The New New Politics of Oil (The Hidden Friedman)

Or Petropolitics, as Tom Friedman puts it in his Friday column, As Energy Prices Rise, It's All Downhill for Democracy (fully available to Times Select subscribers). He once again connects the dots of the rising tide of oil money going to states with questionable democratic practices (ranging from Iran and Sudan to Russia and Venezuela).

There is a pattern here. Many people assumed that with the fall of the Berlin Wall, we were going to see an unstoppable wave of free elections and free markets slowly spread across the globe. For a decade that wave seemed, indeed, to be real and powerful.

But as the world has moved from an oil price range of $20 to $40 per barrel to a range of $40 to $70 a barrel, a very negative counterwave has arisen.

What I would call "petro-ist" states — highly dependent on oil or gas for their G.D.P. and having either weak institutions or outright authoritarian systems — have started asserting themselves. And they are weakening, for now at least, the global democratization trend.

Economists have long taught us about the negative effects that an overabundance of natural resources can have on political and economic reform in any country: the "resource curse." But when it comes to oil, it seems that you can take this resource curse argument a step further: there appears to be a specific correlation between the price of oil and the pace of freedom.

I call it the "First Law of Petropolitics," and it posits the following: The price of oil and the pace of freedom always move in opposite directions in petro-ist states.

According to the First Law of Petropolitics, the higher the price of global crude oil, the more erosion we see in petro-ist nations in the right to free speech, a free press, free elections, freedom of assembly, government transparency, an independent judiciary and the rule of law, and in the freedom to form independent political parties and nongovernmental organizations. Such erosion does not occur in healthy democracies with oil.

Conversely, according to the First Law of Petropolitics, the lower the price of oil, the more the petro-ist countries are forced to move toward a politics that is more transparent, more sensitive to opposition voices, more open to a broad set of interactions with the outside world and more focused on building the legal and educational structures that will maximize the ability of their citizens, both men and women, to compete, start new companies and attract investments from abroad. (For an elaboration of this argument, see the current issue of Foreign Policy magazine, www.foreignpolicy.com.)

[...]

When a barrel was $20 to $40, we had "Putin I." That's when President Bush looked Mr. Putin in the eye in 2001 and said he'd found "a sense of his soul." If Mr. Bush tried to get a sense of Mr. Putin's soul today — the soul of "Putin II," the Putin of $70-a-barrel oil — he would see down there the huge Russian energy company Gazprom. Mr. Putin's regime has swallowed Gazprom, along with a variety of once-independent Russian media outlets and institutions.

While these increasingly bold petro-authoritarians don't represent the sort of strategic or ideological threat that communism once posed to the West, their impact on global politics is still quite corrosive. Some of the worst regimes now have more oil money than ever to do bad things for a long time — and many decent, democratic countries have to kowtow to them to get oil and gas.

The elaboration that Mr. Friedman points to in Foreign Policy magazine is his own article, The First Law of Petropolitics; unfortunately, you have to be a paid subscriber to get access to more than just the first two paragraphs. But, as a registered user of FP magazine, I do have access to this article by Christopher Dickey, which puts an interesting spin on the merging of the global oil sticker shock, what's being done to supply the demand and get prices back down, and Iran's race to nuclear energy/weaponry:

“There are no sanctions on the oil sector in Iran that will not hurt the whole world at the same time,” says Pierre Terzian, founder of the Paris-based group Petrostratégies. One of the most influential oil industry analysts in the United States, who asked not to be quoted by name, agrees: “Right now, the Iranians are in a strong position and they know it. The tight market and high prices provide them not only with a shield but with the high cards. It gives them leverage they didn’t have a couple of years ago.” And while the threat of an oil shock deters strong action against Iran, the income generated by current prices gives the regime huge amounts of cash with which to woo foreign support. “The Europeans, especially, will not put up with $100-a-barrel oil,” says Abbas Milani, director of the Iran program at Stanford University. At the same time, he said, “the Chinese will not give up their $100 billion deal. The Russians will not give up billions on nuclear reactors.”

But Iran’s leverage isn’t likely to last. Supply and demand—and Saudi Arabia—will see to that. The current high prices encourage oil-producing countries to ramp up production wherever possible, while discouraging some of the growth in consumption. The Saudis, meanwhile, have begun a strategic program to boost not only their production but their control over that thin margin of spare capacity in the global market that gives them a huge influence on prices.

For many years, in times of crisis, the Saudis could literally turn on the taps to stabilize world prices. After the terrorist attacks on the United States in 2001, and during the buildup to the invasion of Iraq in 2003, they did just that. Since then, however, the Saudis have fallen behind the curve. Consumption surged in China, India, and Southeast Asia. Production in Iraq, which was expected to increase after the invasion, actually declined dramatically in the midst of the unexpected insurgency. Unrest in Nigeria and labor strife in Venezuela occasionally disrupted supplies.

In 2005, the Saudis launched a $50 billion program to reassert their power in the markets. By the summer of 2009, they expect to increase their overall production capacity from 11 million barrels a day to 12.5 million barrels, which should restore their ability to keep about 3 million barrels in reserve. When that happens, world oil markets will be much less vulnerable to a drop in Iranian oil exports; Iran will be much more vulnerable to international pressure. “There’s a window of opportunity of two or three years, not more, for this ‘oil protection,’” says Terzian.

So Iran is in a hurry to push ahead with its nuclear program before its oil shield is lost.