Many recent studies have suggested that oil and gas wealth is a development curse and that it is related in particular to poor rates of economic growth, high levels of poverty, a higher than average risk of violent conflict and a higher than average risk of authoritarian rule (Ross 1999; Rosser 2006a). At the same time, however, they have also suggested that such negative development outcomes are not inevitable because the relationship between oil and gas wealth and development performance is mediated by political and social variables (Auty and Gelb 2001; Jones Luong and Weinthal 2001; Eifert et al. 2003; Rosser 2006b; Stevens and Dietsche 2008). As oil and gas income has come to dominate Timor-Leste’s economy and in particular the government budget (Tables 10.1 and 2), scholars and policy-makers have inevitably come to ask whether the country is vulnerable to the resource curse. However, in addressing this question, their focus has typically been on technical issues surrounding the operation of the country’s budget management rather than the larger political and social context (see, for instance, Doraisami 2009; Drysdale 2007; Lundahl and Sjöholm 2008). This chapter addresses this question from a political economy perspective

that focuses on the mediating variables that are emphasised in the comparative literature on the resource curse. It suggests that the nature of these variables within the context of Timor-Leste are such that the country faces a high risk of falling victim to the economic dimensions of the resource curse but a lower risk of falling victim to its conflict dimensions.