Today's Opinions, Tomorrow's Reality 

Poisonous Windfall

By David G. Young

Washington DC, May 13, 2008 --  

Events in Russia show how damaging petroleum wealth can be to less developed countries.

With tanks again rolling through Red Square for the first time since the fall of the Soviet Union1, Russia's leaders are proudly proclaiming that the country is back. Unlike much of the 1990s, when the country's economy shrank at double digit rates, Russia is now booming -- growth this year is projected to be 8 percent, higher than any major European country.2

At the same time as the country's economic fortunes have soared, its democratic ones have plummeted. Compared with the early 1990s, when a wide variety of political parties and independent news outlets exploded on the scene, political life is now completely stagnant and scripted. After two terms of centralizing power in an unchecked presidency, Vladimir Putin has circumvented constitutional term limits by installing a figurehead replacement and wielding real power from his new office as prime minister. With all television stations under government control, and dissenting leaders either jailed or in exile, Russia has turned its back on the West.

That these two reversals happened over the same period is no coincidence. Russia's economic renaissance is entirely due to its petroleum and natural gas reserves. With oil prices topping a record $125 per barrel last week,3 revenues from the energy sector have overflowed once empty state coffers to make Russia the third largest holder of foreign currency reserves.4

And unlike the crusty and scattered manufacturing economy that powered the Soviet Union, Russia's new petroleum-based economy requires little effort to consolidate economic power into state hands. The end result is a rich and powerful government, a poor and weak citizenry, and a hollow economy based on what comes out of the ground. So long as the state has access to petroleum riches, there is no need to follow the Western model of developing free-market economy with democratic safeguards.

It would be bad enough if Russia's misbehavior stopped at its borders, but it does not. The country has lately been rattling sabers against its tiny but more democratic neighbor of former-Soviet Georgia. After shooting down at least one pilotless plane over Georgia's breakaway province of Abkhazia, Russia has sent thousands more troops across the border, strengthened ties with a rogue separatist government, and said that if Georgia joins the NATO alliance, it will have to give up its breakaway provinces.5

And Russia is not alone in its misbehavior. In other countries where fabulous wealth is simply sucked out of the ground with a straw, governments have also turned their backs on the Western model of an open society. The list of today's petrostates reads like a who's who of the bad boy government club: Saudi Arabia, Iran, Venezuela, Bolivia, Angola, Russia, Uzbekistan, Turkmenistan, Azerbaijan. Exceptions to the petrostate pattern of repression and bad behavior on the world stage, such as Norway and a few gulf emirates, are most notable for their small number.

This is hardly a new phenomenon. When oil prices spiked in the 1970s, the world also suffered the consequences as petty despots suddenly received windfalls to spend on repression and international mischief. The conclusion is unmistakable: oil wealth is simply poisonous for less developed countries. Inside these countries, citizens suffer the loss of democracy and freedom, and outside them people suffer from weapons of war paid for by petrodollars.

Clearly, the world would be best served if access to such wealth could be removed from state hands. Given the terribly high human and financial costs of waging wars to do so, the best possible outcome must come from the emergence of alternative energy sources. Such alternatives will lessen the wealth produced by extraction economies, thereby lessening despots' budgets for repression, violence, global mischief, and tanks rolling through Red Square.

Related Web Columns:

Fueling the Next Turkmenbashi, December 28, 2006

The End of Oil, June 13, 2006


1. Washington Post, Soviet-Style Display of Might Fills Red Square, May 10, 2008

2. Economist, Economic and Financial Indicators, May 10, 2008

3. Washington Post, Oil Costs to Offset Stimulus Package, May 10, 2008

4. Bloomerg News, Medvedev Says Army 'Gaining Strength' on Victory Day, May 9, 2008

5. Moscow News, Drone Downings Test Russia and Georgia's Patience, May 7, 2008