Short answer:

Am I missing something?

Yes, and it has a name :"The Dutch Disease" (a handy shorthand coined by The Economist magazine in 1977, the Netherlands get the honor because of the impact of North Sea oil and gas on what had been a hitherto diversely competitive economy). You will also hear it referred to as "the resource curse", though sometimes something slightly different is meant by that term.

Discussion:

This is more a question of political economy than history, but because this issue has come up with other economies in the past, we can steer clear of the twenty year rule

It was long ago noted that resource rich economies have a very hard time with the rest of their economies-- they may _want_ to diversify, but extraordinary natural resource wealthy paradoxically makes it harder. Not only is it hard to diversify, countries which already _had_ a diverse manufacturing economy, like the Netherlands, lost their competitiveness in non-petrochemical sectors.

Many third world oil producers are encountering serious problems in building up a diversified export base, while West European oil and gas producers (Netherlands, United Kingdom) are suffering a decline in their traded goods (manufacturing) sector induced by real wage pressures. The mechanism behind all this is clear enough: part of the oil revenues is spent on non-traded goods which leads to a real appreciation (i.e., a rise in the relative price of non-traded goods in terms of traded goods). This in turn draws resources out of the non-oil traded sector into the non- traded goods producing sector (Corden and Neary (1982); van Wijnbergen (1980))

What are the problems with a natural resources windfall?

First is exchange rates. Pumping out natural resources that are sold internationally will tend to produce a pricy currency, making other economic activities less competitive on an international basis. If you look at, say, Australia -- with huge iron ore and coal exports, principally to China, during the China boom years-- this pushed their currency very high, making pretty much everything else they did uncompetitive. New Zealand, which didn't have the same natural resource exports, had a less richly valued currency than Australia, and as such its economy diversity was less pressured.

Second issue is labor economics. If you're a young ambitious Saudi, wanting to make your fortune, you go "where the money is"; and that's oil and petrochemicals or rent seeking in the finance sector. This pushes up wages in all sectors, meaning that even if someone in, say, Norway still wants to make sweaters, they do so with a labor costing that's very expensive due to the bid labor gets from North Sea oil. And it means that its very unlikely that a new Saudi venture in, say, auto parts or surgical equipment can be internationally competitive.

A third issue is corruption, political and regional conflict. Nigeria has enormous oil resources, so does Venezuela. In both cases the corruption and political tensions that proceed from a battle for such a rich prize have damaged these countries. The huge wealth notwithstanding, their oil poorer neighbors have often done much better; with such a large cash bundle to grab, ambitious people apply more effort to grabbing, and less to entrepreneurial activities.

So having giant oil wealth seems like its a good thing, but it actually distorts the economy away from other industrial activities and entrepreneurial -- the more that petrochemicals or other resource extraction industries "butter your bread", the less easily you compete in other domains.

Its notable that some of the most economically successful nations have been those with minimal natural resources. Japan and Korea have a little coal, next to no oil, make almost no money by exporting natural resources. That state of affairs has actually been far more conducive to developing an economy with diverse strengths than finding a gusher of crude.

Saudi Arabia has tried to diversity - first investing in downstream petrochemicals, but also a broad array of other activities. When you're sitting on a lake of oil, these barely move the needle. Similarly, Norway has provided big subsidies to non oil businesses like fish farming, none of which are economic without those subsidies due to the very high costs of labor and services, costs that are driven by the North Sea windfall.

​

See:

"The Dutch Disease". The Economist. 26 November 1977. p. 82–83

Van Wijnbergen, Sweder. “The `Dutch Disease': A Disease After All?” The Economic Journal, vol. 94, no. 373, 1984, pp. 41–55.

Ansari, Mohammed I. “The Dutch Disease: The Canadian Evidence.” Weltwirtschaftliches Archiv, vol. 125, no. 4, 1989, pp. 804–813.

Ross, Michael L. “Blood Barrels: Why Oil Wealth Fuels Conflict.” Foreign Affairs, vol. 87, no. 3, 2008, pp. 2–8.

Corden, W. M. “Booming Sector and Dutch Disease Economics: Survey and Consolidation.” Oxford Economic Papers, vol. 36, no. 3, 1984, pp. 359–380.

Caselli, Francesco, and Tom Cunningham. “Leader Behaviour and the Natural Resource Curse.” Oxford Economic Papers, vol. 61, no. 4, 2009, pp. 628–650.

Shaxson, Nicholas. “Oil, Corruption and the Resource Curse.” International Affairs (Royal Institute of International Affairs 1944-), vol. 83, no. 6, 2007, pp. 1123–1140.

. . . just a few examples of what is a very large literature.