Oil Producers and Their Governments

Off the keyboard of Steve Ludlum

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Published on the Economic Undertow on June 2, 2018

Discuss this article at the Geopolitics Table inside the Diner

Being a top oil producing country is not conducive to good government.

Looking at the top fifteen oil producing states, nine are autocracies, seven of which are of long standing. Only three are democratic republics. Two other producer states are transitioning to single-party status or decaying to warlordism. While the US is officially a democratic, multi-party republic, it is a de-facto corporate autocracy. The policy impulse for the US establishment as it is for other single party states is enrichment of elites: waste-based, finance-driven ‘growth’ regardless of the cost, ‘out of the barrel of a gun’ as necessary; (from Wikipedia):

	Country	Oil Production, Bbls/day	Political System
–	World Production	80,622,000	Indicates OPEC membership
1	Russia	10,551,497	Single-party police state
2	Saudi Arabia	10,460,710	Monarchy/Single-party police state
3	United States	8,875,817	Corporate autocracy
4	Iraq	4,451,516	Iranian protectorate.
5	Iran	3,990,956	Single-party police state
6	China	3,980,650	Single-party police state
7	Canada	3,662,694	Multi-party republic
8	United Arab Emirates	3,106,077	Monarchy – effective single-party state
9	Kuwait	2,923,825	Monarchy – effective single-party state
10	Brazil	2,515,459	Transitional*
11	Venezuela	2,276,967	Single-party police state
12	Mexico	2,186,877	Transitional**
13	Nigeria	1,999,885	Multi-party republic
14	Angola	1,769,615	Effective single-party state
15	Norway	1,647,975	Multi-party republic

* Brazil is in the process of transitioning to military rule or single party status.
** Mexico is in the process of transitioning to warlord (failed) state or control by criminal gangs.

Petroleum resources offer enormous leverage for those able to gain control over them; at the same time control over the resources offers political advantages that are both obvious and difficult to overcome. Because of its dependence on integrated refining, processing and distribution infrastructure, petroleum is a resource that lends itself to ‘cartelization’. A government has only to create a monopoly to access resources at hand or take over control of existing businesses and combine them together.

Because of the absence of public input or a ‘negative feedback channel’ to restrain leadership, single-party states tend to be militaristic. Control over large petroleum resources offers managers the appearance of the means to dominion, to overrun or undermine neighbors, to expand control over resources or to destroy consumption in target countries so that it can be exported elsewhere:

The US gets away with its belligerence because the dollar is the world reserve currency; Wall Street simply produces dollar credit on demand, borrowers both domestic and abroad wind up indirectly funding the US war machine. Because Wall Street cannot lend resources into existence, credit creation runs ahead of available resources as they are depleted. At the same time, the US must hunt everywhere for new resources to cannibalize … or rivals to destabilize. In a way, the US has given itself no other choice, wasting fuel and other resources is what makes up our precious lifestyle.

Primary credit providers such as Great Britain during its imperial heyday are aggressive in preserving their credit monopoly, exorbitant privilege. The US’ role as primary credit provider suggests conflict with China is likely, perhaps between the two countries’ proxies on- or near the Korean peninsula or in the South China Sea. It is probable none of the autocrats in either country understand credit provision and the necessary infrastructure, these being a native currency, a treasury, a lender of last resort, strong commercial banks (able to distribute their own losses into the general economy); also private property, equitable regulation, enforceable contracts, the rule of law and a body of jurisprudence. All of these marshaled over time equal ‘creditworthiness’; the last three — enforceable contracts, rule of law and body of jurisprudence — are absent in China. Without fundamental changes, it will rely on external (dollar) credit. As it is, of the fifteen top oil producers, only the US is a credit provider, a status that required over 100 years and the exhaustion of Great Britain in two world wars to achieve.

As economic activity continues or increases, so does resource depletion. It is not depletion per-se that is causing problems within individual countries but the larger dynamics, energy deflation and dollar preference. The peripheral countries are affected first.

Single party states = poor economic management; inflation in Iran, (Prof. Steve Hanke):

Figure 1: Annual inflation in Iran is now running 78%. Iranians are ‘voting with their wallets’ and using the local currency to buy whatever dollars they can get their hands on.

Figure 2: Inflation in Venezuela is accelerating, now an amazing 30,000%+. Venezuela has the world’s largest reserves of oil but it does not matter: the country lacks the funds to access them, even as Venezuelans must either flee their country or face starvation.

There is inflation elsewhere: official figures tend to understate actual rates of inflation because they discount black-market rates; Angola, 30%; Nigeria, 16%; Russia, 4%, etc.

The question for Americans and the West becomes how much erosion of rights and privileges will people accept, how many wars, how much ruin; how far down the rat hole to we travel before questioning the energy-wasting status quo? How much are we prepared to give up for illusions?