Oil and the Middle East are by all
accounts Siamese twins. It is tough to mention one
without the other. Even other words and
characteristics that are also commonly associated
with the Middle East are invariably perceived as
having links to oil: cartels, boycotts, sanctions,
terrorism, military expenditures, corruption,
dictatorship, conflicts, wars, revolutions,
foreign meddling, oil prices, oil shock, and yes,
Islam.
How did these countries become so
associated with oil? How did these perceptions and
associations come about? What is fact and what is
fiction? How has oil affected these societies -
their human, political and economic development?
What does it all mean for the future?
On a
regular basis over the next six months or so, we
will examine these and other associations of oil
to the Middle East, or what one might loosely
label the "political economy of oil in the
Middle East". As we will
see, over the past 50 years, most developments in
the Middle East region have been in some way
related to oil - dictatorships, an absence of
efficient institutions and especially the rule of
law, corruption, economic failure, wars and
conflicts, foreign interference and much more.
Specifically, we will look into, at the
very outset, the essential oil facts and figures,
and related to these consider what drives oil
prices - for example, is it the Organization for
Petroleum Exporting Countries (OPEC), global
corporate giants, consumers, speculation, exchange
rates or "Peak Oil"? Given the important role of
OPEC, we consider what led to its formation, its
effectiveness as a cartel, and its ability to use
oil as an effective weapon of blackmail.
By contrast, the effectiveness of Western
economic sanctions against oil exporters, such as
Iran, requires consideration, and the danger that
they might boomerang in higher prices around the
world. That in turn brings us to how oil price
shocks affect the global economy, and what can be
done to counter such shocks and to lessen their
effect.
The events of the Arab Spring last
year bring to the fore the question of who does
the oil in these countries belong to, and who has
been the major beneficiary of oil wealth; indeed,
does oil breed dictatorships and autocratic rule
in the Middle East that result in political and
social discontent? A broader question concerns
what significant dependence on oil (or on any
depletable natural resource) means for a country
and how such economies differ from other
economies.
It is certainly the case that
these countries apparently lack effective
institutions. Middle East oil exporters have
flourished economically but have lagged the rest
of the world in human and political development.
That raises questions about their provision of
education, opportunities and jobs for their youth,
and an adequate safety net for the disadvantaged
and the elderly - indeed, does oil encourage vast
military expenditures, conflicts and wars, and how
have these affected the development of these
societies?
Not unrelated is the historical
background of who discovered oil in Middle East
countries (and when), under what arrangements were
oil reserves exploited (and who profited) and how
the countries were economically and politically
transformed by oil in the early years. The effect
of colonialism on oil and the economic and
political development in the region requires
understanding and the question asked - do we have
a new era of colonialism?
And while we ask
why the West, in particular the United States,
interferes in the affairs of Middle East oil
exporters and whether the US needs soldiers on the
ground to guarantee the free flow of oil, the role
of the West and the United States is ambiguous to
the extent they have helped or hindered economic
and political progress in the Middle East.
Islam has also played its role in all this
- not just in its attitude to oil, but in regard
to institutions and human, economic and political
development, and, ultimately, economic justice -
how should these countries manage their oil wealth
to benefit their citizens now and in the future,
and do oil and terrorism go together and why?
Oil can been seen as both a curse and a
blessing for the Middle East, and as long as its
vast reserves play a part in the world economy
there is good reason to consider what that
portends in the future for conflicts and wars, for
relations with the West and the United States, for
economic, social and political progress, and
ultimately for generations of Middle Easterners to
come.
Oil could be the cause of more wars
in the Middle East and even a World War III -
though not necessarily so - the future for the
region may be better than the past, but how and
what form will it take?
We hope to address
these and other issues and developments
surrounding oil in the Middle East on a regular
weekly basis. We will first look into the oil
market and we see, although with some nuances,
that the forces of supply and demand rule as they
do in all markets.
Second, to understand
oil's impact on the region's economic, social and
political opportunities and challenges and
relationships with the rest of the world, we look
into the impact of vast oil reserves on human,
political and economic development.
We
will see that the nature of economic management in
depletable-based economies is different than that
in other economies, and that vast oil reserves
afford the wrong incentives to easily corruptible
humans.
In their quest for personal gains
and enrichment, all rulers and their supporters
(both domestic and, yes, foreign) have little
incentive to develop efficient institutions that
include the rule of law because such institutions
would in turn undermine their corrupt rule - some
rulers even behave as if the oil was theirs alone.
Because good institutions are seen at the
very foundation of political and economic
development, as recognized by Adam Smith over 200
years ago, and because these countries lack
efficient institutions, their performance has been
sub-par.
We will see that these countries
are unlikely to break out of their underdeveloped
trap unless political and economic changes occur
almost simultaneously and foreigners support, or
at least not hinder, their efforts.
We
hope to shed some light on the policies that could
lead to a better future and point out dangers for
oil disruptions, price hikes, regional conflicts
and interstate wars. We will be even so foolish as
to provide a few predictions for the future.
NEXT: Essential facts and
figures for oil
Hossein
Askari is Professor of Business and
International Affairs at the George Washington
University.
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