Low Oil Prices and Conflict

Last week, I wrote about the drop in oil prices from purely an economic point of view and, in October, I briefly commented on the effect lower prices would have on Putin's regime in Russia; but what about oil prices from a more purely IR point of view? What effect, if any, can we expect on the behavior of states in the international system?

Rob Nikolewski  at Watchdog.org raises this concern in an article entitled Will crashing oil prices make Russia, Iran and Venezuela more dangerous? The gist of this article is that low oil prices are hurting Russia, Iran, and Venezuela and, therefore, their leaders may lash out at the world. However, most of the substantive analysis is an assessment of how much these countries are hurt by lower oil prices, and very little analysis focuses on the motives and strategic calculations of their leadership that would support concerns about them "lashing out."

Indeed, one is left with the impression that Nikolewski thinks the proposition that one can expect aggression from these leaders when they are under pressure needs little more examination than a quote from an expert or two. This might fly with the conservative readership of Watchdog.org but, as IR scholars (and here I am addressing my students), we should be more critical in our reading. We should look at Nikolewski's piece and note that he spends too much time on the suppositional part of his argument (i.e., that lower oil prices are hurting Russia, Iran, and Venezuela) and far too little on the more causal part of his argument (i.e., that this economic pain will encourage more aggression internationally).

This is turn should get us thinking about what the price reaction of the Russian, Iranian, and Venezuelan leadership may actually be. With apologies for another Rex Stout reference, Nero Wolfe frequently tells his assistant, Archie Goodwin to proceed based on "intelligence guided by experience." For our purposes, these twin pillars of intelligence and experience can be interpreted to mean theory (which is logical inference and deduction based on a model of underlying causal relationships) and empirical research (which is the study of past behavior of states).

Taking the second one first,Cullen Hendrix shares some results from his empirical research in a Monkey Cage post entitled Falling oil prices, more peace?  As is typical of scholarly (read, with admitted bias, as "good") empirical research, Cullen starts with some theory, specifically Thomas Friedman's First Law of Petropolitics, which Friedman defines as follows:

The price of oil and the pace of freedom always move in opposite directions in oil-rich petrolist states. According to the First Law of Petropolitics, the higher the average global crude oil price rises, the more free speech, free press, free and fair elections, an independent judiciary, the rule of law, and independent political parties are eroded. And these negative trends are reinforced by the fact that the higher the price goes, the less petrolist leaders are sensitive to what the world thinks or says about them. Conversely, according to the First Law of Petropolitics, the lower the price of oil, the more petrolist countries are forced to move toward a political system and a society that is more transparent, more sensitive to opposition voices, and more focused on building the legal and educational structures that will maximize their people’s ability, both men’s and women’s, to compete, start new companies, and attract investments from abroad. The lower the price of crude oil falls, the more petrolist leaders are sensitive to what outside forces think of them.

The last line of the preceding passage is most suggestive in that it suggests that, when oil prices are low, the leaders of oil exporting states will actually be more constrained by international pressure than when oil prices are high. In other words, contrary to what Nikolweski implies, the leadership of Russian, Iran, and Venezuela may be less likely to lash out due to the current low oil prices.

In his working paper for the Peterson Institute, Hendrix puts this idea to the test, as his abstract very succinctly describes:

Anecdotal evidence suggests high oil prices embolden leaders in oil-rich states to pursue more aggressive foreign policies.This article tests the conjecture in a sample of 153 countries for the time period 1947–2001. It finds strong evidence of a contingent effect of oil prices on interstate disputes, with high oil prices associated with significant increases in dispute behavior among oil-exporting states, while having either a negative or null effect on dispute behavior in nonexporting states.

 Thus, Hendrix's research suggests that high, not low, prices encourage more aggressive behavior (the lashing out that Nikolewski is concerned about) on the part of oil exporting states. It should be pointed out that Hendrix finds only weak evidence to suggest that low prices (below $33/barrel) make oil exporting states more pacific than non-exporting states, so we have to see this as a somewhat one-way relationship. That is, high prices promote more aggressive behavior among oil exporting states and lower prices will not promote such particular behavior.

So, empirical research (the systematic study of experience, if you will) not only casts doubt on Nikolewski's concerns, but paints an entirely different picture of the effect of low oil prices on state behavior. We could leave it there but, sometimes, when confronted with an article that tweak's one critical thinking as Nikolewski's does, there may not be an empirical study so on point as Hedrix's at hand. In such a case, one needs to resort to theory to examine the question in mind.

Hendrix started with Thomas Friedman's First Law of Petropolitics and I generously categorized this as theory. However, a law is technically not a theory but rather an observed empirical regularity, and Friedman is not a theorist but rather a journalist. Indeed, nothing marks the difference between a journalist and scholar so much as Friedman's inexact use of the term "law" in that the term should be used only after an exhaustive empirical study (as opposed to the more anecdotal evidence Friedman depends upon) has established it

Perhaps a better theoretical foundation would have been to use a theory that explains the conflict behavior of  national leaders based on political economy factors. Obviously, Realism is out here as it focuses on system level variables, but my old stand-by of Selectorate Theory clearly applies (and I never miss a chance to pass out the Kool-aid). While Selectorate Theory focuses on the differences in behavior of large versus small coalition regime leaders, it can be applied here since oil exporting states are typicaly small coalition, or non-democratic, regimes.

Back in July, I wrote about Selectorate Theory's predictions about the war making decisions of democratic versus non-democratic leaders (dictators for short). I described the prediction of Selectorate Theory about the war making decisions of dictators as follows:

 In a small coalition regime, the leader (call him a dictator) survives in office with the support of a small coalition of supporters. Because they are small in number, the dictator can best ensure their loyalty by providing them with private benefits. As a result, the leader's survival depends not on his job performance as a national leader, but on his ability to keep the flow of private benefits to supporters going. As long as the private benefits flow to the leader's essential supporters, the leader is free to do whatever he wants with regard to policy, including the prosecution of a war. However, the leader will have only the resources he has left over after paying off his supporters to devote to the war effort.

I have added emphasis to the last sentence because it points to an important consideration for dictators who depend on oil revenue to pay private benefits to supporters. When the price of oil is high, the dictator will have more money left over after paying off his/her supporters than when prices are low. Therefore, the leader will have more resources with which to conduct wars, or any other policy, when oil prices are high than when they are low. Therefore, we should see more aggression when the leader has excess resources to carry it out than when the leader is scrambling to find enough money to pay off supporters. More importantly, even if a leader may be more inclined to be internationally aggressive when oil prices are low, the leader will have less resources to act on the inclination.

Indeed, to the extent that the leaders of Russia, Iran, and Venezuela depend on smaller rather than larger coalitions of supporters, they can be expected to focus on keeping the private benefits flowing to key supporters more than on international adventurism. This is because the leader's domestic political survival is at stake and the theory assumes that this overrides other considerations. Of course, this assumption is supported by the argument that, if leaders don't act to ensure their survival, then they will be far less likely to survive in office.

In short, we shouldn't theoretically expect low oil prices to make the leaders of oil exporting, small- coalition regimes lash out internationally. Given that most oil exporting states have small coalition regimes, this lines up well with Hendrix's empirical finding that oil exporters are less dispute oriented when oil prices are low than when they are high. As Nero Wolfe would say, this reveals Nikolewski's concerns to be fatuous.