportunities for economic diversification and green innovation. With the right frameworks in place, MENA can shift from a region of volatility and fragmentation to one of stability, equity, and enduring prosperity.