Oil rents: size or scope?

“Oil” is probably one of the first words that come to my mind when Americans think about the Middle East. This seems true across the political spectrum. Even those who criticize American foreign policy in the region see oil as the key to understanding the region, often holding oil interests to be decisive in determining American choices in the region, and similarly decisive in the choices of many regional actors. Some scholars have posited that the region’s abundance of oil is responsible for a general trend towards authoritarianism in the region. Does oil affect the region’s politics by the size of the economic gains it generates? Or do the region’s characteristics – its history, its geography, its geopolitical climate – change how the effects of that oil play out?

To answer this question, we first have to determine how to measure the “size” of oil rents. The method that Ross uses is to measure oil revenues as a fraction of GDP (335). This clearly captures the relative “reliance” on oil, which is the central relationship that Ross analyzes; the list of top-25 oil producers is ordered by this fraction-of-GDP method (325). This seems to be the best method for measuring the relationship between oil production and the overall economic state of the country. At any rate, it should certainly be more useful to us than absolute incomes from oil.

Centering “reliance” as our measure of oil-rent-size, we see a clear picture that higher oil reliance yields lower rates of democracy. As discussed above, Ross’s “Oil” variable is the fraction of GDP coming from oil output, and that “Oil” variable is strongly, negatively correlated with the level of democracy in a country (342). If higher reliance is how we’re defining a higher size of oil rents, then this is mathematical proof that the size of oil rents drives anti-democratic effects.

Furthermore, Ross’s analysis finds that these effects are not limited to MENA nations (346). If this anti-democratic effect holds true in Botswana and Venezuela just as well as it does in Iraq, then “interactions of other factors” with oil rents do not appear to be decisive. By this, I mean that these countries have geographic and historical contexts so varied that they can only be said to have the oil rents in common. All three of those nations have been colonized, but at different times, by different empires, and in different manners. It seems then that large oil rents are the “least common factor” for each, that the size of oil rents is a key factor in determining democratization. In this understanding MENA nations suffer from an authoritarian trend not because they are MENA nations but because they happen to have high proportions of oil, compared to the size of their economies writ large.

There are limits to what this model can measure, however. There is no measurement of where those oil revenues are spent, or more specifically, to whom they are directed. This is problematic in context of the rentier effect and related concepts. Ross characterizes the rentier effect as comprising of the taxation effect (governments need less or no taxation when they receive enough oil money), the patronage effect (governments can spend oil moneys on preferred groups and individuals), and the group formation effect (oil payments to individuals can prevent them from forming civil society groups or other collectives) (333-5).  These three effects are mechanisms through which oil revenues to the government can be directed towards pacifying the population. These programs need effective direction or “steering” of money to accomplish that pacifying aim. That the government has four billion dollars of oil income does not matter if those four billion are not being directed efficiently, or towards the right people or groups.

In the analysis of Cammett and Waterbury, these strategic choices are crucial. Nations which make the correct ones have far better outcomes than the ones that do not. They characterize oil rents as falling differently upon Labor-Poor and Labor-Abundant countries. Labor-Poor countries like Saudi Arabia used oil rents to to strengthen pre-existing patronage systems, whereas Labor-Abundant nations were unable to use the wealth in this way (324-5). They argue further that Labor-Poor nations have used this wealth with a view towards the future, whereas Labor-Abundant nations “tend to live ‘hand to mouth’” (351). Having a substantial amount of money coming into your economy from oil is not enough. A state has to gather that money and then spend it wisely in order to get any use out of it.

Furthermore, we have to think about what kind of characteristics lead a nation to be oil-reliant in the first place. Most nations that make a substantial amount of their money from oil do not have large, industrialized, diverse economies, for if they did, the share of those economies made up of oil would be smaller. The U.S. is the world’s largest producer of oil, but less than ten percent of US GDP comes from that world-leading oil production. Having oil rents of large size in proportion to your economy, therefore, usually means having a history of economic and technological underdevelopment at best and imperialism and colonial repression at worst. Such conditions produce a wide variety of sociopolitical headaches. With this in mind we have to conclude that, while oil rents of an unusual size are well-correlated with authoritarian government, they are inextricably linked to a variety of other factors.

This post makes reference to the following scholarly works:

Cammett, Waterbury, et al. A Political Economy of the Middle East. 4th ed., Routledge, 2015.

Ross, Michael L. “Does Oil Hinder Democracy?” World Politics, vol. 53, no. 3, 2001, pp. 325–61, https://doi.org/10.1353/wp.2001.0011.






One response to “Oil rents: size or scope?”

  1. Ed Webb Avatar
    Ed Webb

    Clearly and cogently argued.

    A couple of notes of detail: 1. Botswana’s mineral wealth comes from diamonds, not hydrocarbons; 2. there are four, not two, authors of the political economy book.

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