Oil Politics:West Asia’s ‘resource curse’

Published: June 13, 2015 - 14:41 Updated: June 15, 2015 - 17:28

Conflicts over oil and ideology are behind the cycle of violence and oppression that the region is – and will continue to be – mired in

Vaagisha Delhi 

A recent Islamic State of Iraq and Syria (ISIS) attack on a Shiite mosque in Saudi Arabia suggests that oil – which has allowed autocracies to survive for decades in the region – is as powerful a motivating force for the brutal organisation as ideology.

Though they differ on some fundamentals, ISIS and Saudi Arabia both share the same core Sunni beliefs. But this and past attacks have shown that captured oil fields can be a key financial resource for ISIS, even though it lacks the technical knowhow to utilise them fully.

In this respect, the latest attack reflects the cycle of violence that West Asia has become trapped in. A consequence of the region’s social and economic vulnerabilities has been the rise of non-State actors almost as powerful as the states themselves. Oil money lies at the root of the region’s great riches and sectarian divides.

Historically, the fight for oil has repeatedly destabilised the region, as various powers battled for control of the vital resource. It’s a classic case of the so-called “resource curse” condition, a situation in which the abundant bounty of a particular natural resource allows governments to hold on to power, regardless of whether they have a moral or political claim to legitimacy.  

Amid rising violent conflict in West Asia, oil continues to provide a fulcrum for power to non-State and State actors. Due to the nature of rentier States, institutional weakness and sectoral negligence have led to oil being both a blessing and a curse for countries. The United Arab Emirates, Oman and Qatar have continued to gather economic momentum. But Syria, Libya, Iraq and Egypt face instability because their oil machineries have been corrupted by illegitimate State actors and non-State actors – including ISIS.

Those countries that have progressed have done so primarily because they have diversified their economies, investing revenue generated from oil in development. Those that have drifted into chaos, like Iraq and Syria, invested their oil money in strengthening their armies, oppressing their citizens and threatening security in the region.  

In present times, when the oil price continues to decline across the world in spite of mechanised regulation of oil production, countries solely dependent on oil for revenues are certainly suffering. But the countries who failed to democratise following the 2011 Arab Spring have fallen the furthest, with conflicts leaving hundreds of thousands physically and psychologically maimed. This lost generation is easy pickings for recruiters from terrorist organisations, which are now taking control of the region’s two most important resources – oil fields and human resources.

The region is collapsing left, right and centre. Libya, where oil fields are already under the control of terror outfits and oil is sold through the black market, is ready to explode. With its Shiite government leading a very loose federal structure, Iraq is ready to disintegrate – only holding on to ‘Kurdistan’ through an oil production and selling arrangement cobbled together last year. In Syria, half the population has been displaced and half the country destroyed – though that doesn’t seem to perturb its leader, Bashar al Assad. And Yemen has lately been drawn into war with Saudi Arabia, even as it continues to battle insurgents at home. Meanwhile, another important agreement is underway for Iran’s nuclear programme.

Strange coalitions have also been formed to prevent the expansion of outfits like ISIS, and to prevent more oil blocks from falling into their hands. The United States and the EU have put their faith behind improving relations with Iran for two reasons: (i) to gain access to the sea trade route through the Persian Gulf and to secure Iran’s help in fighting ISIS.

While US-Iran cooperation promises a stronger response to ISIS than the Western alliance’s current strategy of backing local anti-ISIS groups and carrying out targetted attacks, closer ties between the US and Iran may upset other allies – such as Saudi Arabia and Israel.

Some of these alliances may also raise aspirations that conflict with those of existing states, such as Iraq. The Kurdish forces have been quite successful in containing ISIS and preventing further theft of oil from the regions governed by the Kurdish Regional Government (which is semi-autonomous under the Iraqi regime). But because the Kurds are successfully selling oil to the international market, their aspirations of becoming an independent nation-state are growing.

On the other hand, Saudi Arabia sees the Iranian nuclear agreement as a direct threat to the supremacy of Sunni ideology and of itself. It fears an outpouring of Shiite resentment within Saudi Arabia and in the region. The nuclear agreement even overtakes the success of oil competitiveness that Saudi Arabia uses to undermine Iran against whom there are economic sanctions. However, a nuclear arms race is unlikely, said West Asia commentator Vali Nasr in an interview with the Council of Foreign Relations, because countries will be reluctant to risk the international economic sanctions that would result from unofficial nuclear capacity building.

The changing dynamics, and the resistance to those changes, will in all likelihood lead to further oil price volatility and perhaps estranged foreign relations. If we look back at the decision of OPEC countries on continuous sustenance of oil production despite Brent crude oil price dipping below the $45 mark at the beginning of the year, it is not difficult to diagnose that the shale oil and gas revolution in the US shook the GCC OPEC countries. And so, even though it hurt the more vulnerable oil-dependent economies of Venezuela, Iran or Russia, it is yet to be determined at the OPEC meeting to be held on June 5 in Vienna, whether the production will be kept the same as before to retain the price unchanged. But in recent weeks the Brent crude price has come up to $67 and Kuwait, a member of OPEC, has claimed that “output ceiling” of the oil price will remain the same, to overcome the fear of the international market that rising Yemen tension would reduce the capabilities of GCC OPEC countries to sustain oil production.

A fall in oil prices or any volatility has a dramatic impact on countries suffering from the resource curse, because they rely on oil revenue to maintain their militaries and suppress their people. So oil price volatility further raises the potential for domestic dissent and makes their population vulnerable to terror outfits like ISIS or Al-Qaeda and their local by-products.

For that reason, it’s imperative for these countries to diversify their investment into electricity, infrastructure and education to build a skilled workforce. The countries whose populations have joined the ‘utopian’ caliphate of ISIS are lured by very scant monetary aid to each individual that is not sustainable for their individual development even in the medium term. These countries need collective structural reforms to avert drowning in the oil price wars and their excesses – which is capitalised upon by ISIS to advance its reach.  

At the same time, a safe environment for investors in West Asia is the need of the hour, though that may seem unfathomable at present. Governments must divert some of their finances from combat operations to building financial capacities for private parties. Furthermore, it would be prudent to rationalise public expenditure in preparation for an expected 40 per cent growth in population over the next decade. And sole dependency on oil revenue with marginal infrastructural investments will not enhance or sustain the legitimacy of a government as populations across the region demand more accountability.

With the dynamic changes underway in the oil market and nuclear diplomacy, relations between the countries of the region will take more than a decade to solidify. The spectre of diminishing oil reserves will remain a ticking bomb for resource-dependent regimes. And even though lower oil prices do not guarantee the transition to a more accountable, democratic government, the increase of fracking in sub-Saharan Africa and the US should reduce the market for illegal oil sales.

That means it’s now most important to build a coalition to prevent the escalation of regional conflicts and to prevent ISIS and other terror organisations from leveraging disputes between nations over ideology
or influence.

With antagonists spread across the political spectrum among the State and non-State actors, stability is difficult to imagine. And the region will likely remain thirsty for an alliance of trust and unity for some more time.

This story is from print issue of HardNews