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A Comment on “The First Law of Petropolitics”,
by Thomas Friedman

By Gustavo Coronel

The cover story of the May-June issue of Foreign Policy magazine, written by Thomas Friedman, offers as its central proposition the First Law of Petropolitics: “ The price of oil and the pace of freedom always move in opposite directions in oil-rich petrolist states”. Friedman adds: “According to the First Law of Petropolitics, the higher the average global crude oil price rises, the more free speech, free press, free and fair elections, an independent judiciary, the rule of law, and independent political parties are eroded”. Friedman defines a petrolist state as “one that is both dependent on oil production for the bulk of their exports or gross domestic product and have weak state institutions or outright authoritarian governments”. His list of such states includes “Azerbaijan, Angola, Chad, Egypt, Equatorial Guinea, Iran, Kazakhstan, Nigeria, Russia, Saudi Arabia, Sudan, Uzbekistan, and Venezuela”.

Law, theory or hypothesis?

After reading what Friedman has to say in support of his proposition, one wonders if he really meant to propose a Law or should have offered, more modestly, a hypothesis. Even if the paper does not pretend to be a scientific one, a Law has certain minimal standards to keep. It should be mostly true, universal, simple, absolute and stable in time. Even a theory, a step lower than law, requires extensive validation and should offer a coherent explanation for a large number of empirical observations related to the topic. A hypothesis would be just a proposition that needs to be tested by observations that would eventually be enough for the hypothesis to graduate into theory. The data Friedman offers, in my opinion, qualifies only at the level of a hypothesis and, even then, a highly arguable one.

The definition of petrolist state given by Friedman indicates a country already under an authoritarian regimen or, at best, with very weak institutions. It would seem to me that any state having these characteristics is going to have a rather low level of freedom to begin with and, furthermore, that this low level of freedom is going to be rather insensitive to global oil price fluctuations. The correlation between the price of oil and the pace of freedom in those states is, therefore, not as apparent as Friedman would like it to be.

Too many exceptions cannot validate a Law.

The list of petrolist states given by Friedman includes some states that have a very short history, such as those that came into being in the 1990’s as a product of the fragmentation of the Soviet empire. All or most of those countries have been, from day one, “formal” democracies but with strong to authoritarian presidents, apparently an inheritance from the mother empire rather than tied to the oscillations of oil prices.

Other countries, such as Venezuela, went from being under a military dictatorship in times of low oil prices, in the 1950’s, to being one of the models of Latin American democracy during the 1960’s and, especially, during the 1970’s, when prices increased dramatically (the Arab Oil embargo). In Venezuela, democratic president Rafael Caldera (1969-1974) turned his presidency over to Carlos Andres Perez (1974-1979), who turned power over to a candidate of the opposite party and this did the same to a candidate of the opposite party, without regard for the changes in oil prices, which fluctuated widely from $ 2 to $14 to $ 40 to $9 per barrel during a very stable and free democratic period that went from 1969 to 1989.

In Nigeria, the first period of high oil prices during the 1970’s and 1980’s coincided with relative democracy, when the military government of Murtala-Obasanjo gave up power voluntarily to hold elections. Now, during the last seven years of very high oil prices, Nigeria has had its most democratic government in record, again under Obasanjo.

In Libya, a petrolist state not mentioned by Friedman, the times of low oil prices were those of King Idris’s monarchy and the early years of Qadhaffi. This new wave of high prices, if anything, has coincided with a relative mellowing of the Libyan tyrant.

In Egypt, democratic tendencies flourished under Sadat at the time oil was reaching $40 a barrel due to the 1970 Arab oil embargo. Even today, strongman Mubarak is probably less authoritarian than during his 1980 years of lower oil prices. Only last year he allowed elections with multiple candidates, although not very transparent.

Iraq, also a petrolist state, has seen oil prices go up and down under the rigid totalitarian regime of Sadam Hussein. Today, under very high oil prices, there is a push for democratic government, albeit in the midst of a tragic civil war.

In Sudan, lower oil prices coincided with civil war and higher oil prices, in the 1970’s, with the cessation of civil war and the installation of self-rule. In the 1980’s low oil prices prevailed at a time when a military coup took place.

In Angola a call for elections has recently come, at a time of very high oil prices.
It could be argued that Mexico is also a petrolist state, although it does not depend so heavily on oil exports as Venezuela. In that country oil prices have not been significant in producing either democratic openings or authoritarian outbursts.

The Middle East countries, rich in oil, could be classified as petrolist states, although Friedman makes no specific reference to them. These countries, however, have not shown a close correlation between global oil prices and the authoritarian tendency of their governments. In Saudi Arabia the monarch is the monarch no matter if the oil price is high or low, probably the more so if the price is low.

The case of Bahrain.

The case of Bahrain is interesting, as Friedman suggests that it has become freer and more democratic due to the fact that its oil is running out. In fact this small country still depends on oil for more than half of its exports. For the last ten years Bahrain has kept its oil production stable at some 48,000 barrels per day. But since the late 1990’s, clearly before the prices of oil increased, Bahrain has been modernizing strongly. Even during the 1970’s Bahrain had already replaced Lebanon as the financial center of choice in the region. I would hesitate in putting Bahrain as the main example of the strong correlation that Friedman tries to establish between modernization/freedom on the one side and lower oil resources/prices on the other.

The Ross analysis.

In support of his proposition Friedman mentions the analysis by Michael Ross, which states that reliance by a country on a mineral export tends to make it less democratic. Friedman quotes the mechanisms that, according to Ross, explain this relationship. One has to do with the taxation effect: oil revenues are used to minimize accountability. We do not know if Ross’ work includes first world states (113 states analyzed must include them). If this is so, it would be interesting to know if accountability has diminished in developed oil rich countries or only in developing oil rich countries, when oil prices increase significantly. It could well be that the tendency for corruption, disorder in government spending and general loss of quality in the government’s administration when oil prices increase occurs in all countries. Otherwise, the name “Dutch Disease” would have never been coined. If this is so, the correlation between oil prices and freedom weakens. Norway, the U.K. and Holland stayed democratic after oil was discovered in the North Sea and the prices of oil jumped. The negative effect was economic, not political.

The other mechanisms quoted by Friedman, the “spending effect” or the “group formation effect” or the “repression effect” sound weak in support of his correlation between oil prices and freedom.

A structural rise in the price of oil?

Friedman’s article suggests that we might be in the threshold of a structural increase in the global price of oil. I think he is quite right. This increase has to do, fundamentally, with the fact that the planet is reaching the mid-point in the utilization of its total hydrocarbon resources and that the second portion of those resources will take less time to be consumed and will be of more expensive extraction and marketing. The psychological component of this phenomenon is already in motion. Geopolitical disturbances in the producing countries are being taken, wrongly, as the early indicators of this structural scarcity. Due to this combination of illusory and real scarcity effects we are in a global oil price environment that will not revert to previous,” normal” levels. The barrel of oil at $70 or more is here to stay, a phenomenon that should be seen in its true economic dimension (the price of this barrel, in constant terms, is still lower than the price of the barrel of the 1970’s). In the context of Friedman’s article, what is important is to determine if such a trend will encourage tyrants to be more tyrannical. My guess is that ideological dogmas are as important in determining their behavior than economic considerations, although these, no doubt, will help.

A good set of reflections, yes. A valid Law of Petropolitics, no.

The article by Friedman is excellent reading material but does not represent a breakthrough in the understanding of the complex relationships between the global petroleum oil prices and the political situation in many of the oil producing countries of the world. Higher oil prices will most probably mean a more audacious posture on the part of Hugo Chavez or a less democratic nature of the future Nigerian elections, but these developments will have as much to do with the character of the political leaders involved than with the influence of global oil prices.
Alternatives to oil are fundamental.

A final warning by Friedman, with which I could not agree more, is that there is no solution to the high prices of oil unless energy alternatives are developed. This has to become a central element in the energy policy of all the main energy-consuming countries. Even if such a drive started today, those countries would still be 25 years away from getting rid of the oil addiction.

Gustavo Coronel is a 28 years oil industry veteran, a member of the first board of directors (1975-1979) of Petroleos de Venezuela (PDVSA), author of several books. At the present Coronel is an advisor on the opinion and editorial content of Petroleumworld en Español. Petroleumworld not necessarily share these views.

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Petroleumworld News 16/07/06

Copyright©2006 Gustavo Coronel. All rights reserved

 

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