Has oil wealth been a blessing or a curse for the Middle East?

Just as coal fuelled the early industrial revolutions of the 18^th and 19^th centuries, technological and economic development since the twentieth century has been driven largely by oil. The result has been to catapult the Middle East, which happens to possess over 66% of the World’s known reserves, into the geopolitical limelight and to give it a pivotal role in the global economy, bringing tens of trillions of dollars in revenues to the states that possess it.

Given that the discovery of oil followed soon after the creation of such states, oil wealth has run parallel with development of their political and economic structures, facilitating the development of models which are defined and sustained by it.  As King Faisal of Saudi Arabia described it, “‘in one generation we went from riding camels to riding Cadillacs”[1]. Even those state which possess no oil resources of their own have not been left untouched.

Egypt, Syria and Jordan derive significant economic benefits from payments for pipeline crossings, transit fees and the use of the Suez Canal, whilst others such as Yemen, Syria, Lebanon, Tunisia, Algeria, and Morocco benefit from remittances from citizens working overseas. Relations between all Middle Eastern states and advanced industrialised countries in the West (and increasingly the East) are shaped above all else by considerations of the region’s significance as an energy producer.

Whilst there can be little disputing that oil has played a central role in creating the modern Middle East, then, it is far less clear how far this role has been a positive one. Flying in the face of early modernisation theorists, the extraordinary wealth experienced by the oil-producing states has failed to bring about true economic development. In the past decade, the Middle East as a whole has experienced the lowest growth rate in real GDP per capita of any part of the world except sub-Saharan Africa, whilst human development indicators such as literacy levels remain stubbornly low even in the wealthiest oil producing states.

Both statistics reveal a startling failure to invest oil revenues in the human capital necessary for genuine economic development. Politically too, the region remains weak, with political institutions that lack accountability to their citizens, widespread suppression of individual liberties and high levels of corruption. Nor has oil wealth coincided with security or stability. The past 50 years have witnessed three major wars between oil producing countries, most notably the Iran-Iraq war which resulted in over 1.5million casualties[2].

As Michael Herb rightly recognises, we should be sceptical about claims that all these problems can be attributed to oil wealth alone[3]. What should be clear, however, is that oil wealth has certainly not delivered political or economic development or security to the Middle East, and so cannot in any significant sense be considered a ‘blessing’. By considering the causal link between oil wealth and the significant political and economic development problems of the region in more detail over the remainder of this essay, we will establish how far it can be considered a ‘curse’.

At the core of the argument that oil has ‘cursed’ the development of responsive and accountable political institutions in the Middle East is the ‘rentier effect’, the most robust definition for which has been put forward by Hazem Beblawi. Beblawi and other proponents of the theory assume a link between taxation and political accountability. Because oil revenues significantly reduce a government’s dependence on taxation as a source of income, they argue, there is less of a need for governments to respond to the needs of their citizens, sustaining ruling elites that are detached both politically and financially from their citizens.

At the same time, citizens that lack a financial stake in political institutions are far less likely to engage with, or demand anything from, those institutions, impeding the development of a political culture. For one extreme example, we might consider Kuwait, in which formal citizenship is confined to just a third of the resident population, and in which, at the last election, just 15% of the population was eligible to vote. Although this situation has not gone without challenge in recent years, it seems reasonable to assume that the survival of such an unresponsive political system is at least in part thanks to the fact that the Kuwaiti oil wealth enables the government to make few financial demands upon the population, whilst at the same time delivering the highest level of GDP per capita in the world.

Although both the presence of a ‘rentier effect’ and a negative link between oil wealth and democratization have long been posited,  it has not been until much more recently that individual studies such as Michael Ross’ article ‘Does Oil Hinder Democracy?’ [4]have provided the statistical evidence to support them. Through the use of regression analysis to account for and isolate regionally-specific variables, Ross showed that the discovery of oil and (albeit to a lesser extent) other forms of mineral wealth had a detrimental effect on the development on democratization, especially where those states had previously been poor. In addition, Ross’ study demonstrates that the supposed anti-democratic properties of oil wealth are not confined to the Middle East, but experienced in oil-producing states elsewhere such as Nigeria and Venezuela.

The apparent universality of the phenomenon suggests that whilst we should certainly account for regionally-specific causes such as colonialism and the role of Islam in attributing blame for the Middle East’s weak political structures, the effects of oil wealth must share at least a portion of the blame. In addition to finding evidence for the ‘rentier effect’ as a causal mechanism, Ross also finds support for a ‘repression effect’, through which governments use oil wealth in order to build up an internal security apparatus in order to repress political opposition. Although subsequent studies such as Herb have questioned the centrality of the ‘rentier effect’ as a  causal mechanism and others have suggested alternatives, the claim that oil wealth has ‘cursed’ the development of responsive political structures in Middle Eastern states is well grounded both statistically and anecdotally.

Not only has oil wealth actively hindered the development of political structures in the Middle East that are responsive to their citizens, but it has also failed to deliver meaningful economic development. Such a conclusion may seem paradoxical given the astonishing physical transformation witnessed in oil rich states over the past 50 years. In 1950, for examples, Saudi Arabia had just 150 miles of paved roads compared to 28,000 today, whist the city of Dubai has recorded an annual population growth rate of 6.4% and as high as 16.7% in 2004. Despite the almost unprecedented scale of economic growth experienced in the past 50 years by oil-rich states, however, the evidence shows the need to distinguish mere growth from lasting and sustainable development.

More complex indicators of development, for example reveal a different picture[5]. Whilst the per capita GDP of Kuwait is close to the OECD average, for example, infant mortality rates are nearly twice as high, and the percentage of women employed in industry compared to agriculture stands at just 2%, compared to an OECD average of 18%. In Saudi Arabia, the contrast is even greater, with female literacy standing at just 62.9% compared to a OECD average of 98.6%, and infant mortality at 26 per 1000 live births, compared to 6.5 amongst OECD countries. What these indices suggest is that wealth has not brought about the changes in the levels of education, healthcare and economic diversification that we would expect from genuine economic development. Nor is the growth experienced by these countries self-sustaining.

Kuwait and Saudi Arabia’s dependence on foreign expertise to operate their oil infrastructure reflects an abject failure by these states to develop human capital of their own. The number of scientific and technical journals published in both countries per 100,000 residents is just 9.6 and 3.2 for Kuwait and Saudi Arabia respectively, compared to an OECD average of 50.5. Just as oil wealth has permitted the ruling families of oil-producing states to escape the need to be accountable to their citizens and thus impeded the development of responsive political structures, easy oil income has allowed these states to buy the infrastructure of wealthy countries whilst avoiding the much deeper systemic social and economic change associated with economic development in countries that historically have possessed far fewer natural resources of their own, such as Korea or the United Kingdom.

It is therefore clear that oil wealth, rather than facilitating economic development, has in fact acted as a ‘crutch’, creating an economic model which relies upon external expertise to exploit natural resources and nullifies the need for investment in human capital, the development of secondary industry, or the social change associated with it.

At the same time, however, it is important to put these findings into perspective. Although the development indices of oil-rich countries such as Saudi Arabia and Kuwait lag behind the OECD average, they are still far higher than those of their non-oil producing neighbours. By the same measure of infant mortality, for example, Egypt’s rate is as high as 66.1 per 1000 births.

Similarly, despite it lacking the luxury of access to easy oil money, Egypt has also failed to build up the technical infrastructure for self-sustaining economic development: just 1.8 scientific and technical journal articles are published in Egypt per 100,000 people. What this shows us, therefore, is that economic and political underdevelopment is a regional problem, not confined to oil-producing countries. Whilst  regional factors such as legacy of colonialism, competing sub-state and supra-state allegiances and the possible effects of Islamic culture on political life all play their part, there is a great deal of evidence that oil wealth too, has had a negative effect on the region as a whole.

Beyond the direct affects of oil wealth in stunting political and economic development in oil-producing countries themselves, the presence of oil has also contributed to the insecurity of the region as a whole. In addition, it has left it exposed to the foreign interference that has proven so damaging to the historical development of Middle Eastern states. Iran’s Constitutional Revolution of 1906, for example, demonstrated the potential within Iran for a gradual transition towards more accountable forms of democratic government to take place. From the discovery of oil by D’Arcy onwards, however, Anglo-American policy towards Iran continually prioritised control of the nation’s oil reserves over its political development.

A CIA/MI6 orchestrated coup in 1953 removed Iran’s first stable elected government, instead endorsing the increasingly autocratic rule of Mohammad Reza Shah Pahlavi. The experience of Iran is just one example of the way in which the West’s dependency upon Middle Eastern oil has caused them to peruse access to it at the expense of Middle Eastern political and economic development.

Throughout the 1990s and early 2000s, the United States and Britain pursued a contradictory policy of simultaneously condemning Iraq’s Saddam Hussein for his lack of respect for human rights, whilst at the same time ignoring the similar lack of civil liberties in Saudi Arabia, the region’s largest oil supplier. In seeking to explain this discrepancy, former US Federal Reserve Chairman Alan Greenspan commented that he was “saddened that it is politically inconvenient to acknowledge what everyone knows: the Iraq war is largely about oil,”. Similarly, for all the rhetoric employed by George HW Bush during the 1991 Gulf conflict about the need to restore Kuwait’s sovereignty, it is hard to ignore the fact that Kuwaiti and Iraqi disputes over levels of oil production and slant drilling into Iraqi’s Rumaila oil fields played a significant role in the build-up to the conflict, and that the war itself was largely financed by a $36bn contribution by Kuwait, Saudi Arabia and other oil-producing states in the region.

Whilst one would be correct to identify colonialism’s legacy of weak states as an important contributor to the region’s instability, we should not ignore the fact that the colonial interests of both Britain and the United States over the past century are inextricably linked to their status as oil-consuming nations. With the exception of French intervention and the Suez Canal, it is easy to conclude that the Middle East would never have been cursed by colonialism in the way that it was, unless it had first been cursed by abundant oil reserves.

As we have demonstrated, whilst oil wealth cannot be given sole blame for the extensive political, economic and security problems of the Middle East, it is nonetheless inextricably tied up with them. As statistical and anecdotal studies show, the discovery of oil within weak, initially poor states typically has a negative effect on their political and economic development. Whilst oil wealth did not create the autocratic monarchies which dominate oil producing states such as Saudi Arabia and Kuwait, it has played a crucial role in sustaining them and in warding off pressures for political change. Similarly, whilst economic underdevelopment is a problem experienced by oil producers and non-oil producers in the region alike, the discovery of oil wealth has forestalled, rather than catalysed true economic development.

Ultimately, however, oil’s greatest curse has been its role in incentivising colonial interference and exploitation of the Middle East by external powers over the past century, causing untold damage to its historic political and economic development in the process.

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[1] Quoted by Nahle, Carole in Doha Debates: ‘This House believes that oil has been more of a curse than a blessing for the Middle East’, transcript downloaded from (http://www.thedohadebates.com/debates/debate.asp?d=23&s=2&mode=transcript)

 

[2] Global Security.org ‘Iran-Iraq War (1980-1988)’ (http://www.globalsecurity.org/military/world/war/iran-iraq.htm)

[3] Herb, Michael. “No Representation without Taxation? Rents, Development and Democracy,” Comparative Politics 37, no. 3 (2005).

[4] Ross, Michael. “Does Oil Hinder Democracy?” World Politics 53, no. 3 (2001): 325-361

[5] Figures found in ibid, Herb