Research report proposal

Petropolitics 1

Petropolitics in the Organization of the Petroleum Exporting Countries [OPEC]

Petropolitics 2

Introduction

Many scholars have argued that when economic development occurs in a country,

governments tend to move towards becoming more democratic (Helliwell, 1994).

Economic development, for example, brings about rising income rates, increasing values

of natural resources, higher standard of living, and increasing Gross Domestic Product

[GDP] per capita. On the other hand, if such economic development occurs as a result of

petroleum, than democratic tendencies do not transpire. It is important to note that

petropolitics is the extent to which the world’s largest industry influences and dictates

policy and politics, especially in oil exporting countries (Karl, 1997). Much of the

literature on petropolitics has investigated the effects of rentier states in the Middle East

and North Africa (Berry 2005, Clark 1997, Ramsay 2006, Ross 2000 & 2001, Smith 2004

and Wantchekon 2002). Several of the sources supported the idea that the production of

petroleum leads to anti-democratic properties in countries. Equally important, the

literature has highlighted that resource-abundant countries tend to develop more slowly

then resource-poor countries (Friedman 2006, Helliwell 1994, and others). The purpose

of this study is to determine the impact that increasing oil prices have on democratic

properties in the Organization of the Petroleum Exporting Countries [OPEC]. The study

will be guided by the following questions. 1) Does oil play a fundamental role in

determining the course of society?; 2) Are higher oil prices in OPEC countries associated

with less tolerance for minority groups, including both ethnic and/or religious groups in

OPEC countries?; 3) Do non-OPEC countries have better levels of democracy?; 4) Are

oil prices inversely related to free speech, free press, as well as free and fair elections?;

and finally, 5) How has the rule of law been eroded in OPEC countries with the rise of oil

Petropolitics 3

prices? Such research questions are important since oil and democracy have become a

hot topic in the twenty-first century, particularly with the United State’s attempt to

restructure Iraq into a democratic state. In sum this research study will attempt to provide

an empirical examination of petropolitics, where the price of oil barrels is inversely

related to the level of democracy in OPEC countries.

Literature Review

Much of the literature on petropolitics has investigated the implication of oil on

democracy in oil producing and exporting countries (Ramsay 2006, Ross 2001b,

Freidman 2006 and Wantchekon 2002). Friedman (2006) completed a study on oil prices

and levels of freedom in oil exporting countries, which he coined the First Law of

Petropolitics. Freidman argued that “…the price of oil and the pace of freedom always

move in opposite directions in oil-rich petrolist states (p. 31). Similarly, Ross (2001)

concluded that oil impedes democracy in oil producing states of the Middle East and

other regions. Interestingly, Ross’s study outlined that oil production as well as

exportation greatly impede democracy in the poorer countries rather than in the richer

countries (p. 356). Equally important, Ross’s study also included non-Mideast regions

such as Indonesia, Mexico, Chile, Angola, Peru, Cambodia and the Democratic Republic

of Congo, where he discovered that oil and non-fuel minerals had impeded democracy. In

a different study Ross (2003a) investigated the influence mineral wealth has on poverty

levels in countries. Ross illustrates that non-fuel minerals and fuel minerals are associated

with poverty. With respect to the latter, Ross suggests that poverty is associated with the

Petropolitics 4

reduction of low-wage employment opportunities and the lack of democracy in a country.

In regards to poverty, individuals are incapable of advancing their political rights, which

halts the process of democracy in a country. To a lesser extent, this study exemplify that

oil impedes democracy through poverty.

Several studies have reflected the ‘resource-curse’ where resources abundance,

particularly in oil, has been followed by authoritarian regimes (Wantchekon, Ross 2000c,

Sachs and Warner 2001). The resource curse is characterized by abundance of natural

resources in poor and developing countries, where such wealth is detrimental for the

country’s development (Ross, p. 328). The resource curse, in much of the literature, has

been compared to the ‘Dutch disease’. Ramsay (2006) conducted a study to determine the

detrimental effect of the increase in values of natural resources, particularly in oil, has on

the level of political freedom in oil producing countries. In his study, Ramsay concluded

that a negative relationship existed between oil resources and political institutions in oil

producing countries. Equivalently, Clark notes that the discovery of oil was a vital factor

in consolidating a non-democratic regime in the Congo (1997, p. 65). Wantchekon, for

example, illustrates that in Nigeria the government become more centralized as oil

revenues increased the countries Gross Domestic Product [GDP] from 1% in 1960, 30%

in 1964 to 90% in 1979 (p. 13). Following a regression analysis Wantchekon confirmed

a statistically significant association between resource dependency in several African

countries and authoritarianism.

In addition, a considerable amount of the literature focused on the effects of

resource rent countries that are being referred to as rentier states (Beblawi 1987, Clark

1997, Smith 2004, Ross 2001b, Ramsay 2006, Wantchekon 2002 and Friedman 2006).

Petropolitics 5

The term rentier state was first utilized by economists to illustrate European loans to non-

European countries (Ross, p. 329). A rentier state is defined as one with an economic

structure that is dominated by the access to natural resources, where government

revenues mainly come from the sale of natural resources. Basically, rents from natural

resources are paid to state leaders and governments by foreign actors. Beblawi suggests

that rentier states are ones that “…only a few are engaged in the generation of this rent

(wealth), the majority being only involved in the distribution or utilization of it” (1987, p.

51). Essentially, Ramsay argues that rentier states have considerable autonomy in the

political arena of their respective countries. Middle East specialist Muhdavy illustrated

that resource rents allow oil producing countries in the Mideast to be less accountable in

governance because they do not depend on tax revenues (1970). Both Beblawi and

Mahdavy redefined the rentier state idea from the initial definition of European loans,

where they included the idea of states receiving rent from foreign actors.

Interestingly, Wantchekon postulates that resource poor countries have better

democratic practices than resource abundant countries (p. 6). Natural resources

abundance can lead to competition over the control of the state, especially when the

people are unable to monitor the activities of the state. This will pressure the government

into using the resource rents to maintain their hold on power (Wantchekon, 2002). On

the other hand, if the country is resource poor, there will be less competition for state

control. If there is little competition for state control there will be more elite cooperation

and the government will function more along democratic lines, rather than resorting to

authoritarian measures against its people. However, if the state does, in fact, have an

abundance of rents, the state’s main goal is to stay in power, while the people want as

Petropolitics 6

much of the rent as possible to be distributed to them (Wantchekon, 2002). In this sense,

a one party or no party government that faces no opposition can use the wealth to buy

political support from a special group of voters. Therefore, the more wealth the

government accumulates from the export of resources, the more it can strengthen its

political power by buying off political support (Wantchekon, 2002). Wantchekon’s claim

is supported by such studies as the one conducted by Badiei and Bina on the ‘rentier

character’ of Iran. The government of Iran provides state subsidies to certain groups and

institutions that provide protection and ideological support to the present regime (Badiei

and Cyrus, 2002).

This was also highlighted in Ross’s argument of how resource rents allow the

state to buy support (2001). With respect to the latter, resource rich countries will be less

reliant on tax revenues and more on resource rent revenues, in turn freeing political

leaders from fulfilling their democratic responsibilities. In Ross’s study, he implemented

the rentier effect to establish a causal link between oil wealth and anti-democratic

tendencies in oil exporting countries. Ross postulates three components of the rentier

effect: the taxation, the spending, and the group formation effects (p. 333-336). Ross, for

example, puts forward the claim that the resource rich governments will reduce the tax

rates (taxation effect) in order to prevent the public from politically mobilizing against

the government. Similarly, Ramsay illustrates the taxation effect as a causal link between

resource wealth and democracy. In relation to the spending effect, resource rents permit

states to increase their fiscal spending, in turn reducing pressures for democratic practice.

Finally, resource rents from oil provide states with finances to prevent the

formation of independent social groups demanding more democratic practice. Following

Petropolitics 7

a regression analysis, Ross confirms that the rentier effect contributes to the

understanding of how oil impedes democracy. The concept of the rentier state was also

highlighted by Ramsay, where he asserts that the rentier theory developed from the

taxation and representation literature. Such literature argues that the need for revenues

through taxation was a critical factor in the development of representative government in

Europe (2006, p 3). With respect to the rentier state, taxation is not a critical factor in

generating revenues for the state. Rather the government redistributes the wealth to

individuals that support the government. On the other hand, resource rents also

contribute to the repression effect, where government use resource rents to suppress the

populace and defended the statues quo. In short Ramsay asserts that resource wealth has a

detrimental effect on political freedoms in oil exporting countries.

Ross further investigates the modernization effect theory and repression effect

theory as another causal mechanism for oil hindering democracy. The modernization

effect holds that growth from the export of oil and other minerals does not bring about

social and cultural changes in a country. Finally, with the repression effect Ross suggests

that oil exporting governments use force to keep the public from politically mobilizing,

which in turn impedes democracy (Ross 2001b). However, Ross affirms that the

modernization effect is an elusive factor linking oil wealth and authoritarian regimes.

On the other hand, Ross postulates that oil wealth and authoritarian regimes are

linked to the repression effect. Primarily, oil wealth enables states to spend more on their

military apparatus in order to repress popular pressure, in turn forestalling democracy as

the repression effect advances. Clark, for example, notes that oil wealth in the Republic

of Congo was used to support its authoritative regime. The Republic of Congo used oil

Petropolitics 8

revenues to fund the military as well as the special presidential guard (Clark1997b and

1998a11). Friedman builds on Ross’s rentier effect argument on oil wealth and

authoritarian regimes. Essentially Friedman takes Ross’s argument further by arguing

that the rising and falling prices of oil can be correlated to the rising and falling level of

freedom in petrolist countries. This assertion leads to Friedman’s first law of

petropolitics.

Moore recognized that rentier states do not have completely identical

characteristics but, in general, they all share some underlying principles. Since the

government obtains much of its financial resources through rents, it makes the state more

independent of its citizens (Moore, 2004). Citizens are potential taxpayers, however, in

the case of rentier states, taxes are not heavily relied on. More important is the impact

that a rentier state has on its citizens. The absence of taxes will reduce the chance that

people will engage in politics (Moore, 2004). People will not be as motivated because

the government is not spending the citizens’ tax money (Moore, 2004). Also, there is

little or no incentive to create an efficient public bureaucracy since the task of

accumulating revenue from the mineral resources can be performed by a small group of

qualified individuals (Moore, 2004). Rentier states lack the sort of complex tax system

that one finds in a developed democracy.

Thus the literature suggests that resources wealth impedes democracy in oil

exporting countries, with great emphasis on the rentier effect and the repression effect.

Several of the studies either focused on a single country or a combination of country,

however in the literature reviewed OPEC as a case was not implemented. Thus, OPEC

will be the focus of the study at hand, in turn adding another branch to the study of oil

Petropolitics 9

and democracy.

Theoretical discussion and hypothesis

The theories that this study will rely on are the rentier effect and the repression

effect cited in several of the literature on petropolitics. Both of these theories play a

significant factor on how oil-impedes democracy in oil exporting countries. The rentier

effect is appropriate for this study because it explains the absences of democracy in

resource abundant countries, particularly in oil. Rentier state theorists affirm that the

theory does not hold outside the Third world (Goldberg, Wibbles, and Mvukigehe, 2005).

This theory is ideal for the study of interest because the unit of analysis consist mostly of

third world countries. In the true sense of democracy, most, if not all of the OPEC

countries, are not democratic. Since their economies are based on exporting resources,

oil in particular, they do not have to rely as much on the public for support. A legitimate

democratic government needs to be representative of the population. In the case of

rentier states, the governments try to make themselves legitimate by distributing the

wealth among its citizens. For this reason, the rentier effect is the most appropriate

theory for this study. The repression effect goes hand-in-hand with the rentier effect

because most rentier states tend to be repressive. A large portion of the oil revenues is

used to increase military spending in order to ensure internal security (Ross, 2001). This

is a precaution taken by the state in order to repress or shut down any criticism of the

government. For this reason, the repression effect is the most appropriate theory for the

Petropolitics 10

study. The main concepts that the study will focus on are oil, democracy, and

authoritarianism.

The primary explanatory independent variable in this study will be the price of oil

and oil exporting levels in OPEC countries, while the dependent variable will be the level

of democratic properties in OPEC countries. The variables in this study are similar to

variables used by Wantchekon, Ross, Smith, Freidman and Panchok-Berry.

Methods

Design

The type of research that will be implemented in this study is available-data

analysis, entailing the use of time-series cross-national data from OPEC countries. The

use of available-data analysis is the most efficient type of research method available for

this study, insofar as being an economically advantageous as well as time saving

approach. This empirical study will evoke the use of regression analysis which permits

the estimation of the effect on the dependent variable by changing one independent

variable, while holding the other regressors constant. The temporal scope of the study

will be between 1973 and 2004. The onset date for the study was chosen because it

marked the date of the 1973 oil crisis, where OPEC increased the price of oil by 70% to

Western countries (Anderson, 1997). Data for the study will be pooled from Polity IV

dataset and BP Statistical Review of World Energy. The polity IV data set provides

regime data from 161 countries from 1800 to 2004. While the BP data set provides the

annual price of oil since 1963. The first dataset will be used for the dependent variables

Petropolitics 11

and the second datasets will be used for the independent variable. Generally, the data

used from the two datasets contain an exceptional level of completeness.

Subjects

A subset 11 countries will be selected from the population of 46 oil producing

countries. The 11 cases were selected because the focus of the study is on OPEC. The

unit of analysis in this study will be the state, essentially OPEC countries. OPEC

members include Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi

Arabia, the United Arab Emirates, and Venezuela. This study will exclude former OPEC

members Gabon and Ecuador from the unit of analysis. Thus, the sample size will be 11

countries.

Measurement

The operational definition of the dependent variable is the democratic properties

in OPEC, whereas the independent variable is the country’s price of an oil barrel in US

currency. In Polity IV democracy is coded as DEMOC, which refers to the institutional

democracy. According to the data set the democracy variable is composed of three

interdependent elements (Marshall and Jaggers, 2005, p. 13). First, having institutions

and procedures where individuals can seek to make claims and concerns about policies

and leaders. Second, legal restrains on the power of the leaders. Third, a guarantee of

civil liberties and political participation to all citizens. Democracy, for example, also

included rule of law and freedom of the press. The data measures countries on a

democratic scale from 0 to 10 [Refer to appendix 1]. In polity IV autocracy is coded as

Petropolitics 12

AUTOC, which refers to institutionalized autocracy. Autocracy is operationally defined

in the data set as governments restricting or suppressing competitive political

participation in a country. The data measures countries on an authoritarian scale from 0

to 10 [Refer to appendix 2]. By following Ross (2001) and Wantchekon (2002), both of

these measures will be transformed into one variable. This will be accomplished by

subtracting autocracy measures from democracy measures, and then rescaling. Marshall

and Jaggers implemented inter-coder reliability check in the Polity IV data set to improve

the consistency and confidence of the data (2005). For the independent variable the BP

Statistical Review of World Energy data set will be used. This data set provides annual

oil prices, including OPEC countries exporting oil price for barrels annually.

Additionally, controlling for the extraneous variables will ensure that the

independent variable caused the change in the dependent variable and not a third variable.

The extraneous variables that will be controlled for in the study are Islam, Gross

Domestic Product [GDP], income levels, and educational levels. Much of the literature

also controlled for these variables as well (Ramsay 2006, Ross 2001b, and Wantchekon

2002). It is essential that Islam is controlled for in Middle Eastern and North African

countries, since such variable can greatly influence the results. By using the regression

analysis the extraneous variables will be held constant in the regression equation.

Measurement validity will be ensured with a goodness of fit test between the operational

definitions and the concepts it is suppose to measure. In this study SPSS statistical

software will used to carry out the regression analysis. Finally, this study will not have

any kind of pretesting.

Petropolitics 13

Conclusion

Petropolitics has become a hot and controversial topic in the realm of

international relations. Democracy has been the central issue in many oil producing and

exporting countries, where democratic tendencies have not transpired with the economic

wealth that oil resources have generated for some countries. The following study aims to

illustrate how increasing oil prices have had a detrimental impact on democratic

properties in the OPEC countries. Much of the literature has supported the idea that oil

wealth impedes democracy; however, none of the literature specifically focused on OPEC

countries alone. It is important to note that OPEC countries are the largest oil exporting

countries in the world. By focusing attention mainly on OPEC countries, the rentier effect

will be magnified, thus yielding better results in the study. Interestingly, since the oil

sources are depleting, the price of oil will gradually increase. Such price increases will

follow micro-economic supply theory, where supply levels and price levels are inversely

related. Thus, one wonders how OPEC countries will behave in the future as oil prices

will increase, in turn, leading to more wealth for the states in question. Future research

studies could focus specifically on the Middle East region where 60% of the world’s oil

is located (Jackson and Towle, 2006: 76). It is estimated that the oil in the Middle East

will last approximately 85 years if it will continue to be extracted at the same rate as

today (Jackson and Towle, 2006: 76). This entails that in the near future most, if not all,

of the oil reserves will be the ones located in the Middle East. Oil is a very valuable

resource for all nations across the globe. It would be interesting to study how the

behavior of the regimes in oil-exporting rentier states, especially in the Middle East, will

change from now on as oil will become scarcer and more sought after. Will the regimes

Petropolitics 14

become more authoritative or more democratic? Based on the previous literature, it is

fair to say that rentier states will have more wealth and power as oil will become more

sought after. Since rentier states do not have a history of implementing democratic

policies, it is expected that the same trend will continue in the future.

Petropolitics 15

Reference

Badiei, Sousan and Bina, Cyrus. 2002. “Oil and the Rentier State: Iran’s Capital

Formation (1960-1997).” Proceedings of the Middle East Economic Association,

Vol. 4

Beblawi, Hazem. 1987. “The Rentier State in the Arab World,” in Hazem Beblawi and

Giacomo Luciani, eds., The Rentier State. New York: Croom Helm.

Clark, John. 1998a. “Foreign Intervention in the Civil War of the Congo Republic.”

Issue: A Journal of Opinion 26(1): 31 – 36.

__________. 1997b. “Petro-Politics in Congo.” Journal of Democracy, 8(3): 62 – 76.

Available at: www.proxy.lib.edu:2128/journals_of_democracy/v008/8.3clark.html Retrieved

on: October 30, 2006.

Friedman, Thomas. 2006. “The First Law of Petropolitics”. The Ecologist, 36(7): 24 – 29.

Available at: www.proxy.lib.edu:2073/pqdweb?index=0&sid=1&srchmode=1&vinst=PROD&

Retrieved on: October 30, 2006.

Jackson, Robert J. and Towle Philip. 2006. Temptations of Power: The United States in

Global Politics after 9/11. Palgrave Macmillan.

Mahdavy, Hosseim. (1970). “Patterns and Problems of Economic Development in

Rentier States: The Case of Iran”, in Studies in the Economic History of the

Middle East, edited by M.A. Cook, Oxford: Oxford University Press.

Marshall, M., and Jaggers, K. (2005). Polity IV Project: Political Regime Characteristics

and Transition, 1800 – 2004, Polity Dataset. George Mason University: Arlington,

VA.

Moore, Mick. (2004). “Revenues, State Formation, and the Quality of Governance in

Developing Countries.” International Political Science Review, Vol. 25, No. 3,

297-319

Ramsay, Kristopher. 2006. The Price of Oil and Democracy. Princeton University

working paper: 1 – 25.

Ross, Michael. 2003a. “How does Mineral Wealth Affect the Poor?”.

____________. 2001b. “Does Oil Hinder Democracy?” World Politics, 53: 325 – 361.

____________. 2000c. “Does Resource Wealth cause Authoritarian Rule?”. For

Presentation at Yale University.

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Smith, Benjamin. (2004). “Oil Wealth and Regime Survival in the Developing World,

1960 – 1999”. American Journal of Political Review, Vol. 48, No. 2: 232 – 246.

Wantchekon, Leonard (2002). “Why do Resources Abundant Countries Have

Authoritarian Governments?” Yale University: 1 - 31.

Petropolitics 17

Appendix 1: Institutional Democracy

Authority Coding Scale Weight Competitiveness of Executive Recruitment (XRCOMP):

(3) Election +2

(2) Transnational +1

Openness of Executive Recruitment (XROPEN):

Only if XRCOMP is Election (3) or Transitional (2)

(3) Dual/election +1

(4) Election +1

Constraint on Chief Executive (XCONST):

(7) Executive parity or subordination +4

(6) Intermediate Category +3

(5) Substantial Limitations +2

(4) Intermediate Category +1

Competitiveness of Political Participation (PARCOMP):

(5) Competitive +3

(4) Transitional +2

(3) Factional +1 Source: Polity IV: Dataset user’s manual, p 14.

Appendix 2: Institutional Autocracy

Authority Coding Scale Weight Competitiveness of Executive Recruitment (XRCOMP):

(1) Selection +2

Openness of Executive Recruitment (XROPEN):

Only if XRCOMP is Election (3) or Transitional (2)

(1) Closed +1

(2) Dual/designation +1

Constraint on Chief Executive (XCONST):

(1) Unlimited Authority +3

(2) Intermediate Category +2

(3) Slight to Moderate Limitations +1

Regulation of Participation (PARREG):

(4) Restricted +2

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(3) Sectarian +1

Competitiveness of Participation (PARCOMP):

(1) Repressed +2

(2) Suppressed +1 Source: Polity IV: Dataset user’s manual, p 15.