China’s Economic Reckoning
The Price of Failed Reforms
For the past 40 years, the greatest threats to the West have emerged from oil-exporting states. Oil funded Iraq’s invasion of Kuwait, Libya’s support for terrorist groups, and the build-up of the Soviet Union’s nuclear arsenal in the 1970s and 1980s. More recently, it has funded the rise of the Islamic State (also known as ISIS), Russia’s aggression in Crimea, and Iran’s support for Hamas and Hezbollah.
Oil provides rulers with a source of unaccountable power, perhaps the largest such source in the world. Outside of democracies, oil revenues flow to whichever regime or armed group controls the wells by force. These revenues allow leaders to dominate their people through coercion and patronage (as in Iran and Russia) and provide armed groups with the resources to wage civil war (as in Iraq and Yemen). They have also empowered regimes to indoctrinate their populations with intolerant ideologies and, especially in the case of Saudi Arabia, to spread those ideologies worldwide.
The unaccountable power of oil explains what the political scientist Michael Ross calls “the oil curse.” Oil states are 50 percent more likely to be authoritarian than are non-oil states, and between 1980 and 2013, oil-producing autocracies were four times less likely to transition to democracy than their non-oil-producing peers. Oil states in the developing world are also more than 200 percent more likely to suffer civil wars; 25 percent of oil states are currently embroiled in one (compared with 11 percent of non-oil states). According to Ross, oil states are today no richer, no freer, and no more peaceful than they were in 1980—a marked contrast to most states in the developing world, which have made significant economic and political progress since then. More than 50 percent of the world’s traded oil today comes from authoritarian or failed states.
Western policymakers have tried three main strategies to check the power of oil in nondemocratic exporters. At times, they have formed alliances, hoping to influence an authoritarian regime to favor their own national interests. The United States, for example, maintained ties with the shah of Iran until he was overthrown in 1979, with Iraqi President Saddam Hussein from the early 1980s to 1990, and with Libyan ruler Muammar al-Qaddafi from 2003 to 2011—and remains a close ally of the Saudi regime.
At other times, Western policymakers have imposed sanctions on oil states, including Iran, Iraq, Libya, Russia, Sudan, and Syria. And Western nations have also resorted to military action, including major interventions in Iraq (twice) and Libya.
Although these strategies have occasionally achieved limited successes, they have failed to check the unaccountable power of oil. The result in the Middle East, as CIA Director John Brennan told Congress in February, is that the region “is racked by more instability and violence and inter-state conflict than we’ve seen certainly in the past 50 years.” Nor is the problem confined to the Middle East: Wahhabism, the ultraconservative version of Islam that the Saudis have been exporting for decades, continues to morph into jihadist extremism in Asia, Europe, and possibly even the United States. The repression, conflict, and extreme ideologies that bedevil petrostates have made the entire world less secure.
Yet there is a solution to the oil curse. It should no longer be legal for states to buy oil from unaccountable actors who control oil wells by force. It may seem like a fact of nature that oil provides violent and divisive actors with great power, yet it is merely a fact of law.
Today, it is legal in almost every country to purchase natural resources from whoever controls them, regardless of the means of control. When Qaddafi seized control of Libya in a coup in 1969, for example, Americans could legally buy Libya’s oil from Qaddafi. And then when rebels seized some of the same wells during the Arab Spring of 2011, it remained legal for Americans to buy Libya’s oil from the rebels. In buying foreign oil, countries follow the archaic principle, “might makes right.”
Thanks to this rule, Western states send hundreds of billions of dollars every year to authoritarian regimes and incite conflict over foreign oil wells. The rule forces consumers into business relations with the world’s most repressive and violent actors. In 2014, for example, each U.S. household sent an average of $250 to authoritarians and armed groups just by filling their cars with gas. American drivers today have no choice but to fund the spread of ideologies hostile to their way of life.
The rule that “might makes right” also breaches basic market principles. After all, if armed robbers seize a gas station, they do not acquire the legal right to sell the gas. Violence violates property rights; it shouldn’t determine them. Over 50 percent of the world’s oil trade is trade in stolen goods.
The modern rule that should replace “might makes right” is one that requires countries to be accountable to their citizens, to endorse the principle known as “popular resource sovereignty,” under which the natural resources of each country belong to its people. Governments must be minimally accountable to their citizens when they privatize resources (as in the United States) or sell them to foreigners. Citizens must have the civil liberties and political rights they need to discover, debate, and protest what their government is doing with their resources, without fearing for their lives or their freedom.
Almost every government affirms this principle, at least in theory. Figures as varied as former U.S. President George W. Bush and Iran’s supreme leader, Ayatollah Ali Khamenei, have declared that a nation’s oil should belong to its people. And the language of popular resource sovereignty is prominent in Article 1 of the two major human rights treaties (the International Covenants on Civil and Political Rights and on Economic, Social and Cultural Rights). States accounting for 98 percent of the world’s population, including China, India, and the United States, have already ratified at least one of these treaties.
More than 50 percent of the world’s traded oil today comes from authoritarian or failed states.
Countries should now make it legal to buy oil only from countries where the government is minimally accountable to the people for resource decisions. As with other historic transitions away from the rule of “might makes right,” such as the legal abolitions of the slave trade and of colonial rule, it is unclear exactly how this transition will happen.
There have been several promising developments, however. First, thanks to the shale revolution, the West no longer needs to buy authoritarian oil. Nick Butler, a former vice president at BP and an energy columnist for the Financial Times, estimates that a North American transition away from authoritarian imports would take only months and have almost no direct costs. A European transition would require several years and tens of billions of dollars—a substantial effort, but manageable.
Second, Western governments could coordinate such a transition by using respected, independent metrics of public accountability that already exist. The Brookings Institution, the Center for Systemic Peace, Freedom House, the World Bank, and several other organizations publish indexes that show which states lack minimal civil liberties and political rights.
By taking a united, principled, and peaceful stand for the rights of the people of oil-cursed countries, the West could counter the so-called Western imperialist narrative that extremist organizations have exploited to recruit followers. And such a stance may even encourage elites in oil-cursed countries to seriously pursue constitutional reforms.
Today’s trade in oil is one of the last remnants of a premodern international system that was based on legitimizing violence. This rule has generated serious instability worldwide. The time has come to bring the global market for oil into the twenty-first century.