Will Oil Drown the Libyan Revolution?

Is the oil market going to guarantee Libya's crash?

Michael Ross wrote a pretty interesting piece in the latest Foreign Affairs (subscription required) about the possibility that the prevalence of oil in many Arab countries will dampen the effects of the Arab Spring. The boiled down thesis is that monarchs and dictators who are fortunate enough to run countries blessed with immense oil wealth are better able to buy off their populations through lowering taxes, subsidies, or other handouts (see, for example, the GCC). Conversely, autocrats that do not have stuffed coffers from oil are less able to buy off pliable populations. Consider that in 2011:

Algeria announced plans to invest $156 billion in new infrastructure and cut taxes on sugar; Saudi Arabia directed $136 billion to increasing wages in the public sector, unemployment benefits, and housing subsidies; Kuwait offered each of its citizens a cash gift of 1,000 dinars (about $3,600) and free food staples for 14 months. Autocrats with little or no oil wealth – Zine el Abidine Ben Ali in Tunisia, Hosni Mubarak in Egypt, and Ali Abdullah Saleh in Yemen – made similar gestures, but their pledges were much smaller and therefore less effective.

Ross also argues that the oil industry is often masked in secrecy – allowing for mass government corruption to be hidden – and that oil rich states were able to “lavishly fund – and buy the loyalty of – their armed forces.” Ross cites Iran, Algeria, Oman, and Saudi Arabia as countries that are able to spend oil money on national defense.

Personally, I think the ‘oil curse’ is certainly real, but cannot be viewed simplistically as the only reason for undemocratic, oil-producing countries. Likewise, the existence (or absence) of oil alone does not explain why some countries have experienced successful or prolonged, but certainly plays a large role. The only toppled autocrat that ruled over significant oil reserves was Qaddafi in Libya, but the fall of the Brother Leader was only possible because of western intervention. As Ross notes, the successful or prolonged democratic revolutions have only taken place in countries without access to oil wealth: Syria, Tunisia, Egypt, and Yemen all lack significant wealth. Ross’ argument becomes more intriguing when one considers that Saudi Arabia consistently polls as the least democratic country in the Middle East.

As compelling as Ross’ article was, the most intriguing aspect was the hypothetical consequences should one of the oil-rich dictators fall to popular protest:

Yet even if the Middle East’s oil-backed dictators were replaced by elected leaders, the specter of authoritarianism would continue to loom. The region’s dictators and monarchs have used oil revenue to finance vast patronage networks, which typically entangle both these regimes’ supporters and their potential opponents; these networks make it harder for independent civil-society groups to take root. The lack of civil society would make it tough for new democracies to build sturdy coalitions among the old regime’s opponents – coalitions necessary to lead the new governments and fend off a return to authoritarianism.

So long as oil prices remain high, moreover, these funds will be a constant source of temptation. Even politicians chosen through free and fair elections can use large petroleum windfalls to roll back democratic reforms.

Interestingly, Egypt may be the best example of this. Though the Egyptian government did not have the oil revenues to buy off democratic movements, Mubarak was able to use the military industry funding from the United States and other countries in a similar fashion. While the former leader did not offer major financial subsidies – on the scale of Saudi Arabia or Kuwait – he was able to create a complex patronage network that engulfed the country’s elite and the entirety of the military. After the fall of Mubarak (the army rightly viewed Mubarak as distinct from the source of its interests) the Supreme Council of the Armed Forces (SCAF) was able to effectively disarm a democratic movement that would have challenged its system of aid-induced patronage and the greater economic interests that were created and strengthened throughout the Mubarak period. SCAF was able to push back against revolutionaries because of the lack of civil society in Egypt.

This less-than-perfect extension of Ross’ prediction should create some concerns for Egypt’s oil-rich neighbor. Libya completely lacks national institutions, has no history of civil society, continues to feature pockets of Qaddafi loyalists and is sitting on a vast supply of valuable oil. Though it is only a matter of time until Qaddafi is captured, the sustainability of Libya’s democratic movement is threatened by the complete lack of governmental and civil institutions as well as the probability of oil corruption. This danger, of course, should not be surprising.

In July I wrote:

Moreover, the wealth from these resources (and potentially the frozen Qaddafi assets) that the new government will inherit will create conditions ripe for corruption. As Andrew Exum notes, throughout the colonial period, the Italian government constantly avoided bureaucratic state institutions, leaving the country completely devoid of any “nationwide administration or broadly based political organization.” Under Qaddafi, the situation was worsened, leaving the country absolutely lacking any form of national administration. If the future government is dominated by one region or tribe (it is currently dominated by eastern elites), corruption will greatly benefit one group, leading to divisions and grievances. As “virtually the entire Libyan economy is directly or indirectly dependent on the distribution from the oil sector,” “disagreements over the structures of the new state will primarily be distributive conflicts.” Exum points out that the wealth that will flood the new government from oil will exceed the government’s capacity to administer it or redistribute it throughout society, leading to a raft of corruption.

The odds of a popular revolution avoiding a slip into civil war are pretty slim. Add in a history of despotic rule, a complete lack of civil society and flowing oil and conditions are ripe for post-revolutionary trouble in Libya. Ross cites the fact that no country “with more oil wealth than Venezuela, which in 1958 produced about 2.5 million barrels of oil a day, has ever successfully democratized;” after adjusting for inflation, Libya, before the revolution, made six times as much from its oil industry. In other words, even if Libya had a history of civil society or functional national level institutions, a successful democratic transition despite the potential for corruption or a reversion to authoritarianism would be historically unprecedented. Throw in the many other challenges facing Libya and the future looks bleak even to the most optimistic.

Photo from Inner Blog

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