Expropriation and Resource Nationalism

Expropriation is a government taking ownership of a privately held asset, usually with little or no compensation. Resource nationalism is the softer, more common cousin: rather than an outright seizure, a country raises royalties, rewrites contracts, imposes local-ownership quotas, or nationalizes a stake in a mine, oil field, or power utility that was previously majority foreign-owned. Both tend to cluster around commodities, because natural resources are fixed in place — a mining company cannot relocate its ore body the way a factory owner can move a plant — which makes the asset a uniquely easy target once a government decides it wants a larger share of the upside.

The trigger is usually political rather than purely economic: a change of government, a commodity price spike that makes the original deal look unfair in hindsight, or a wave of populist sentiment against foreign ownership. Venezuela's nationalization of oil assets in the 2000s and various African countries' renegotiations of mining royalties are commonly cited examples. Investors price this risk crudely, since it cannot be modeled with a probability distribution the way market risk can — through higher required discount rates on emerging-market resource equities, political-risk insurance from agencies like MIGA, and clauses in contracts that specify international arbitration rather than local courts if a dispute arises.

The asymmetry that matters for a portfolio: expropriation risk does not show up in daily volatility at all until the day it happens, at which point the loss can approach total.