Washington DC, August 19, 2008 --  

Russia's brutal invasion of Georgia was made possible by the rising price of oil. High prices mean there is little hope that the Kremlin will behave.

When Russian tanks rolled into Georgia last week, the official story from the Kremlin was that the operation was intended to halt the nationalist conflict between ethnic Georgians and Ossetians. But the war was hardly about stamping out nationalist ideas. It was simply about imposing Russia's brand of nationalism.

This nationalism started when the Soviet empire collapsed 17 years ago. Ethnic minorities in Georgia that identified with Russia -- the Abkhaz and the Ossetians -- lashed out at the idea of being ruled by Georgia instead of Moscow. Separatist wars erupted, and sympathetic Russians soldiers left behind in the Soviet military helped the secessionists.

Initially, the Russian government was ambivalent about these breakaway regions. As Russia moved in fits and starts toward the West, these enclaves were an embarrassing reminder of Russia's imperialist past, and a distraction to Russia's market reforms designed to bring the country into Western family of wealthy countries. In the early 1990s, it seemed Russia wished these regions would just go away.

This attitude has changed markedly, and for one simple reason -- oil. Russia has abandoned its market reforms, imprisoned or exiled its capitalists, and turned its back on democracy. It has abandoned the idea of building a modern economy, and instead centralized government control of the country's oil and natural gas riches, letting the skyrocketing price of petroleum fill the Kremlin's coffers.

Many people note that Russia's newfound petroleum riches have emboldened it to pursue a more aggressive foreign policy. The country has resumed long-range bomber flights, famously buzzing American naval ships in some instances. But this understates the real issue. The bigger problem is not that oil money finances the Russian military -- it's that it gives it so little incentive to behave well at all.

Rich western countries, and the countries that aspire to be like them, know there is a well-trodden path to riches. There's a broad consensus that free markets, the rule of law, openness, ingenuity, and peaceful foreign trade are what make countries succeed. In order to earn riches, governments have to create the conditions that make their countries wealthy. Countries that turn their backs on this path -- think Burma and North Korea -- end up economic backwaters and are confined to the margins.

But oil changes that equation. The Kremlin knows that it doesn't have to behave well and develop an economy that actually creates anything of value. It can simply suck oil out of the ground with a straw, sell it for billions of dollars each year, and use the money for whatever it wants -- imprisoning businessmen, rigging elections, or invading neighboring countries. Oil wealth removes any checks on a country's behavior. It's like a rich kid with a trust fund -- irresponsibility becomes the norm.

This is not a new phenomenon. It can readily be seen in Hugo Chavez's Venezuela, in totalitarian Turkmenistan, and even in Saudi Arabia, which has exported its hateful Wahhabiist branch of Islam around the world.

The conflict in Georgia provides a case study in stark contrasts. Unlike Russia, Georgia has no petroleum wealth. Its president, Mikheil Saakashvili, has made great efforts to reform his country along Western lines -- reducing corruption, opening the economy, and building ties with Western nations. Saakashvili has made serious errors -- his attempt to regain control of South Ossetia was chief among them -- but there is no other contemporary leader in the former Soviet Union who has done more to reform his country to be like the West.

Utterly unlike Russia, Georgia's government has behaved responsibly and done the right things. As a result, the country has enjoyed an Asian Tiger-like economic growth rate of nine percent or more for the past two years.¹ Without a doubt, Georgia is the West's star pupil in the region.

Yet tiny Georgia is no military match for the behemoth to its north. Pumped up by its oil wealth, the Russian rich kid has pummeled the west's star student like a playground bully. So long as the world continues to rely on increasingly expensive petroleum, the smaller students on the world stage had better watch out. The reign of the petro-bullies is upon us.

Related Web Columns:

Poisonous Windfall, May 13, 2008

Fueling the Next Turkmenbashi, December 28, 2006

The End of Oil, June 13, 2006

Notes:

1. World Bank, Data and Statistics for Georgia, August 2008