P E R I L O U S P E T R O D O L L A R S : 

The Effects of Oil Wealth on Democratization 

M A R I S A C O C H R A N E 

T H I S P A P E R E X A M I N E S T H E R E L A T I O N S H I P B E T W E E N O I L W E A L T H A N D D E M O C R A T I C 

R E F O R M . T H I S R E L A T I O N S H I P IS E S P E C I A L L Y P R O B L E M A T I C F O R S T A T E S T H A T W E R E 

L E S S D E V E L O P E D P R I O R T O T H E D I S C O V E R Y O F O I L . T H E L A R G E O I L R E V E N U E S O F A U -

T H O R I T A R I A N R E N T I E R S T A T E S , C O U P L E D W I T H L I M I T E D M E C H A N I S M S F O R D I S T R I B U -

T I O N A L A C C O U N T A B I L I T Y A N D P O L I T I C A L P A R T I C I P A T I O N , E N S U R E A D I F F I C U L T R O A D 

A H E A D F O R D E M O C R A T I C R E F O R M S I N S U C H C O U N T R I E S . A S L O N G A S G L O B A L D E -

P E N D E N C E O N O I L P E R S I S T S , T H E I N T E R N A L P O L I T I C S O F O I L - R I C H S T A T E S W I L L R E -

M A I N E X T R E M E L Y I M P O R T A N T . H E N C E , I T IS N E C E S S A R Y T O U N D E R S T A N D T H E W A Y S 

I N W H I C H O I L I M P E D E S D E M O C R A C Y I N O R D E R T O L O O K F O R V I A B L E S O L U T I O N S . 



Development theory, such as that put forth by S.M. Lipset, 
suggests that increased wealth in a state often aids in the 
process of democratization. This suggestion, however, is 
questionable in the case of oil-producing states. Despite 
the fact that these states have benefited immensely from 
global markets dependent on their "black gold," a telling 
number of oil-rich states are not democratic.1 When it 
comes to the promotion of democracy, one cannot help but 
ask whether oil wealth is a blessing or a curse. Does wealth 
generated in less-developed countries allow for greater re-
distribution and thus enable democracy, as development 
theories might suggest? Or, does tremendous oil wealth 
hobble democracy as it funds authoritarian regimes and 
undermines political participation? A n analysis of cross-
national data taken over an extended period of time up-
holds the theory that oil impedes democracy." In this essay 
I seek to defend the oil-impedes-democracy claim and ex-
plicate the channels through which the impediment oc-
curs. I wi l l only be looking at states that were poor preced-
ing the discovery of oil, as the relation to oil differs in 
countries that were wealthy and diverse prior to oil discov-
ery. Three main explanations have emerged in the oil-
impedes-democracy discourse. I wi l l first look at the nature 
of the oil-rich rentier state and its various effects on the pro-
motion of democratic principles. Next, I wi l l consider the 
use of repression, made possible by vast oil wealth, as a tool 
for preventing political change and democratization. I wi l l 
then address the argument that oil wealth weakens social 
mobilization and processes of modernization, which are 

important factors in democratization. There are, of course, 
challenges to these explanations. Several theorists have 
proposed ways in which the difficulties generated by oil 
wealth may be overcome by oil-rich countries, and thus 
spur progress towards democracy. 

Oil-rich states of the Middle East and Northern Africa that 
derive most of their revenue from foreign-paid oil rent are 
essentially rentier states.111 The rentier state is distin-
guished by several characteristics. A rentier state, first, re-
ceives payment of rents from foreign actors; these revenues 
accrue directly to the state rather than to private individuals 
or corporations.1V Additionally, "Only a few are engaged in 
the generation of this rent (wealth), the majority being only 
involved in the distribution or utilization of i t . " v The nature 
of the rentier state has great implications for democratiza-
tion. A vast accumulation of oil wealth relieves the state 
from having to tax citizens, making distribution rather than 
extraction its primary function.V 1 This "taxation effect," ac-
cording to Michael Ross, undermines pressures for democ-
racy because "the public in turn wi l l be less likely to de-
mand accountability from—and representation in—-their 
government."v 11 With citizens unable to demand represen-
tation, there exists a detrimental gap between the extent of 
state power and the weak or nonexistent mechanisms for 
accountability to the public. 

As the gap between state and society grows, the absence of 
a mechanism for accountability can lead to unrestricted 
abuse of state power, widespread corruption, and patronage 
politics. In rentier states, oil revenues can be used to fund 
assistance programs in order to temper social unrest and 
pressures for democratization.V 1 1 ! Programs in Saudi 
Arabia and Libya financed by oil revenues are prime exam-
ples of this "spending effect."1* Spending can be employed 
not just to quiet dissent but also to establish a clientele 
class. Those seeking a share of oil rents must "form tight 
links with politicians and bureaucrats in order to offer fa-
vors for benefits received."x The promise of petrodollars 
gives rise to state-dependent groups with a keen interest in 
keeping the regime in power while encouraging wide-



spread corruption. Any desire for democratic reforms 
"must be made in opposition to powerful countervailing so-
cial classes and groups that have become accustomed to the 
advantages of a petroleum-led development model. " X 1 The 
use of patronage to quell dissent or foster allegiance by al-
locating income to specific societal sectors is a major obsta-
cle for democratization in oil-rich rentier states. 

"The promise of petrodollars 
gives rise to state-dependent 
groups with a keen interest 

in keeping the regime in 
power, while encouraging 

widespread corruption." 

Not only does the rentier state establish dependent social 
groups, but it also undermines the formation of independ-
ent groups who may pressure for change. According to 
Ross, "when oil revenues provide a government with 
enough money, the government wi l l use its largesse to pre-
vent the formation of social groups that are independent 
from the state and hence they may be inclined to demand 
political rights." x n The absence of independent social 
groups is particularly harmful for democratization, as the 
existence of civil society is arguably a precondition for 
democracy. As other scholars argue, the "group formation" 
effect in rentier states impedes the formation of civic insti-
tutions that can serve as channels between the individual 
and the state; with these channels absent, successful dem-
ocratic governance is unlikely/ 1 1 1 Academic studies of 
countries such as Algeria, Iran, and Iraq support this the-
ory. x i v 

The nature and implications of the rentier state are not the 
only arguments made in the oil-impedes-democracy dis-
course. The tendency for repression i n oil-rich states is also 
worth noting. The enormous revenues generated by oil 
wealth have been linked to repressive authoritarian states 
in many places around the world. "Resource wealth," ac-
cording to Ross, "may allow their governments to spend 
more on internal security and so block the population's 
democratic aspirations."x v I n some cases this is done i n the 
interest of perpetuating authoritarian rule in the face of 
popular pressure. By accumulating greater military might, 
the state gains a greater ability to suppress dissent. Much 
of the revenues generated by oil have funded weapons pur-
chases, as in the case of Iran and Iraq during the 1970s and 
1980s.XVI It was oil wealth that made Saddam Hussein "a 
greater power in his region than he would have been other-
wise by allowing h im to buy more weapons and build a 
larger army than he could have produced on his own . " x v n 

Additionally, oil revenues can be used to build large 
intelligence-gathering apparatuses, as seen in the case of 
Saudi Arabia, which can serve to coerce and constrain free-
doms of expression, organization, and mob i l i z a t i on x v m 

Many states with significant oil resources have been 
plagued by ethnic or regional conflict. These states may use 
oil wealth to repress such movements under strong author-
itarian rule. Chances for democracy are stifled under a 
repressive authoritarian regime as "these disputes may 
lead to larger military forces and less democracy in 
resource-rich, ethnically fractured states."X1X Angola, 
Nigeria, and the Democratic Republic of Congo are exam-
ples of the repression effect.xx The military might pur-
chased with oil wealth hobbles democratization by giving 
the state a means to silence calls for political reform and 
participation. 

The final argument for the oil-impedes-democratization 
position stems from modernization theory. This theory 
"holds that democracy is caused by a collection of social and 
cultural changes—including occupational specialization, 
urbanization, and higher levels of education—that are in 
turn caused by economic development. " X X 1 As oil can im-

P E R ! L O U S P E T R O D O L L A R S ! T H E E F F E C T S O F O I L W E A L T H O N D E M O C R A T I Z A T I O N 



pede economic development, prospects for democratiza-
tion suffer. One of the ways in which oil inhibits economic 
development is known as the Dutch disease. As was the 
case in the Netherlands, a reliance on oil resources "actu-
ally inhibits the development of agriculture or industry by 
encouraging overvalued exchange rates, which, in turn, 
promote a reliance on imports, services, and speculative ac-
tivity rather than long term investment."™ 1 While the oil-
rich rentier state may grow extremely wealthy, it does so 
without investment in and modernization of its domestic 
economy. In fact, the generation of oil rents has "almost 
nothing to do with the productive processes of the domes-
tic economy. " x x m Additionally, oil production is capital in-
tensive and not labor intensive. This hinders the creation 
of an internal labor market. The lack of a strong and diver-
sified domestic and labor market inhibits industrialization, 
specialization, and urbanization—all important factors i n 
modernization. Furthermore, the need for highly technical 
skill sets can lead to the use of foreign labor. Since foreign 
laborers are not citizens, they are not likely to have a vested 
interest in the country or a desire to pressure the regime for 
democratic reform. As Eric Davis notes, " In Saudi Arabia 
and the Arab Gulf states, the expatriate labor force . . . often 
outnumbers the indigenous population." x x l v Foreign labor 
may have an interest i n maintaining the existing political 
and economic system so as to remain employed. 
Additionally, because these better-paid oil workers are not 
employed i n large numbers, a labor aristocracy arises, once 
again at the expense of democracy.x x v Oil-led economic 
development may also inhibit processes of social mobiliza-
tion as "the failure of the population to move into industrial 
and service sector jobs renders them less likely to push for 
democracy. " x x v l The absence of large numbers in the terti-
ary sector results in a less autonomous workforce, "[un]ac-
customed to thinking for themselves on the job and having 
specialized skills that enhance their bargaining power 
against elites." x x v u Without an autonomous workforce, the 
public is ill-equipped to organize and communicate calls 
for reform. Oil wealth also tends "to impede the develop-
ment of institutions and values critical to open, market-
based economies and political freedom: civil liberties, the 

rule of law, protection of property rights, and political par-
ticipation. " X X V J 1 1 Without these institutions and values, 
prospects for social mobilization suffer. Weakened social 
mobilization, coupled with inadequate development 
and modernization, decreases the likelihood of 
democratization. 

Though a general consensus exists about the negative 
correlation between democracy and oil, it need not mean 
that oil-rich states are doomed to remain undemocratic. 
Several scholars argue that with the proper approach, the 
curse of oil wealth can be overcome. Indeed, they cite sev-
eral reform-oriented oil-rich states as examples. Gwenn 
Okruhlik argues that oil, rather than stifling calls for re-
form, can actually produce opposition movements. She 
suggests, "Wealth generated through oil receipts is a cata-
lyst for opposition to the state, rather than a tool to placate 
dissent." x x , x Essentially, she argues that states engender 
their own opposition by prompting resentment over un-
equal distribution and providing dissenters with resources 
necessary for mobilization. x x x She cites the November 
1990 business petition and women's protest in Saudi 
Arabia as examples of civil pressures for reform.*™ 
Additionally, reforms in several other Arab Gulf monar-
chies support the claim that oil-rich states are not necessar-
ily free from popular pressure for reform. " In view of the 
grave economic difficulties and social tensions," 
Anushirivan Ehteshami argues, the Gulf monarchies "have 
had little choice but to consider the introduction of 

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economic and political reforms." x x x u Indeed, states such as 
Kuwait, Qatar, Oman, and Bahrain have taken important 
steps towards liberal reforms, such as expanding elected 
assemblies, allowing for political debate, and even widen-
ing political rights of women.™ 1 1 1 In Bahrain, the estab-
lishment of a consultative council, the National Charter, 
and a constitutional monarchy during the mid-1990s 
shows that oil wealth need not inhibit democratic reform in 
oil-rich states. x x x i v While these countries are still a long way 
from meeting internationally recognized criteria of good 
governance, important steps have been made towards the 
likelihood of democratization. 

Alternatives for managing oil wealth have also been pro-
posed as a way to overcome the predictions of the oil-
impedes-democracy discourse. One alternative proposed 
by Birdsall et al. is the creation of "special oil funds which 
constitutional or other restrictions on the use of rev-
enues—[which have] been used in Kuwait and Norway for 
several decades, and in Colombia and Venezuela since the 
1990s. , , x x x v The national oil funds, though often difficult to 
implement, aim to insulate oil wealth from corruption and 
to ensure governments focus spending on socially benefi-
cial projects. Another alternative for managing oil wealth 
is by distributing it directly to the people rather than funnel -
ing it into the state treasury. This would minimize the op-
portunity for corruption and patronage politics, while sub-
stantially increasing income per capita in underdeveloped 
countries.X X X V 1 A distribution-based policy could aid in eco-
nomic diversification and investment i n infrastructure, 
while promoting the development of domestic markets and 
local pol i t ics . x x x v n Though this policy might be more diffi-
cult to implement, encouraging greater scrutiny of spend-
ing projects would prove beneficial for democratization. A 
third alternative for managing oil wealth calls for interna-
tional supervision of implementation, ideally under the di-
rection of the UN. While this would require a temporary 
forfeiture of some sovereignty, international pressure 
could ensure greater demands for accountability and trans-
parency. This option is particularly pertinent for Iraq, given 
its current situation. Supervision by an international body 

"may be the only practical way to develop democratic insti-
tutions free of the corrupting influence of oil and to ensure 
the long-term economic and political empowerment of 
ordinary I raq i s . " x x x v m Though alternatives have surfaced, 
the oil-impedes-democracy debate is far from resolved. 
The effects of successful implementation of these amelio-
rative policies still remain to be seen and democracy in 
many oil-rich states is a long way off. 

"Despite the fact that 
these states have benefited 
immensely from 
global markets dependent 
on their "black gold," 
a telling number of oil-rich 
states are not democratic." 

Despite the fact that there has been some visible progress 
in several states in the oil-rich Middle East, widespread pro-
democratic change is far from the norm. Oil wealth is still 
an impediment for democracy in much of the world. The 
enormous oil revenues of authoritarian rentier states cou-
pled with limited mechanisms for distributional accounta-
bility and political participation ensure a difficult road 
ahead for democratization. As long as global dependence 
on oil persists, the politics of these regions remain impor-
tant. Hence, it is necessary to understand the ways i n 
which oil impedes democracy in order to look for viable so-
lutions. Authoritarianism in oil-rich states is not in-
evitable. I f democracy is to flourish in such regions, how-
ever, states must learn to cope with the complex challenges 
of this natural resource. 

P E R I L O U S P E T R O D O L L A R S : T H E E F F E C T S O F O I L W E A L T H O N D E M O C R A T I Z A T I O N 



E N D N O T E S 

i . Birdsall and Subramanian (77-89) 
i i . See results of Michael L. Ross' regression analysis in , Ross 
(325-61) 
i i i . Okruhlik (295) 
iv. Ross (329) 
v. Beblawi and Luciani (51) 
vi . Okruhlik (296) 
v i i . Ross (332) 
v i i i . Maugeri (165-174) 
ix. Ross (333) 
x. Karl (57) 
xi . Karl (54) 
xi i . Ross (334) 
x i i i . Ross (334) 
xiv. Ross (334) 
xv. Ross (335) 
xvi. Tetreault (268) 
xvii. Tetreault (269) 
xvii i . Okruhlik (301) 
xix. Ross (336) 
xx. Ross (336) 
xxi. Ross (336) 
xxii. Karl (53) 
xxii i . Karl (48) 
xxiv. Davis (18) 
xxv. Karl (52-53) 
xxvi. Ross (357) 
xxvii. Ross (336) 
xxviii. Birdsall (77) 
xxix. Okruhlik (297) 
xxx. Okruhlik (297) 
xxxi. Okruhlik (302) 
xxxii. Ehteshami (54) 
xxxiii. Ehteshami (62-67) 
xxxiv. Ehteshami (65-66) 
xxxv. Birdsall and Subramanian (80-89) 
xxxvi. Birdsall and Subramanian (80-89) 
xxxvii. Birdsall and Subramanian (80-89) 
xxxviii. Birdsall and Subramanian (88-89) 

R E F E R E N C E S 

Beblawi, Hazem, and Giacomo Luciani. 1987. The Rentier State. 
London: Croom Helm. 

Birdsall, Nancy and Arvind Subramanian. 2004. "Saving Iraq 
From Its Oi l ." Foreign Affairs, 83(4): pp. 77-89, July/August. 

Davis, Eric. 1991. "Theorizing Statecraft and Social Change in 
Arab Oil-Producing Countries." in Davis and Gavrielides (eds.), 
Statecraft in the Middle East: Oil, Historical Memory and Popular 
Culture. Miami: Florida International University Press: pp. 1-35. 

Ehteshami, Anushirivan. 2003. "Reform from above: the 
Politics of Participation in the Oil Monarchies." International 
Affairs 79(1): pp. 53-75, January. 

Karl, Terry Lynn. 1997. The Paradox of Plenty: Oil Booms and 
Petro-States. Berkeley: University o f California Press. 

Maugeri, Leonardo. 2003. "Not in Oil's Name." Foreign Affairs 
82:4: pp. 165, July-August. 

Okruhlik, Gwenn. 1999. "Rentier Wealth, Unruly Law, and the 
Rise of Opposition: The Political Economy of Oil States." 
Comparative Politics 31(3): pp. 295-315, Apri l . 

Ross, Michael L. 2001. "Does Oil Hinder Democracy?" World 
Politics 53(3): 325-61, Apri l . 

Tetreault, Mary Ann. 2004. "The Political Economy of Middle 
Eastern Oil ." in Deborah J. Gerner and Jillian Schwedler (eds.) 
Understanding the Contemporary Middle East. London: Lynne 
Rienner Publishers: pp. 249-272. 

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