Democracy and Oil

By Hogar Hadi Hassan:

Ever since the 1980s, most countries in the developing world have become more democratic, more peaceful and richer. However, this statement does not apply to countries with oil. Oil producing countries around Africa, the Middle East, Latin America and Asia are suffering from political and economic maladies that did not exist three decades ago. There is a dramatic fall in per capita income from 1980 to 2006: for example, 6 percent in Venezuela, 45 percent in Gabon and 85 percent in Iraq. In addition, many oil producing countries have faced destructive civil wars. As for Iraqi-Kurdistan, oil is a new commodity. Since the founding of the oil industry in Iraqi-Kurdistan, many drastic changes have come along. The adoption of oil by the KRG (Kurdistan Regional Government) is one of complete dependency and this dependency has not only been economic, but political and social as well. It has in fact led the region to be identified as a petrostate.

In petrostates, oil income is highly controlled by the central government. This gives a leader an independent source of financial resources than can be redistributed to buy political support. For Iraq, this meant the rise of a dictator, Saddam Hussein. A dictator coming to power meant that Iraq was to become one of the most aggressive states of the twentieth century. Iraq has been a petrostate for the whole time period from 1945 until today, which can be studied further and in detail. In fact, by 1958, 80 percent of government revenues were based on oil income. Iraq was not immune from the effects of the volatility of oil prices. Three major international wars left Iraq with an unusually volatile oil production profile from the 1970s onward. Even with this, the oil industry was the largest single sector in the Iraqi economy and the dominant source of export revenue.

Iraqi-Kurdistan as an oil dependent region is not out of this equation. In fact, one can safely call 2015 the year of the collapse of the political and democracy system in this region, the year in which parliament and the rule of law were trampled upon by the KDP (Kurdistan Democratic Party) militia group.

The economic and political ailment mentioned above are caused by what is known to be the resource curse (L.Ross, 1, 2013). Oil and gas have not always been working as an obstacle to democracy. Oil states were once as democratic or undemocratic as countries without oil. The difference only appears when ‘wave democratization’ hit almost the entire globe, and yet oil-rich countries seemed immune from this wave and did not transition to democracy. Oil has a strange power in keeping autocrats and dictatorships in power through enabling these political entities to reduce taxes, buy the loyalty of army forces, increase spending and hide their incompetence and corruption. Even though a number of oil-rich states transitioned to democracy, this transition has been exceptionally rare (L.Ross, 63, 2013).

Defining and measuring a concept as vague as democracy could be really challenging. However, there is some consensus on measuring democracy among scholars. There are two approaches to measuring democracy; The first approach qualifies a country as a democracy when these four conditions are met: there have to be at least two political parties that can compete freely, its legislature system must be elected, the chief executive of the government, whether it is prime minister or president, must be elected, and one incumbent government must have been overthrown and then substituted by an elected one. In addition to this approach, there is another approach which is based on the idea that democracy is measured on a scale. This understanding asks the question of how democratic a country is rather than asking whether it is democratic or not.

Nonetheless, to understand the democratic dynamic of Iraqi-Kurdistan, one does not have to analyze the theories of democracy. The answer to this issue is very clear and disappointing since around one year ago, in a coup-like operation, the KDP dismantled judicial authority violently and trampled upon every principle of democracy. One could ask how one political party has the capability to paralyze the political system unilaterally. The answer to this lies in the oil and its revenue, or more specifically, the fiscal theory of democracy.

The fiscal theory of democracy examines the impact of oil wealth on democracy. According to this theory, since oil-producing countries’ revenues do not come from taxes, the resulting governments can maintain low taxes, create patronage systems, and increase spending. Hence, people might not have the tools to hold the government accountable. In non-oil producing countries where taxation is the source of revenue, revenue spending is equal to taxation spending; as a result, citizens can relatively easily track down a government’s handling of revenue. Nonetheless, in oil producing countries citizens recognize that their governments possess an additional source of revenue and they want to know how it is handled and spent. In most cases, should they believe that their governments convey insufficient services with revenue taken into account, they will rebel. However, there is a vicious circle. Oil contracts are set in secret and their revenue is often funneled through off-budget accounts. As a result, oil revenues are remarkably easy to hide. (L.Ross, 70, 2013)

In oil producing countries, citizens cannot watch the revenue extracted from oil very closely. In order to find information, citizens have to rely on the media and government. If the government is democratic this information is most likely accessible. On the other hand, if the government is autocratic, a considerable amount of this revenue is concealed by the government. In Iraqi-Kurdistan, citizens are suffering from a great lack of transparency generally in all economic sectors and particularly in the oil sector. A number of KRG-parliaments have argued for that fact that the oil sector lacks transparency and the flow of oil and petrodollars cannot be monitored. According to Ali Hama Salih, a member the KRG-parliament, just in the time period of January, February and March of 2016, one billion and 127 million American dollars (USD 1.127 billion) in oil revenue has disappeared. In addition, currency exchanging of oil revenue from USD to Iraqi Dinars has been monopolized by the KRG prime minister, Nechirvan Barzani, in the private banks and International Kurdistan Bank. In addition, Sherko Jawdat, chairman of the Kurdish parliament’s Oil and Gas Committee, at a panel discussion of the first Economic Forum of Erbil’s Middle East Research Institute (MERI), argued for transparency in the oil sector, confirming the fact that the sector lacks transparency and emphasizing that corruption in the sector must be fought, particularly during this period when Kurdistan is undergoing a very serious economic crisis.

Iraqi-Kurdistan is to a great extent dominated by two key parties, the Patriotic Union of Kurdistan (PUK) led by the former president of Iraq, Jalal Talabani, and the Kurdistan Democratic Party (KDP) led by the former president of the region, Masoud Barzani. It is also controlled by the two ruling families (some observers call them business families), the Talabanis and Barzanis, who have created what some scholars have labeled a sultanistic system and have been entrenching their rule for decades.

In the period between 2003 and 2013, the KRG underwent an astonishing economic boom This prosperity was created by oil revenues and an influx of international investment. This economic boom may have profited the region to some certain extent; however, it mainly empowered and enhanced ruling families and regional investors such as Turkey. This strategy led to quick profits for ruling elites and their partners in the Kurdistan region. This economic boom enriched the KDP, and to a smaller degree the PUK, to clench onto and monopolize power, predominantly to the oil sector. A good part of the oil revenue has been used for promoting co-optation and corrosion. Kurdish leaders have made intensive and effective efforts to co-opt the society by enlarging the KRG’s social-welfare function — funded by Iraqi oil revenues and the KRG’s own energy sector. Alongside standard government salaries, the KRG now offers opportunities to make life more comfortable for local residents, including subsidized electricity and petrol, better salaries and free study abroad. Kurdish leaders also have encouraged local businessmen by generating opportunities for them to conduct business overseas, although this is through the political parties and not a real private sector. As a result, they have further deep-rooted KRG-party patronage networks and control over the economy and the society.

While these mollification measures have presently tempered possible challenges and rebellions, they have shaped new kinds of political vulnerabilities for the KRG. Ruling elites have obtained public support through coercion and cooptation which is mostly funded by oil revenues and not by political legitimacy and democracy (Kawa Hassan).

Work cited:

1-Corporation, Nalia. “پارەی نەوتی چەند مانگی رابردووی هەرێمی کوردستان چی لێهات؟.” N.p., n.d. Web. 30 Apr. 2016.
2-Kawa Hassan. KURDISTAN’S POLITICIZED SOCIETY CONFRONTS A SULTANISTIC SYSTEM. Washignton D.C: Carnegie Middle East Center, 2015. Print.
3-Ross, Michael. The Oil Curse: How Petroleum Wealth Shapes the Development of Nations. Princeton University Press, 2012.

Hogar Hadi Hassan is a student at AUIS, department of International Studies.

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