The Power of Petroleum

Record prices have made oil nations much more confident and less dependent on traditional powers.

Record-high oil prices have dramatically shifted the balance of global power. At nearly $90 a barrel, oil is more than a crucial energy source, it’s a strategic commodity of central importance. The $30 per barrel rise in crude prices since last October raises the daily imported oil bills of the United States and Europe by $300 million each, while Middle East exporters collect an additional $500 million daily. These are sums with huge financial and political implications that are beginning to reverberate.


The windfalls have some important upsides for oil-producing nations and the world at large. Saudi Arabia’s oil revenues have surged from $60 billion in 2000 to an estimated $152 billion in 2007. Its budget has moved from deficits to a large surplus. Russia, effectively bankrupt in 1998, has used its vast oil and gas revenues to eliminate most foreign debt and build $434 billion in reserves. Both countries are diversifying beyond energy. A host of other nations, including many small African and Caspian Sea countries, are establishing sovereign-wealth funds to better manage their billions, injecting much-needed capital into markets in the midst of a credit crunch.

Yet even as oil has greased the wheels of global capitalism, it has hindered democracy. Governments with large oil receipts need less consent from the governed to stay in power. They can reward their friends and buy off their opposition, or pay to have it crushed. They discourage free markets and favor state enterprises. In countries like Nigeria and Azerbaijan, the result is repressive and corrupt political institutions and bloated bureaucracies sustained by oil money.

Newsweek