Oil Dependency: The Price of Oil and the Pace of Freedom

Pune, 19 Feb. Author, journalist, and three-time Pulitzer Prize winner Thomas Friedman spoke with the BBC on 18 February about what he calls, “the price of oil and the pace of freedom”. This states that as oil prices increase the need for governments to act democratically decreases. He says that this is “The First Law of Petropolitics”.

Pune, 19 Feb. Author, journalist, and three-time Pulitzer Prize winner Thomas Friedman spoke with the BBC on 18 February about what he calls, “the price of oil and the pace of freedom”. This states that as oil prices increase the need for governments to act democratically decreases. He says that this is “The First Law of Petropolitics”.

He said, “There is to me a clear link between the price of oil and the pace of freedom. What you look at when you study countries like Iran, Russia, Venezuela, Nigeria is that the price of oil and the pace of freedom do march in opposite directions.

As the price of oil goes up, the pace of freedom tends to go down. And as the price of oil goes down, the pace of freedom tends to go up. And I think we’re going to see that theory tested here yet again as we head into this global recession and countries like Russia, and Iran, in particular, the most vulnerable, that have been living off high oil prices, whose leaders have been empowered by high oil prices, are now going to have to deal with the opposite.

The motto of the American Revolution was, ‘no taxation without representation’. The motto of the oil states is, ‘no representation without taxation’. Hey pal, if I don’t have to tax you, I don’t have to represent you. If I can just put a pipe in the ground and put a straw in and suck that oil up, I never have to really represent you. That changes when the price of oil goes down.

If you look at when oil cratered the last time, it actually got down to about $10 a barrel. When did it get down to $10 a barrel? Right around the early 1990s. Around 1991. 1991. What happened in 1991? Why, the Soviet Union collapsed in 1991.

And I think you could see a very similar thing play out in Iran if you got a real collapse in oil prices. What was interesting about collapse of the Soviet Union, it wasn’t really $10-a-barrel oil that brought down the Soviet Union, it was $80-a-barrel oil, followed by $10-a-barrel oil.

And Iran faces a very similar situation. What all these regimes did when oil was high, was they extended the regime into all these areas. They were subsidizing gasoline at the pump, mortgages, student loans, student housing, food subsidies.

But what happens then when oil finally craters is the state has to withdraw from so many more areas, and when that happens, it’s very vulnerable if it doesn’t have some real grounding of legitimacy in free and fair election.”

Is his conclusion accurate? As compelling as it might be, he doesn’t actually offer any empirical evidence to support any statistically-robust correlation between oil prices and levels of freedom. Some may argue that correlation does not mean causation. In other words, just because oil was at $10 a barrel in 1991 and the Soviet Union collapsed doesn’t mean one caused the other.

Another point to note, which surely Friedman would agree with, is that we must continue to be aware of the environmental concerns that ensue when the price of oil is low. In simplified terms, if oil is cheap and democracy is prevalent, what will happen to the environment? We have seen just how $147-a-barrel oil affects consumption, and many of us would shudder to think what would happen if it were $10 again.

Muthu Lundstrum, EconomyWatch.com