Stanford Journal of International Relations
{
"The Most Inconvenient Truth:"
The Necessity of Good Governance in
Oil-Exporters
By Andrew Lawrence
}
Political leaders in the West have long promised to end their reliance on foreign oil. Decades
later, Western dependence on Middle Eastern, African, and South American oil has never been
greater, and today the United States imports more than 50 percent of its oil from politically
volatile countries like Nigeria and Venezuela. Yet with concerns over climate change growing
by the day and with President Barack Obama committed to investing in a “green” economy
in the near future, the prospects for reducing dependence on foreign oil have never appeared
more likely. However, while the big push away from foreign oil dependence fulfills long-term
environmental needs, the United States must first ensure that good governance exists in what
have traditionally been some of the most volatile areas in the world.
Stock Xchange
As the sun sets on oil dominance in energy markets, what will happen to nations that rely exclusively on oil exports for revenue?
60 • Fall/Winter 2008
T
Good Governance in Oil-Exporters
he need for the international community –
especially the United States – to immediately
address the problem of fossil fuel reliance is more
pressing than ever. The United Nation’s Intergovernmental
Panel on Climate Change (IPCC) recently announced
findings that current patterns of oil consumption will
lead to water shortages, the loss of arable land, and drastic
weather changes. However, while a cessation of fossil fuel
usage in favor of cleaner energy sources will indeed benefit
the environment, such a policy could produce offsetting
political, economic, and social effects in oil-exporting
countries – most of which rely on oil revenues to fulfill their
public-spending budgets and most of which retain “weak,
or in some cases, nonexistent political and economic
institutions.”1 As a nation more dependent on foreign
oil than ever before, accounting for nearly 25 percent of
global oil usage, the United States has contributed to this
international oil regime and cannot abandon oil-exporting
countries in the transition towards alternative, more
efficient energy sources. Indeed, devastating conflict so
often arises in oil-dependent countries precisely because
these producers “have relatively low state capabilities,”2
thus suggesting that an end to the world’s status quo oil
regime will leave oil producers politically vulnerable and
prone to conflict. Although the transition towards a ‘green’
economy will occur on a timescale of decades and not
years, even this amount of time may not suffice to establish
credible governance in oil-dependent countries. Moreover,
should the new Obama Administration fully commit itself
to energy independence, this transition could occur far
before oil exporters have had the requisite time to prepare.
Just as corporate oil titans – many of them American–
exploited oil reserves in these countries after establishing
the necessary resource extraction infrastructure, so too
must the United States assume a leadership position in
establishing the political infrastructure (i.e. bureaucracy,
taxation, and transparency) that allows governments
to succeed. Put simply, while the United States must
eventually cease its addictive consumption of black gold,
oil producers need the US to do so judiciously to allow
themselves the opportunity to adjust politically – a task that
can be made possible by increasing transparency between
oil corporations and governments and through robust
international peacekeeping initiatives in oil-exporting
Andrew Lawrence is a junior majoring in International
Relations. He plans to write a senior honors thesis that
examines the geopolitical, economic, and foreign policy effects
of a “green economy” on the United States and on oil-exporting
countries. Originally from Los Angeles, Andrew is currently
studying overseas at Oxford University.
Stock XChange
The move to cleaner, alternative energy necessitates a closer look at the
entire world system created by the current oil regime.
states.
Granted, while a big push away from fossil
fuel dependence no doubt serves America’s long-term
environmental and security interests, the problems facing
countries dependent on oil production similarly deserve
instant attention since most – with the exception of Norway
– lack effective and efficient governance. More importantly,
the United States maintains a particular responsibility to
these countries since it currently consumes oil at a rate over
20 times the global average3– a habit that, while untenable,
fundamentally links the political situations in oil-exporters
to American policy decisions. Consequently, should the
new Obama administration adopt a nationwide clean
and “green” energy program that eventually restructures
the current oil regime, oil-exporting countries will likely
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Stanford Journal of International Relations
struggle to adjust because they lack the political framework
necessary to sustain a nation bereft of oil revenues.
The current political science literature refers to the
problem plaguing oil-dependent nations as the “resource
curse” – a term that invokes the “inverse relationship
between high levels of natural resource dependence and
growth rates.”4 As part of this resource curse, “widespread
poverty persists amid a surge in natural resource-driven
wealth,” the potential for armed conflict over the resources
increases dramatically, education levels plummet, life
expectancy decreases, and healthcare quality collapses.5
Because 80 percent of hydrocarbon-rich countries have
autocratic regimes, many researchers attribute the resource
curse not to the presence of oil itself, but rather to the feeble
and corrupt governance arrangements within the oilexporters.6 In reality, heavy oil importers like the United
States do not represent the only countries addicted to oil;
the exporting nations have effectively tied their existence
to oil consumption as well.
For example, because oil-exporters often lack both
the technical expertise and the capital required to extract
crude oil, the political leadership in oil-rich countries
often negotiates directly with foreign corporations, with
these two shareholders dividing the profits generated on
the international oil market.7 Therefore, as rent accrues
directly to the executive branch, the president centralizes
authority while effectively leaving much of the domestic
population mired in poverty. Moreover, while Westernstyle democracies developed strong taxation mechanisms
that spurred citizens to demand public accountability,
an oil-exporter’s easy access to rent allows the political
leadership to entrench its grip on power “through low taxes
and patronage”8– a combination that dampens public pleas
for accountability and tacitly permits endemic corruption.
Therefore, any fissure in the international oil regime,
which would eliminate an oil-exporter’s revenue stream
and prevent the executive’s ability to appease the public
through low taxes, could lead to political instability.
Yet because “oil wealth is robustly associated with
more durable regimes”9 that sometimes remain in power
for decades at a time, oil-dependent countries may lack
a viable political alternative to the status quo should the
government collapse. In fact, even if the government
exercises an autocratic, unpopular grip on power,
opposition movements remain largely untested and could
prove equally inept. For example, as the rampant violence
in the immediate aftermath of post-Saddam Hussein
Iraq demonstrated, any abrupt political change in an oilexporter can lead to a power vacuum and the dangerous
revitalization of embedded social conflicts (i.e. sectarian
62 • Fall/Winter 2008
violence). Furthermore, with a military budget near $500
billion and a military stretched thin by simultaneous wars,
the United States cannot afford to shock the international
oil regime by ceasing its expenditures on oil without
precipitating conflict – conflicts that would likely require
foreign (most probably American) military intervention.
In addition, because expenditures on military and
security forces as a percentage of revenues are greater in
oil-exporting countries than those of their importing
counterparts,10 a trauma to the international oil system
may allow for the proliferation of heavily-armed factions
in otherwise lawless environments. Especially with
populations historically plagued by widespread poverty,
the availability of weapons in oil-exporting countries could
potentially create insurgencies composed of poor citizens
seeking to address grievances against the prosperous
political elites. The Niger Delta, for example, currently
contains heavily-armed, anti-government factions
aggrieved by their exclusion from petroleum revenues.11 As
such, should the United States hastily abandon the current
oil regime and withdraw its military and political support
from the oil export-dependent Nigerian government,
the long-oppressed yet oil-rich communities in the Delta
region may seize upon the opportunity to exact revenge for
historical injustices.
Nigeria is not the only country susceptible to conflict
as oil revenues diminish. Just as the oil market developed
onto an international scale, so too did the resource curse
symptoms that so often accompany oil exporters proliferate
from country to country. Russia, for instance, needs high
oil prices to keep its economy afloat, as nearly 40 percent of
export revenue derives from oil and gas.12 Saudi Arabia – a
country that produced fifteen of the nineteen hijackers in
the 9/11 terrorist attacks – depends on oil revenues for 44
percent of its GDP.13 Iran’s oil rents allow the government
to subsidize food and gas at a rate that “accounted for 12
percent” of the nation’s GDP.14 Because oil wealth sustains
the economies of so many oil-producing countries, the
collapse of oil prices that would surely accompany the
US withdrawal from the international oil regime could
have profound and potentially devastating effects in these
countries and, by extension, throughout the world.
While some political science literature establishes a
“link between the primary commodity dependence and the
risk of the initiation of conflict,”15 other studies demonstrate
that “[c]hronic poverty may also be a significant factor in
sustaining wars as violent crime and predation become the
only viable livelihood strategy for the chronically poor.”16
Therefore, though America’s shift away from foreign oil
dependence may cut demand for oil and may reduce future
Good Governance in Oil-Exporters
incentive for resource-based hostilities, the strategy may
only further entrench poverty and create conflicts whose
scale equals or surpasses past oil-based wars.
The industrialized world’s insatiable demand for oil
has indirectly fueled conflict in oil regions by increasing
the demand and hence the price of the commodity in the
international market. The United States itself imports
nearly two-thirds of its overall oil supplies from abroad
with a steadily increasing amount coming from politically
unstable and heavily corrupt countries in the global South.
In fact, since the early 1980s when Jimmy Carter first
articulated the United States’ policy of using military force
to ensure the safe flow of oil in the Middle East, America
has only expanded its presence in oil-exporters to include
countries from sub-Saharan Africa to the Caspian Sea.17 As
such, the United States deserves at least partial culpability
for the current unsustainable oil regime and thus has a
responsibility to prudently address the big push away
from oil. However, while the Carter Doctrine may have
historically upset the populations in oil exporters, America’s
omnipresence throughout these troubled regions may
provide the US with an in-road to assume a leading role
in encouraging political reforms in oil-exporting nations
– reforms that allow countries to succeed with or without
natural resource rents.
To address the growing threat of climate change
while limiting the political, social, and economic impacts
on oil-exporting nations, the United States must realize
that currently “it is not realistic to expect a one-for-one
replacement of cheap conventional oil even by all of these
other [alternative energy sources] combined.”18 Accordingly,
to maintain its economic growth in the near future, the
United States will still need to use oil as an energy source
– albeit at a far-reduced rate. Also, with India's search for
newer sources of oil and China’s unprecedented demand
for resources, the United States cannot single-handedly
solve global warming without the sustained cooperation
of other industrialized countries. Indeed, because such a
process will require both time and patience, it may also
provide an adequate window for oil-exporting countries to
adjust to an international order not sustained by oil rents.
Given the necessity of using at least some oil in
the immediate future, the United States can spearhead
a mandatory transparency program that would require
multinational oil companies and oil-exporting countries
to disclose the funds both paid and received in financial
transactions. Because most major oil companies trade
shares on international exchanges such as the New York
Stock Exchange, American regulatory bodies maintain
unique powers to enforce such transparency initiatives.19
Abayomi Azikiwe
China and Venezuela recently signed a $4 billion oil agreement.
With such financial transactions available to the public,
the secrecy that normally encircles natural resource
development will no longer exist, political leaders will
no longer maintain an easy way to accept bribes and
kickbacks. To prevent lobbying efforts intended to derail
such initiatives, the US will also need to enact campaign
finance reforms to minimize the linkage between politicians
and big oil companies. As a case in point, the oil industry
donated nearly $70 million in campaign contributions
to both Republicans and Democrats during the federal
election cycles from 1998-2004.20
As citizens in oil-exporting countries verify that
their political leaders have not embezzled millions or, in
some cases, billions of dollars for personal usage, trust
between the executive branch and the general population
in oil-exporting countries should grow and a major reason
for public discord and disenchantment, namely, corruption,
will abate. Having established national trust, oil-exporting
governments will find it advantageous to begin enforcing
classic forms of taxation on income or transactions, marking
a shift from revenues derived exclusively from oil and gas.
Indeed, as with any other politician in any other country,
leaders in oil-exporting nations want to remain in power
as long as possible – even if that entails forswearing bribes
and slush funds. Because such methods of taxation have
historically provided the building blocks for a sustainable
political structure, oil-exporting nations should grow more
capable of adjusting to the post-international oil regime
period, in which oil rent will continually decrease until it
becomes nearly non-existent.
Nonetheless, as evidenced by the failed ChadVol. X | No. 1 • 63
Stanford Journal of International Relations
Cameroon pipeline project, a World Bank-sponsored
endeavor that collapsed after the Chadian government
refused to allocate funds for poverty relief programs, even
the most well-intentioned plans in oil-exporting countries
have shortcomings. Though encouraging political reform
in traditionally autocratic societies may achieve lasting
results in some oil-exporters, some will surely backlash.
As Chadian president Idriss Deby and Sudanese president
Omar Hassan al-Bashir have demonstrated, leaders who
owe their power to the international oil regime will not
abdicate control without a fight.21
However, with troops stationed throughout the
world, the US can help to address these potential conflicts
by shifting its foreign policy away from energy security
and moving more towards international peacekeeping.
Therefore, should conflict erupt in oil-exporting nations
as oil rents decrease, the US can provide peacekeeping
support to minimize bloodshed. Yet, with a military force
overextended from concurrent wars both in Afghanistan
and in Iraq, the US will unquestionably require multilateral
assistance, presumably from the UN. Such a shift in military
policy to multilateralism comes with a host of other
benefits, and maintaining the stability of oil-exporters is
certainly high on the list.
While political changes in oil-exporting countries
will no doubt improve the governance infrastructure,
international bodies such as the UN must also maintain
focus on the countries’ economic progress, as poverty
still has the potential to create conflict. Because the world
will still need to use oil as a secondary energy source in
the short-term future, international bodies can help oilexporters “sow the petroleum” and reinvest oil revenues
through economic diversification programs. While such
diversification programs in oil-exporters have often failed
in the past, results should improve in these countries
since they will have established merit-based civil service
bureaucracies through new taxation programs. Perhaps
international organizations can even target these old oilexporters as hubs for clean energy technology, a strategy
that would diversify their economies while simultaneously
encouraging a green revolution.
Ultimately, however, the United States must realize
that its domestic climate change strategies will create
domino effects throughout the world – particularly in oilexporting countries. Because no existent alternative energy
source can immediately replace oil, the United States and
the international community at-large have a window of
opportunity to aid oil-exporting countries in developing
sustainable governance independent of resource rents. In
fact, neglecting oil-exporters in the big push away from oil
will only exacerbate current conflicts in these countries
and further burden the international community. Though
an inconvenient truth, the proper strategy for addressing
global warming requires not only fossil fuel reduction but
also the institution of good governance in oil-exporters
themselves. §
Marcus Bensasson
Gas flaring in the Niger Delta causes health problems and distress for people living nearby and is a major source of CO2 emissions.
64 • Fall/Winter 2008
Good Governance in Oil-Exporters
Endnotes
1 Birdsall, Nancy and Arvind Subramanian. “Saving Iraq from its Oil.”
Foreign Affairs. July/August 2004, pp. 77-89.
2 Fearon, James. “Primary Commodity Exports and Civil War.” Journal of
Conflict Resolution. V. 49, n. 4. August 2005, pp. 483-507.
3 Roberts, John. “A Primer on Oil.” Covering Oil: A Reporter’s Guide to
Energy and Development. Revenue Watch, Open Society Institute.
<www.soros.org./initiatives.cep/articles_publications/publications/
covering_20050803/osicoveringoil_20050803.pdf.>
4 Karl, Terry Lynn. “Oil-Led Development: Social, Political, and Economic
Consequences.” In C.J. Cleveland (ed.). Encyclopedia of Energy. (Boston,
MA: Elsevier Science, 2004), pp. 661-672).
5 Siegle, Joseph. “The Governance Root of the Natural Resource Curse.”
Developing Alternatives. Summer 2007.
6 Ibid.
7 Stephan, Katherine. “Oil Companies and the International Oil Market” in
Covering Oil. Revenue Watch, Open Society Institute. 2005.
8 Ross, Michael. “How Does Mineral Wealth Affect the Poor?” 2003.“Does
Oil Hinder Democracy?” World Politics. April 2001, pp. 325-361.
9 Smith, Benjamin. “Oil Wealth and Regime Survival in the Developing
World, 1960-1999.” American Journal of Political Science. V. 48, n. 2. April
2004, pp. 232-246.
10 Karl, “Oil-Led Development: Social, Political, and Economic
Consequences.”
11 Zalik, Anna. “The Peace of the Graveyard: The Voluntary Principles on
Security and Human Rights in the Niger Delta.” In Assassi, van der Pijl
and Wigan (eds.), Global Regulation: Managing Crises after the Imperial
Turn. London. 2004.
12 Victor, David; Nadejda Victor. “Axis of Oil?” Foreign Affairs. V. 82, n. 2.
Mar/Apr 2003, pp. 47-61.
13 “Saudi Arabia Energy Data, Statistics, an Analysis – Oil, Gas, Electricity,
Coal.” Energy Information Administration. Oct. 2007. <http://www.eia.
doe.gov/cabs/Saudi_Arabia/Background.html>.
14 “Iran Energy Data, Statistics, an Analysis – Oil, Gas, Electricity, Coal.”
Energy Information Administration. Oct. 2007. <http://www.eia.doe.gov/
cabs/Iran/Background.html>. “Escaping the Oil Curse: The Case for a
Transparent Fiscal Social Contract” manuscript, 2007.
15 Collier, Paul and Anke Hoeffler. “Resource Rents, Governance, and
Conflict.” Journal of Conflict Resolution. V. 49, n. 4. 2005, pp. 625-633.
16 Goodhand, Jonathan. “Violent Conflict, Poverty and Chronic Poverty.”
Chronic Poverty Research Center. May 2001.
17 Klare, Michael. “The Futile Pursuit of ‘Energy Security’ by Military Force.”
Brown Journal of World Affairs. Spring/Sumer 2007, pp. 139-153.
18 Cavallo, Alfred. “World Oil Production: Focus on non-Opec Supplies.”
World Oil. V. 227, n. 4, 2006.
19 Humphreys, Macartan; Jeffrey D. Sachs; Joseph E. Stiglitz. “Future
Directions for the Management of Natural Resources.” In Macartan
Humpheys, Jeffrey D. Sachs, and Joseph E. Stiglitz (eds.) Escaping the
Resource Curse. (New York: Columbia University Press, 2007), pp. 322336.
20 Center for Public Integrity. Readings on the Oil Industry’s Campaign
Donations and Lobbying Expenditures.
21 Campbell, Kelly. “Sudanese-Chadian Relations: A New Dimension to the
Conflict in Darfur?”United States Institute for Peace. Apr. 2006. <http://
www.usip.org/pubs/usipeace_briefings/2006/0417_sudan_chad.html>.
Additional References
Barnes, Joe, Amy Myers Jaffe. “The Persian Gulf and the Geopolitics of Oil.”
Survival. V. 48, n. 1. 2007, pp. 143-162.
“Budget of the United States Government, FY 2006.” Office of Management
and Budget. < http://www.whitehouse.gov/omb/budget/fy2006/tables.
html>.
Edwards, John. “Reengaging with the World: A Return to Moral Leadership.”
Foreign Affairs. Sept./Oct. 2007. <http://fullaccess.foreignaffairs.
org/20070901faessay86502/john-edwards/reengaging-with-the-world.
html>.
“US-China Trade Statistics and China’s World Trade Statistics.” The USChina Business Council. 2007. < http://www.uschina.org/statistics/
tradetable.html>.
Useem, Jerry. “Exxon’s African Adventure: How to Build a $3.5 Billion
Pipeline – With the ‘Help’ of NGOs, the World Bank, and yes, Chicken
Sacrifices.” Fortune Magazine 15 April 2002.
Zweig, David; Bi Jianhai. “China’s Global Hunt for Energy.” Foreign Affairs. V.
84, n. 5. Sept/Oct 2005, pp. 25-38.
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