The “Resource Curse” in the Persian Gulf

Mehran Kamrava

• Publisher: Routledge
• Year: 2020
• Print ISBN: 9781032088457
• eBook ISBN: 9781000727098
• Edition: 1
• Topic: History
• Subtopic: Middle Eastern History
• Index: History

The "Resource Curse" in the Persian Gulf systematically address the little studied notion of a "resource curse" in relation to the Persian Gulf by examining the historical causes and genesis of the phenomenon and its consequences in a variety of areas, including human development, infrastructural growth, clientelism, state-building and institutional evolution, and societal and gender relations.

The book explores how across the Arabian Peninsula, oil wealth began accruing to the state at a particular juncture in the state-building process, when traditional, largely informal patterns of shaikhly rule were relatively well established, but the formal institutional apparatuses of the state were not yet fully formed. The chapters show that oil wealth had a direct impact on subsequent developments in these two complementary areas. Contributors discuss how on one hand, the distribution of petrodollars enabled political elites to solidify existing patterns of rule through deepening clientelist practices and by establishing new, dependent clients; and how on the other, rent revenues gave state leaders the opportunity to establish and shape institutions in ways that solidified their political control.

The "Resource Curse" in the Persian Gulf will be of great interest to scholars of Middle Eastern studies, focusing on a variety of subject areas, including human development, human resources, clientelism, infrastructural growth, institutional evolution, state-building, and societal and gender relations. This book was originally published as a special issue in the Journal of Arabian Studies.

1 Oil and Institutional Stasis in the Persian Gulf

Mehran Kamrava

Abstract: Oil has seriously impacted the institutional development of the state in the Arabian Peninsula. More specifically, the sudden and unprecedented acquisition of massive oil revenues resulted in the freezing of the state’s formal and informal institutions, at the point at which petrodollars were injected into the state’s coffers. From then on, state leaders were able to deploy the state’s wealth to dictate the pace and direction of institutional change. Over time, any institutional change has been directed towards enhancing regime security, and the pace of change has been calculated and deliberately slow. Any political opening has been dictated by the logic of state power maximization (in relation to society). At the same time, partly to ensure its popular legitimacy and partly through the vision of its leaders, the state has deployed its massive wealth both to foster rapid economic and infrastructural development, and to enhance the living standards of its citizens. In other words, whereas oil may have stunted institutional development –– i.e., an institution’s curse –– it has been an economic blessing.

1 Introduction

The debate on whether resource abundance in general, and resource dependence in particular, is a curse or a blessing is an old one. Paradoxically, despite a proliferation of studies on rentierism in the last two decades or so, ¹ the specific notion of a “resource curse” has seldom been studied systematically in relation to the Persian Gulf. The articles in this special issue address this gap, looking specifically at the historical causes and genesis of the phenomenon and its consequences in a variety of areas, including human development, infrastructural growth, clientelism, state-building and institutional evolution, and societal and gender relations. In this article, I introduce some of the broader aspects of the resource curse phenomenon in relation to the evolution of states in the Persian Gulf region. More specifically, I argue that one of the most pronounced consequences of resource abundance and dependence in the region has been a freezing of state institutions –– especially those institutions through which political power is exercised –– at the moment in which oil revenues began flowing into the coffers of the state.

Across the Arabian Peninsula, oil wealth began accruing to the state at a particular juncture in the state-building process, when traditional, largely informal patterns of shaikhly rule were relatively well established but the formal institutional apparatuses of the state were not yet fully formed. Oil wealth had a direct impact on subsequent developments in these two complementary areas. On the one hand, the control and distribution of petrodollars enabled political elites to solidify existing patterns of rule through deepening clientelist practices and also by establishing new, dependent clients. On the other hand, rent revenues gave state leaders the opportunity to establish and shape state institutions in ways that solidified their political control. Tribally rooted patron-client practices were superimposed upon and reinforced through an ostensibly modern bureaucratic apparatus. Rent-seeking, clientelism, and patronage dictated the logic of institutional change and evolution.

A combination of rent-seeking and patron-client relations froze some institutions in place, slowed or skewed the change that other institutions might otherwise have experienced, and enabled state leaders to shape the direction and pace at which institutional change occurred. The consequence was neopatrimonialism, which informed, and continues to inform, the institutional makeup and functions of the state and its larger approach towards society. If one adopts the terminology commonly used to refer to the consequences of resource dependence, whatever “curse” has befallen the states of the Arabian Peninsula has been more institutional than economic or developmental.

Before elaborating on these points, a few preliminary remarks about the overall causes and consequences of the resource curse are in order. The article then focuses on the specific relationship between resource abundance and the development of state institutions in the Persian Gulf region. In addition to providing a summary of the analysis here and in the other articles in this issue, the conclusion will offer some thoughts on future directions for research on the topic.

2 Whither the resource curse?

An important early observation is that the resource curse is not inevitable and is, in fact, conditional on bad governance. ² Political institutions in general and fiscal institutions in particular can help turn a resource curse into a blessing. ³ By itself, wealth does not generate lack of financial discipline or pathologies such as corruption or inefficiency. For example, one of the negative side effects of reliance on resources is living off capital rather than income, and relying on revenues from a nonrenewable source. One remedy would be to turn those earnings into financial assets, investing those assets into a diversified portfolio, and treating the interests accrued as income. ⁴ As Elbadawi and Selim have argued, “while macroeconomic mismanagement and oil abundance are important determinants of performance, these factors are shaped primarily by the prevailing political institutions, which predate resource discovery”. ⁵ In fact, whether derived from natural resources or through other means, wealth can facilitate the implementation of development strategies, many of which have been ambitiously pursued by the states of the Arabian Peninsula. ⁶

There are, of course, a number of economic drawbacks to overreliance on a single commodity –– in the case of the Persian Gulf states, oil and gas. The oil monarchies, for example, perform far below their potential. ⁷ Despite good-faith efforts in literally all regional countries to escape oil dependence, its symptoms can be found in three areas: the state and the macro-economy still remain vulnerable to oil price volatility; there is massive overemployment and inefficiency in the public sector; and there is low growth in labor productivity. ⁸ Other pathologies include boom-bust cycles, dependence on foreign labor, and “a culture of complacency among many of the Gulf nationals, many of whom could easily find ‘work’ in government”. ⁹

Nor have most Gulf Cooperation Council (GCC) countries increased non-oil revenues in any meaningful ways. ¹⁰ Oil dependence continues to be the norm across the board, with the possible exception of the Emirate of Dubai, although the degree to which the “Dubai model” can survive without the cushion of oil revenues was put to serious test during the 2008 financial meltdown. ¹¹ The Qatari government, for example, has stated that it hopes to finance the country’s budget fully from non-hydrocarbon revenues starting from 2020, a goal that seems highly unlikely. ¹² Invariably, regional states also remain vulnerable to fluctuations in the oil market. Severe declines in oil prices, especially since 2014, have necessitated deep structural reforms and much-needed diversification, as well as fiscal consolidation and adjustments. ¹³ The effects of lower oil prices are also being compounded by a number of simultaneous developments, including intra- and inter-state conflicts in Iraq, Syria, Yemen, and elsewhere; serious discord among the member states of the GCC; the further strengthening of the dollar; slowing growth in China and its spillover effects; and recession in Russia. ¹⁴

Given the rapid economic and infrastructural development of the oil monarchies through their deployment of their massive financial resources, and the concurrent improvements they have fostered in the lives of their citizens, it is difficult to point to oil as a catalyst for an economic resource curse in the region. The primary consequences of oil dependence, in fact, have mostly been institutional and political rather than economic. The Persian Gulf’s oil states, for example, have benefited from a certain amount of built-in adaptability and enhanced capacity, which has in turn accorded them greater political resilience over time. The petro-states may be suffering from the institutional consequences of resource dependence, but whatever “development” their institutions may have had so far has been sufficient to allow them to ride out, or fend off altogether, crises of the kind that engulfed many of the other Arab states in 2011. The contrast with other oil states in crisis, for instance such as Libya, is striking. In 2005, the Libyan government attempted to implement subsidy reforms for foodstuffs and energy that had been in place since the 1970s. Food subsidies varied from 39% to 96% of the market price, with flour, rice, sugar, and vegetable oil accounting for the bulk of the state’s subsidies. Although the elimination of food and energy subsidies could have saved the Libyan state budget the equivalent of about 2%, it would have cut household expenditure by about 10% and doubled the poverty level. ¹⁵ Just before the eruption of the 2011 unrests, the state started to roll back on subsidy reforms, but the measures proved insufficient to stem the tide of the revolution. In the end, despite its best efforts, the state could do little to overcome the cumulative effects of its self-inflicted wounds and to reverse its disintegration.

In the Persian Gulf region, oil may have skewed or impeded changes to political institutions, but it has bestowed on them a certain amount of resilience to withstand or to blunt possibilities for societal pressures for change altogether. It is to an examination of these resource-influenced institutional dynamics that the article turns next.

3 Oil and institutional change

With the exception of Saudi Arabia, formal indepen...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• Citation Information
• Notes on Contributors
• 1 Oil and Institutional Stasis in the Persian Gulf
• 2 Imperial Origins of the Oil Curse
• 3 Rentierism’s Siblings: On the Linkages between Rents, Neopatrimonialism, and Entrepreneurial State Capitalism in the Persian Gulf Monarchies
• 4 Reformers and the Rentier State: Re-Evaluating the Co-Optation Mechanism in Rentier State Theory
• 5 Cursed No More? The Resource Curse, Gender, and Labor Nationalization Policies in the GCC
• 6 The Impact of Oil Rents on Military Spending in the GCC Region: Does Corruption Matter?
• Index