The Greater Middle East is experiencing clashes between factions that are complicated by the great availability of hydrocarbons. Whilst oil revenues have had a stabilizing effect at a domestic level, the same is not true at the regional level
Last update: 2022-04-22 10:04:55
In the Greater Middle East, a clash among factions is underway which is complicated by the great hydrocarbon availability. Indeed, while oil revenues have a stabilizing effect at the domestic level, the same does not apply at a regional scale. In the past, the abundance of financial resources fostered the arms race and conflict in the area. Today, the drop in the price of fossil fuels and collapse of tourism due to the coronavirus pandemic are not necessarily leading to pacification.
The Arab world is prey to a civil war on a regional scale. We are accustomed to considering each Arab country’s political and economic developments separately, and from this viewpoint we see four countries experiencing open war between different political factions: Syria, Iraq, Yemen and Libya. But this way of looking at things is incomplete, because it disregards the regional dimension of Arab politics, which has been dramatically highlighted by the Arab Spring and its repercussions. In the Middle East, political developments in one country are not independent of, or separate from political developments in the rest of the region. The same might to some extent be true of other areas, in Latin America, Africa or Europe. In the Arab region, developments in one country have immediate fallout on the political balance in the other countries. The latter cannot therefore remain indifferent, and respond by intervening in their neighbours’ internal affairs.
At the time of the Arab Spring, Saudi Arabia, with the support of the countries in the Cooperation Council for the Arab States of the Gulf, intervened very openly to end the democratization movement underway in Bahrain, and rescue its Sunni dynasty. Saudi Arabia and the United Arab Emirates (UAE) intervened—less openly, but robustly all the same—to overthrow the Morsi presidency in Egypt (which was supported by Qatar) and bring one of their protégés, General al-Sisi, to power. Saudi Arabia and the UAE have also undertaken active intervention in Syria, Yemen and Libya.
In none of these three cases did they have much success, however. In Syria, the strange alliance between Iran and Russia managed to keep Bashar al-Assad in power, so that now he controls the greater part of the country albeit at the price of its destruction and the exodus of millions of its people. In Yemen, Saudi Arabia’s foolhardy decision to intervene directly in the conflict did not lead to the removal of the Houthis—Iran’s allies—from power, but merely stabilized the hostilities. The UAE, on the other hand, preferred to wriggle out of the situation, leaving the Saudis alone. Once again, the costs in terms of human lives and destruction of what was already an impoverished country are immeasurable. In Libya, the open support for General Haftar, despite the aid from Russia and France, did not lead to the ousting of Tripoli’s UN-backed government but, quite the opposite, paved the way for Turkey’s intervention.
Throughout the region, despite the new embargo imposed by the United States and the almost total halt to its oil exports, Iran continues to actively support the Shi‘ite revolts in Bahrain and Yemen as well as in Saudi Arabia itself. In Lebanon, Iran supports Hezbollah, which represents a state within the state with his own armed forces and opposes the end to the sectarian system which have led the country to economic and political bankruptcy.
Iran also holds a hegemonic position in Iraq where, 16 years after the US-led intervention brought about the fall of Saddam Hussein’s regime, a political dynamic capable of unifying the country is yet to be seen. Nor, despite the abundance of oil resources, have any development processes got off the ground that can offer the population a positive outlook for the future.
Also fitting into this picture is the conflict within the Cooperation Council for the Arab States of the Gulf between the UAE and Saudi Arabia on one hand, and Qatar on the other. The embargo declared in June 2017 has not managed to either restrain or isolate Qatar; instead, the small emirate has found an ally and supporter in Turkey, as well as coming closer to Iran. What sparked the conflict is, again, ideology and international alignments: Qatar has kept good relations with the Muslim Brotherhood and, as a consequence, favoured Morsi’s government in Egypt, al-Sarraj’s government (Tripoli) in Libya, and different factions in Syria and Iraq to those supported by the Emirates and Saudis. Politically, the majority of the Arab countries has not fallen into line with the UAE or Saudi Arabia, in particular neither Kuwait (where the Muslim Brotherhood is represented in parliament) nor Oman, two countries that are seeking dialogue with Iran.
To what extent is this situation due to oil and fluctuations in oil revenue?
Stability of the Rentier State
The rentier state theory maintains that the advent of oil revenue consolidated incumbent regimes and the very independence and territorial integrity of the producing countries. Without oil, it is very unlikely that any of the patrimonial monarchies, such as are found in the Gulf, would still exist today, and even the independence of some of the Gulf states might be called into question (as has indeed happened for Kuwait).
By freeing the state from the need to levy taxes on its country’s citizens and enterprises, oil revenue hugely strengthens the bargaining position of whoever holds power and turns citizens into clients without political representation. Despite repeated predictions of an inevitable internal crisis, the Gulf monarchies—but also the republics that have enjoyed significant oil revenue, such as Iraq, Libya and Algeria—have displayed extraordinary resilience. They have benefitted from the ability both to buy consensus by distributing the oil revenue, and to acquire sophisticated instruments of repression. They withstood long periods of political and economic disorder without feeling compelled to compromise with their adversaries. In Iraq and Libya, Saddam and Gaddafi’s ruling regimes were defeated only by means of external intervention. In Iran, the Islamic Republic continues its firm grip on power, despite the evident and recurrent expressions of dissent and exasperation by a large part of the population. In Algeria, in the 1990s the government—“le Pouvoir”—triumphed over the Islamic opposition after a bloody civil war while more recently it had to withdraw its support for a fifth term of an evidently incapacitated president Abdelaziz Bouteflika. All the same, they managed to impose a man of the regime, the politically inexistent Abdelmadjid Tebboune.
Nor can the events in Saudi Arabia be ignored. Here King Salman, who ascended to the throne at a very old age, allowed the eldest of his children from his last marriage, Muhammad, to seize power despite the evident resistance of a large part of the family. Thereafter, in the same way as the young crown prince did not hesitate to put key members of his family in prison, he also had opponents such as Jamal Khashoggi assassinated, and established a veritable reign of terror to discourage any form of opposition. The speed with which Muhammad bin Salman has consolidated his power is further proof of the rentier states’ intrinsic solidity.
So, there’s no doubting the extraordinary power of stabilization provided by access to oil revenue. While it enables the survival of otherwise wholly anachronistic political institutions, such as the patrimonial monarchy, it prevents the birth of a new fundamental political pact in those situations where institutions are wiped out by external intervention, as happened in Iraq and Libya. In these cases, all compromise between the forces at play is discouraged by the awareness of the ease with which whichever faction manages to take control of the revenue can grant itself everlasting power, ruling out the prospect of democratic alternation. As a result, none of the forces at play accepts a compromise that would temporarily exclude it from controlling the revenue, preferring the alternative of armed conflict.
We must not, however, forget that there have been exceptions to the rule of rentier state stability, notably the Iranian revolution of the late 1970s. The Shah’s regime was much more enlightened and progressive than those on the opposite shore of the Gulf, though no less repressive, and it had access to equally large revenue (in absolute terms, though Iran’s population is much greater, so its per capita revenue has always been smaller). Since then, the tools of repression have become much more effective, in particular with the advent of the Internet and social media. While on one hand these have made it easier for opponents to coalesce, on the other they enable those in power to penetrate much further into society and form a much more precise map of dissenters. In the fight between state hackers and privacy defence tools, in the Middle East at least, the former have come out on top.
The Impact of Revenue at Regional Level
However, though oil revenue has a stabilizing effect within individual countries, the same does not hold true at the regional level. At the time of the first major rise in oil prices, in the early 1970s, the main battle line in the region was between heavily populated modernizing republics—first and foremost Nasser’s Egypt—and the less populous conservative monarchies, the largest of which was King Faisal’s Saudi Arabia. The two countries were engaged in a proxy war in Yemen, on which Cairo spent vast resources. Furthermore, Egypt and the other leading countries of the region were in a state of shock following the defeat by Israel in 1967.
When oil revenue first came into play, it profoundly altered the nature of regional relations. Power shifted “from the barrel of a gun to a barrel of oil.” The tension between exporting countries and countries that had little or no oil was initially alleviated by two main mechanisms for regional rent redistribution: major unilateral transfers from exporting countries to the other states of the region, first and foremost to those in the “front line” against Israel; and the massive increase in regional migration, which enabled the population of the oil have-nots to tap the rent circulation of the major exporters.
These two mechanisms—together with the promise of greater investments by the oil producers to the non-producing countries and various regional industrial initiatives—for some time mitigated the resentment felt by the governments and elites of the oil have-nots.
And yet, even then incompatibility between regimes of differing political orientations within the same region had already surfaced. The rise of the Islamic Republic in Iran was perceived as a deadly threat by neighbouring countries’ regimes—in itself and irrespective of the Iranian government’s actions. The occupation of Mecca’s Grand Mosque by a group of Islamic fundamentalists led by Juhaymān al-‘Utaybī in November 1979 marked a turning point in Saudi history: King Fahd, who possessed no personal religious credibility, made major concessions to the Kingdom’s Salafists, allocating rather sizeable sums of money to international proselytism, with consequences that, 40 years later, are there for all to see. Al-‘Utaybī was one of the first manifestations of violent Islamist extremism subsequently embodied by Bin Laden and al-Qaeda, and more recently by al-Baghdādī and ISIS. Though repeatedly defeated militarily, the Salafists remain one of the main factions involved in the regional Arab civil war, enjoying broad public support in the region.
At the regional level, tensions erupted with the Iraqi attack on Iran and the ensuing brutal war, which lasted no fewer than eight years and ended inconclusively. It was followed by the invasion of Kuwait in 1990, which divided and polarized the region. In fact, many Arabs (the PLO, Jordan and Yemen) supported Saddam and the invasion, thus demonstrating that the two aforementioned regional oil revenue distribution mechanisms were not sufficient to create consensus and solidarity with the oil-producing countries. The response was immediate: unilateral transfers between governments ceased abruptly and Arab migrants were sent back home. Kuwait and the other Gulf countries expelled Palestinians and Jordanians, while Saudi Arabia deported almost a million Yemenis who had previously been entitled to enter and live in the country without a visa. From that moment on, the Gulf countries began to import huge numbers of workers from the Indian subcontinent, which was considered politically less dangerous; and the circulation of the oil rent among Arab countries plummeted.
The Three Oil Price Cycles
We can identify three main cycles in oil prices, which have determined the importance of oil revenue. The first lasted from 1970 to 1985: oil prices rose rapidly until 1980, then fell just as quickly. The second lasted from 1985 to 2000: crude oil prices remained low, and indeed tended gradually to fall. The third lasted from 2000 to 2015: prices rose fast, especially between 2004 and 2008, then collapsed in 2008–2009, rose to high levels again between 2010 and 2013, only to fall again since mid-2014.
From the political viewpoint, the first phase saw oil revenue having a first crucial impact on the regional balance of forces; the second was a period of lean years, when everyone had to make concessions, both domestically and regionally; the third was another buoyant moment, when the rise in revenue prompted increased public spending.
In the first phase, the increase in oil revenue reinforced the incumbent regimes. It caused regional tensions, but these were contained by the two regional circulation mechanisms mentioned earlier. In the second phase, domestic consensus was gradually eroded and the regional redistribution of revenue diminished sharply. In the third phase, abundant revenue and increased spending were not matched by stronger domestic consensus, and regional tensions exploded, in the absence of any vision or hope for regional integration.
In this third phase, after initial hesitation, the producing countries’ regimes loosened the purse strings and went on a spending spree. However, they were unable to reform their models of expenditure and revenue redistribution. They simply went back to the same patterns as in the first phase: resources were spent on infrastructure and public works, the state offered citizens jobs they did not need, and an artificial cap was kept on the price of certain goods, especially oil products and electricity. In the first period, this pattern of spending had a major positive impact, enabling the linking of all inhabited centres by paved roads; the supply of electricity to every village, however small; and the construction of hospitals and schools where there had been none: all these initiatives radically improved the living standards enjoyed by the population. But adding a further two or four lanes to an existing four-lane highway, establishing a university in every small town (without managing to provide a quality guarantee) or engaging in other grandiose projects does not greatly improve the welfare of the majority of the people; the main beneficiaries are construction companies. Most citizens—particularly the poorest— hardly benefit at all. Similar considerations apply to the supply of public sector jobs: in the first period, the expansion of state bureaucracy and state enterprises provided extraordinary opportunities for many young people who had literally come out of the desert; in the third phase, young entrants were offered employment in structures that had by then become sclerotic, were governed by rules of seniority, and, in most cases, were highly disincentivizing.
At the regional level, revenue distribution was based on private initiative and corruption. The governments of the oil have-nots realized that facilitating private investments from the oil-producing countries was the only option to boost their wealth. Mubarak, Ben Ali, and their likes engineered the rise of politically loyal local entrepreneurs, asking them to associate with Gulf country investors in various speculative initiatives, mainly in real estate and tourism, so that the governors could surreptitiously take part too. Although the statistics show that the GDP of the oil have-nots increased satisfactorily, the distance between rich and poor grew longer, feeding resentment among the poor. The development of regional television channels projected the spectacular success and wealth of Dubai, Abu Dhabi and Doha into the homes of the poor in Egypt, Jordan and Morocco, who, however, could no longer seek jobs in the Gulf, because the Arabs prefer Indian workers.
It should therefore come as no surprise that regional tensions increased, despite the high oil revenue enjoyed in the third period, up to the explosion of the Arab Spring, which, like for many revolutions in the history of the world, led to regional civil war.
The Current Period of Low Oil Prices
We are now in a new phase of low oil prices. At first, everyone expected that they would soon recover, because nobody likes low prices: not the producing countries, not the major companies, and not the governments of industrial countries concerned about deflationary repercussions. But the reality of supply and demand has prevailed: oil is abundant and not costly to obtain. OPEC—even in the version extended to Russia and other non-member countries—is unable to do much more than prevent further drops in price.
How long will this new period last? If we are to believe to the regularity of historical phenomena, this phase might last some 15 years, like the previous phases, and so until 2030. After reaching an all-time low at the start of 2016, the agreement between OPEC, led by Saudi Arabia, and the main non-OPEC oil-producing countries, led by Russia, enabled a certain recovery in prices up to 2020. Nevertheless, this recovery also demonstrated the limits of the actions of the so-called OPEC+ group: despite progressively pushing out at least three important producers from the market (Venezuela, Iran and Libya) owing to domestic and/or international conflicts, there was no significant drop in international oil reserves, also because of the continuing increase in shale oil production in the United States.
This shy recovery was struck in early 2020 by the Covid-19 crisis, which triggered a drastic reduction in the demand for oil and a new collapse in prices. Once again, OPEC+ reached an agreement to significantly curtail production and exports, but the persistence of the health crisis has as yet prevented a recovery in prices. Hence, they remain at around one third of the peak reached in 2011-2013, way below the so-called fiscal balance for the oil-producing countries, i.e., the level at which the government budget breaks even.
What will happen after Covid-19, nobody knows exactly. Many think that the demand will no longer get up to past highs. Nevertheless, however unpredictable the shock caused by coronavirus, it cannot be considered totally out of the ordinary: the international economy was already giving clear signals of tension and weakness even before the pandemic exploded, and extremely important imbalance and crisis factors will remain even when it is resolved. The high levels of debt racked up by many industrial states and the crisis of globalization, the engine of growth for the past 70 years, are not going to go away. As things stand, it is difficult to foresee a strong upturn in the international economy which will cause a new growth in the demand for energy and, in particular, fossil fuels. In the face of probably feeble growth, what may happen is that the big excluded countries (Venezuela, Iran and Libya) will return to the oil world stage, which would certainly make a supply-restriction policy more difficult to implement.
Were prices to remain under 50 dollars a barrel, over time the supply would decrease owing to the natural decline of wells currently in production and the impossibility of opening new ones because of a dearth of investment. In any case, this “natural” adjustment process takes time, and it is unlikely that a new period of high prices will commence before 2030.
What Impact on the Region?
Though the abundance of financial resources has encouraged the arms race and regional conflict, poverty does not necessarily lead to peace. The regional civil war can only end with the victory of one faction or a compromise.
Today we can pinpoint four main forces at play in the regional civil war: the Shi‘ite component, led by Iran but also present in numerous other countries in the region; the moderate Sunni component (the Muslim Brotherhood), which claims to be democratic but wants politics to be inspired and guided by the sharia precepts; the extremist Sunni component, which, in the wake of al-Qaeda and ISIS, considers anyone who does not adhere to a literal understanding of Islamic law a heretic; and lastly, the patrimonial absolute monarchies of the Gulf, with the military, bureaucratic and technocratic apparatus that supports them. These four forces are joined by locally significant components such as the Kurds in northern Iraq and Syria, or other ethnic or religious minorities. Lastly, actors from outside the region also infiltrate the game of local forces or overlap with them: Turkey, supporter of moderate political Islam; Russia and France, concerned about the possible success of political Islam for their own domestic political reasons; and the United States, which has failed in its project to reconcile support for the Gulf monarchies with a progressive democratization of the region and today seems to totally lack any strategic vision.
The four main components are all in conflict with each other: Shi‘ites against Sunnis, moderate Sunnis against radical Sunnis, patrimonial monarchies against Islamists. None of these forces is able to “win” by itself, and none seems willing to stoop to compromises with the others. Of the patrimonial monarchies, Qatar, Oman and Kuwait are seeking a modus vivendi with Iran and the moderate Islamists. Saudi Arabia, the UAE and Bahrain, on the other hand, made an attempt to stifle Qatar in its stance as “protector” of the Muslim Brotherhood and its search for an arrangement with Iran. Although the bid was not successful, Qatar nevertheless does not have the clout to press for a compromise between these two components and the Gulf monarchies.
As time goes by, it is getting more and more difficult to imagine a compromise that can put an end to the regional civil war. None of the crises has been resolved and the situation is compounded by others, most recently the economic collapse of Lebanon. Low oil prices and a severe slump in tourism, the basis of many economies in the region, only add to the difficulties. It is thus very likely that the civil war will last a long time, and that the future of regional economic development will remain compromised for decades.
[This article is an expanded and updated version of the essay “Oil and the Arab Civil War,” which appeared in Aspenia, no. 77-78 (2018), pp. 132-140.]
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The opinions expressed in this article are those of the author(s) and do not necessarily reflect the position of the Oasis International Foundation
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To cite this article
Giacomo Luciani, “If Oil Fuels the Flames of War”, Oasis, year 16, n. 31, pp. 84-93.
Giacomo Luciani, “If Oil Fuels the Flames of War”, Oasis [online], published on December 2020, URL: /en/if-oil-fuels-the-flames-of-war