Juan Pablo Poch

Oil Conflict: The Political Dilemma

In the article Blood Barrels: Why Oil Wealth Fuels Conflict, Michael L. Ross claims that

“oil wealth often wreaks havoc to a country’s economy and politics”, and fuels or is intricately

involved in the majority of the world’s civil wars. The oil curse, as he calls it, begins with a

country’s massive economic growth after the discovery of oil deposits, followed by the local

government incurring in copious debts, squandering oil revenues, and, in many occasions,

suffering from the Dutch Disease, which creates absolute economic dependability on petroleum.

Consequently, this curse paves the way towards armed conflict, because oil wealth leads to

economic unrest that leads to further political instability, often helps to support insurgencies, and

encourages separatism of enclosed economic enclaves (Ross).

Ross makes a concise yet accurate assessment of the main political disadvantages

affronted by states with emerging primary activities around oil, especially by analyzing the

relationship between economic instability and political unrest. Economic instability is perhaps

the category that engulfs most states with petroleum-depending economies, including economic

giants like Russia. The downfall of these producers is particularly evident given the current and

increasing downfall of oil world prices of more than 50% in the last six months. The increase in

domestic supply of oil in North America that rendered the United States less dependable on

petroleum imports undermined the influence of exporting countries, particularly the leverage that

the once powerful tycoons of the OPEC possessed over international trade. These countries can

no longer engage in an embargo like in the 1973, for they are even struggling with enormous

deficits to meet their citizens’ basic needs.

The case of Venezuela portrays this foredoomed story to the letter. During the late 20th

century, prospections and excavations yielded massive oil reserves that rocketed the Venezuelan

economy to a protagonist level in the world. Following the initiative of creating one of the most

influential economic coalitions in the world (OPEC), Venezuela’s oil revenues multiplied. Even

through global recessions like the one during the late 1990s, under the presidency of Hugo

Chavez, the Venezuelan economy recovered in the next decade and once more ignited the

revenue-making machine. However, in the coming years, the overwhelming wealth was

disproportionately squandered in unnecessary expenditures, like the billionaire purchase of arms

(US $4.3 billion between 2005-2007) – an attempt to provoke the US – and the financing of

populist campaigns and propaganda, to the point that the Venezuelan society was hanging from

the thread of Chavez’s charismatic leadership from falling into devastating political unrest.

Chavez’s death in 2013 left an economy standing on the fragile base of oil and an enraged

Venezuelan nation, which had seen its society deteriorate with increasing famine and crime,

along with a deeply rooted corruption that just keeps draining whatever money remains. In the

last quarter of 2014, this situation kept worsening, for, with the plummeting world oil prices, it

turned out to be cheaper to buy a gallon of gasoline than a roll of toilet paper. The level of social

degradation in Venezuela has reached a stage where any inciting incident can drive the weakened

state into an armed conflict and total anarchy.

To problems like the one illustrated above, Ross suggests several solutions or at least

ameliorating measures that the international community can take to manage these crises. Within

the range of possibilities, these plans can be classified by their political/military, economic or

diplomatic nature. Among the former are the deployment of peacekeeping forces or even a more

direct military intervention by another country. Even though these can be effective in the short

term to combat insurgencies, in the long term such plans would hardly strengthen the local state,

as it would legitimize the actions of an external actor in the state’s sovereign affairs. Also,

reaching an international consensus on a move as bold as approving an interstate war would

surely confront a robust opposition, given the precedent of the futile US intervention in Iraq.

Second in line is economic sanctions imposed by the UN to trouble-making states. For

this kind of measures the fact that oil is the world’s most valuable commodity, “serves a

diversity of purposes, which include transportation, heating, electricity, and industrial

applications, and is an input into over two thousand end products” cannot be ignored (O’Rourke

and Connolly). Even with declining prices, the weight of oil in the international market is so

immense, that a sanction big enough to paralyze a rogue state would be proportionately coercive

to the global economy. Not to mention the subsequent damage suffered by individuals, as the

International Labor Organization calculates that the global oil industry directly employs more

than 2 million workers, and also estimates that one job in the oil production or refining sector

generates up to four additional jobs in related industries (O’Rourke and Connolly).

Although it gambles on the power of persuasion, diplomacy seems as the least costly

alternative to solve oil-related conflicts, as it involves the lowest risk due to coercive military or

economic intervention. Following the salesmanship philosophy that the customer is always right,

the only actors that can actually exert effective diplomatic pressure on oil-exporting weak states

are their biggest buyers and investors. As Ross mentioned, the clientele can demand oil-

supplying countries more transparency and better allocation of their revenues in a more equitable

way – through contracts or even just persuasion --; moreover, more developed countries can help

less developed ones to manage their resources or even that their payments are made through

infrastructure concessions or financing of social programs. However, the downside of this

alternative is the extent of the effectiveness of persuasion, as many oil-exporting countries can

just switch to customers who do not impose such conditions – some multinational companies –,

or even afford to enter into a recession while oil demand increases and prices are pumped back to

a more profitable margin. In the end, as long as the world depends on this commodity, the

incentives to abolish the political instability in several countries around the world generated by

oil and its subsequent wealth will fall short of our necessity for a reliable energy source.

Bibliography:

O'Rourke, Dara, and Sarah Connoly. "Just Oil? The Social Distribution of Environmental and

Social Impacts of Oil Production and Consumption." Annual Review of Environment and

Resources, 28(1). Annual Reviews, 1 Nov. 2003. Web. 5 Feb. 2015.

Ross, Michael L. "Blood Barrels." Current 503 (2008): 35-37. Academic Search Complete. Web.

5 Feb. 2015.

Romero, Simon. "Venezuela Spending on Arms Soars to World’s Top Ranks." The New York

Times. The New York Times, 24 Feb. 2007. Web. 12 Feb. 2015.

US. Energy Information Administration, Crude Oil Prices: West Texas Intermediate (WTI) -

Cushing, Oklahoma [DCOILWTICO], retrieved from FRED, Federal Reserve Bank of St. Louis,

February 11, 2015.