In his February 2, 2007 New York Times column, The Oil-Addicted Ayatollahs (registration required), Tom Friedman argues that oil addiction can be just as bad for the selling nation as it is for the buying nation. He traces the influence of oil prices on the collapse of the Soviet Union.
"In the 1970s, Russia exported oil and gas and “used this money to import food, consumer goods and machines for extracting oil and gas,” Professor Mau said. By the early 1980s, though, oil prices had started to sink — thanks in part to conservation efforts by the U.S. “One alternative for the Soviets was to decrease consumption, but the Kremlin couldn’t do that — it had been buying off all these constituencies,” Professor Mau explained. So “it started borrowing from abroad, using the money mostly for consumption and subsidies, to maintain popularity and stability.” Oil prices and production kept falling as Mr. Gorbachev tried reforming communism, but by then it was too late. "
Professor Mau, President of Russia’s Academy of National Economy boils it down to this:
“The more oil you have, the less policy you need.”
Friedman goes on to suggest that by helping to drive down oil prices through conservation and investment in alternative energy sources, the US could help bring about a similar fate for the regime in Iran.
There are two additional observations I’d like to add:
First, look at Norway. If you want a contrast to the ways in which oil wealth has been squandered by the Soviet Union, the Arab nations of the Middle East, and increasingly Venezuela, look at Norway. You might argue that Norway has used its North Sea oil windfall to subsidize a welfare state it can’t really afford. And maybe that’s true, but it’s also true that Norway is a modern, industrial, well-educated society. Here’s a country that should be a model for the rest of the oil producing world.
Second, Iraq’s Sunni leaders are often said to be dissatisfied with the division of the country’s oil wealth under the current Iraqi Constitution. I can’t help wonder if, in the long run, they’d be better off without it. Without oil wealth, they would be forced to develop their economy in other more sustainable ways. They might even invest in a skilled and educated work force.
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