Could Oil be the Islamic Republic’s Savior?

Editor’s Note: This is the third in a week-long series highlighting Stephen R. Grand’s new book Understanding Tahrir Square: What Transitions Elsewhere Can Teach Us about the Prospects for Arab Democracy.  Today, Brookings is hosted a book launch for Grand, a nonresident senior fellow with the Saban Center– and former director of the Project on U.S. Relations with the Islamic World.

We have been looking from a comparative perspective at Iran’s vulnerability to renewed civic unrest.  Here we explore one particular aspect of that question: Could oil save the Islamic Republic?

We discussed in earlier posts how the Third Wave of democracy brought political change to many parts of the globe.  Countries with natural resource wealth, though, often were able to sidestep this wave.  Political leaders were able to use their access to large quantities of oil and gas, rare minerals, or even foreign aid (think Cuba when it enjoyed the largesse of the Soviets) to buy off key political constituencies or opposition politicians who might otherwise oppose them. Recall how when the Arab Spring erupted in 2011, the oil-rich rulers of Oman, UAE, Kuwait, and Saudi Arabia simply raised the subsidies paid to their citizens to, in effect, buy their political quiescence. 

As much as citizens around the world may increasingly value their personal rights and freedoms, pocket-book issues still matter.  Historical experience shows that, at least for a time, citizens may be willing to accept an “authoritarian bargain,” meaning they would defer certain rights and freedoms in return for immediate economic benefits. Citizens may be willing to put up with an autocrat so long as he or she can regularly provide 5-10% growth per annum. Of course, the catch is that autocratic leaders have to be able to produce that level of growth on an ongoing basis. In an era when non-democratic ideologies are increasingly being discredited, their legitimacy may come to hinge solely on whether they can deliver the economic goods. 

Delivering on that bargain may be easier if it simply requires pumping oil from the ground, but as Iran’s leaders have learned that even oil comes with its complications.  First, oil is not an inexhaustible resource — reserves will not last forever.  Second, the price of oil can fluctuate drastically, and while relatively high at the moment, it seems unlikely to go higher over the near-term. Third, it requires getting that oil to market — something the current round of sanctions have made more difficult for Iran to do.  Finally, dependence on oil can have all kinds of deleterious effects on the rest of a country’s economy.  The concept known as “Dutch disease” may even set in; where the additional revenues derived from oil exports drive up the value of the currency to such a degree that other sectors of the economy become uncompetitive globally.  A nation’s wealth begins to be generated from a hole in the ground rather than the minds and talents of its citizens.

So oil may help the Islamic Republic stave off pressures to democratize for a time, but only for a time and not without costs.