World - The rise (and fall) of petro-states

Sreeram Chaulia

Even before armed hostilities between Russia and Georgia ended in August 2008, the ultranationalist Mayor of Moscow, Yuri Luzhkov, began investing colossal sums on changing the ethnic geography of South Ossetia in favour of Russia. In one public speech to Ossetians, he exuded the confidence and chutzpah that has come to symbolise the Russia of Prime Minister Vladimir Putin and President Dmitry Medvedev. Smug with the knowledge that oil and gas revenues had raised his count ry’s international stature, Luzhkov wooed his Ossetian audience with a startling claim, “Russia needs nothing. It has everything. It is the wealthiest country.”

The Kremlin’s assertiveness and strident defence of national interests in the Putin era is ascribed to the boom in world prices of natural gas and oil, which Russia exports in abundance. Russia reaped direct dividends of the steep incline in fossil fuel prices by accumulating foreign exchange reserves to the tune of $560 billion by mid-2008. Indirectly, possession of the much-coveted strategic minerals enabled Russia to neutralise energy-hungry western European countries, particularly Germany, so that the ‘West’ was divided from taking an anti-Moscow foreign policy line.

Ever since fossil fuel prices inflated from 2004, the Middle East, Latin America and Africa saw their own versions of petro-states that turned into major regional powers to threaten American hegemony. Thanks to steady increases in the price of oil, Iran’s star rose astronomically in the most volatile area of the world. As the second largest producer of oil and natural gas, Iran could build its own web of alliances in Europe and the rest of Asia to counter the impending American and Israeli threats to its territorial integrity.

Flush with petro-dollars, President Mahmoud Ahmadinejad matched American and Israeli belligerence with a scaled-up defiance that brought back memories of the Islamic Revolution of 1979. The thawing of revolutionary anti-Americanism of the late 1990s when moderate Presidents like Mohammad Khatami were in power also coincided with artificially depressed world oil prices. When crude sold for less than $25 a barrel, Tehran had a scantier resource base on which to strengthen its military and diplomatic fortifications. By the time it peaked to $145 a barrel, Mr. Ahmadinejad could afford to be as hawkish as the Ayatollahs who supervise him.

In Venezuela too, oil bonanzas helped spur revolutionary policies under the leadership of President Hugo Chavez, who took over the mantle of resisting American neo-imperialism from Cuba’s Fidel Castro. By floating the Bolivarian Alternative for the Americas (ALBA), Mr. Chavez opened up possibilities of America’s backyard freeing itself from the clutches of Washington’s foreign aid and military monopoly.

That other South American countries accepted Mr. Chavez’s tutelage and rebuffed U.S. President George W. Bush’s proposed Free Trade Area of the Americas (FTAA) owes to Venezuela’s ability to cough out economic development assistance through ALBA. Instead of the liberal free trade concept of reciprocity, Mr. Chavez invented the notion of unequal responsibilities of rich and poor members of ALBA on the basis of availability and need.

This communitarian form of international regional integration came to gain leverage in South America, thanks to Venezuela’s projected promotion in early 2008 as the richest country, surpassing Chile in per capita income. As the sixth largest exporter of oil whose revenues were amassing, Caracas was a dependable pivot for a regional renaissance to counter the informal American Monroe Doctrine.

In southern Africa, the oil-rich state of Angola has similarly climbed up the ladder of regional power configurations and suddenly posed a major challenge to the stranglehold of the World Bank and the International Monetary Fund (IMF). Impoverished parts of Africa have for decades been the experimental laboratories of neo-liberal western powers and International Financial Institutions.

When Angola emerged from the shadows of internal war and began pumping out its offshore oil wealth, the IMF and the World Bank were unceremoniously shown the door by the government in Luanda. As the sixth largest exporter of petroleum to the United States, Angola had enough traction to avoid being pressurised by the Washington Consensus instruments into submission. The profile of Africa, which had been crushed under the hammer of the neo-liberal aid enterprise, would look radical if the other big oil powerhouse, Nigeria, followed in Angola’s footsteps.

The mainstream discourse in political science about petro-states has been about their internal political repercussions. Through a ‘rentier effect,’ resource-plenty states tend to be plagued with authoritarian regimes in perpetuity due to low or absent taxation levels and consequent lack of dissent in society. In this sense, high oil prices of the last four years were cementing dictatorial forms of domestic politics.

As crude prices skyrocketed and compelled an overflow of dollars from oil consumers to these ‘rentier states,’ former U.S. Secretary of State Henry Kissinger wrote in The Washington Post in September that the world was witnessing “the largest transfer of wealth in human history.” Thomas Friedman, the New York Times columnist went further and coined the term ‘petro-dictatorships,’ which were being funded by oil-guzzling western societies “via the greatest transfer of wealth in the history of the world.”

Hyperbole aside, American coding of countries as democratic or dictatorial is heavily influenced by whether or not the cases are pliable for U.S. foreign policy ends. The ratcheting up of western criticism of Russia’s deteriorating civil liberties and press freedom mirrored the adoption of anti-American foreign policies in Moscow. The same linkage between foreign relations and classification of domestic political regimes applies to Venezuela, which is often derided by the American establishment as an ‘authoritarian’ state.

Without question, the landscape of diplomatic battles has been impacted deeply by the rise of petro-states in the context of ballooning oil prices. The question now arises whether this was just another bubble that would be pricked by the sharp recent fall in petroleum prices. Already, western media outlets are gloating that the heydays of Russia, Iran and Venezuela are over as oil prices plummet in response to decreased world demand. There are doomsday predictions that the healthy foreign exchange reserves built up by the petro-states are dwindling and that the next logical step would be a reversal of their policies of confrontation with the U.S.

The just-announced coordinated cut in oil production by the Organisation of Petroleum Exporting Countries (OPEC) might not stem the continuous downward spiral of crude prices because of demand-side shrinkage. Global financial woes have derailed manufacturing in many oil-importing countries and this is indeed bad news for petro-states.

However, announcing the ‘fall’ of Russia, Iran and Venezuela as a result of the about-turn in oil prices would be naïve. A state’s power in world politics is not absolute but relative to the power of other states. If petro-states are on the back foot on account of the plunging value of their chief export, then the oil importing nations of the west are stuck in an even deeper hole. The relative political power of the U.S. and other western states has taken a massive dip as a result of unregulated financial fiction. At the end of the day, petro-states cannot ‘fall’ when their rivals are getting battered.

(Sreeram Chaulia is a researcher on international affairs at the Maxwell School of Citizenship and Public Affairs in Syracuse, New York.)