Center For Energy Researches

The political scientists who made research on oil and democratic development of states, such as M. Ross, D. Hoffman, and D. Heradsveit argue that oil hinders democracy in the countries whose main income derives from oil. According to Ross, though the rising income is the indication of more democratic system, the democratization effect will shrink or disappear if the income is received from oil (Ross, 2001, 325).

In the world, there are large numbers of oil-rich states which are mostly located in Middle East. When we speak about Middle East in this special paper, we refer to the oil-rich Arabic countries in Middle East and another non-Arabic country which is Iran. The controversial issue is that, for some other researchers, it is the only Middle East states, which are undemocratic in nature that oil is considered as major hindrance. However, Ross claims that Malaysia, Nigeria, Mexico, Indonesia and Central Asian states are not in Middle East, but are under non-democratic regimes as well (Ross, 2001, 325).The oil-rich states are not only non-democratic, but also they become more authoritarian, says Ross. In my opinion, the political regimes in these states are more resistant to fundamental governmental changes as the regimes of Kaddafi in Libya, H.Mubarek in Egypt, N. Nazarbayev in Kazakhstan and Aliyev’s family in Azerbaijan.

 

In this paper, the author will expand the claim of Ross that “oil impedes democracy” claim is not only about the Middle East countries, but also other oil-rich countries and Azerbaijan as well. The position of Azerbaijan in the correlation of oil and democracy will also be a discussion point. Furthermore, the effect of oil policy in state building will also be evaluated. In last part, the potential resource-curse problem (practically Dutch Disease) in Azerbaijan will be examined and also, some possible ways for escape from this potential crisis will be analyzed.

 

Azerbaijan faced several regional and international challenges (war over Nagorno-Karabakh with Armenia, Freedom Support Act of US which banned U.S. financial assistance), economic and political crisis and other unwanted problems since independence. Political and economic situation made the government of Azerbaijan develop its oil industry.  The oil was the major source of Azerbaijan to rely on and fastest way to attract foreign oil companies and investments. The improvement of oil industry would save the ailing economy, help to restore relations with foreign states and be a crucial point to have a prior position on Nagorno-Karabakh conflict with Armenia. As Hoffman argues there are three facts mandate Azerbaijan’s dependence on developing and expanding its oil industry: economic concern, geopolitical and geographic isolation, and Nagorno-Karabakh conflict. New independent Azerbaijan needed strong economy with the intention of being free from economic dependence on Russia (successor of the Soviet Union), in which the oil was the unique way to move forward. Regionally, Azerbaijan is surrounded by Russia, Iran and its enemy Armenia. Oil would definitely facilitate Azerbaijani government to act independently regarding internal and external policies. Finally, Nagorno-Karabakh conflict with Armenia urged Azerbaijan to enhance its oil-based economy with the purpose of getting large amount of money that could be flowed for only from oil sector (Hoffman, 1999, 7-11). For me, Azerbaijan did not have other more rational and available options that it attempted to expand its oil sector-“oil has been the only viable, export-capable economic lever independent Azerbaijan has ever known”-tells Hoffman- which could give money in a short period of time. Yet the money coming from oil did not create possibilities for the development of democracy in the country. The “rent-seeking” (Ross) actions of the bureaucrats within the Azerbaijani government increases corruption that is an unacceptable term in any democratic state system. There still exist some impediments over the fundamental freedoms and human rights violations are noticed especially during the presidential and parliamentary elections. Heradsveit argues that the oil industry of Azerbaijan has no effect on work for human rights and policies of oil industry are a downright hindrance to work for democracy and human rights. He emphasizes that oil industry prefers dictatorship to democracy (Heradsveit, 2001).

        Azerbaijan can be included to the “rentier state” concept of Ross used for analysis of oil and democracy which means that resource rich countries use low tax rates and patronage to relieve pressures for greater accountability (Ross, 2001, 327-335).  Azerbaijan is a rentier state that oil wealth makes the state less democratic. As a rentier state group –formation effect (Ross)  is the prior policy in Azerbaijani government-in the ruling elite  which means blocking of formation of social groups free from the state control to obstruct their ways to demand political rights. There is a “patronage” (Hoffman) system within the government with the intention of gaining high position within the ruling elite in Azerbaijan which impedes the development of formal state institutions that are conceived as the main signs of democracy in the Western countries.

       Another point of discussion in my paper is; the affection of oil based economy on the formation of political institutions. For me, the oil industry and the rule of elite negatively affected the formation of strong political institutions and state building in Azerbaijan. According to Hoffman, the country’s political structure and oil sector are intimately linked (Hoffman, 1999, 12). Hoffman argues that top-level strategic decisions affecting the direction of Azerbaijani hydrocarbon development are made by and transmitted through the informal network rather than through formal state institutions (Hoffman, 2003, 13). Actually, there is a strong informal relation within the Azerbaijani government that underestimates the role of formal state institutions. For Collins and Guseynov, the formal institutions are simply a façade and in all Central Asian countries and Azerbaijan, exist informal, personality and clan regimes (Farid Guliyev, 2005, 401). In addition, Hoffman claims that there are much more informal relations between SOCAR and executive power which former makes contracts with foreign oil companies. He emphasizes that the founder of the current regime H. Aliyev could consolidate his position through the skillful manipulation of the state institutions and formal political structures in a process that has fundamentally undermined the process of state building (Hoffman, 1999, 12-13). According to Bremer, oil, as history shows, can be a mixed blessing for this state and for other Central Asian states by creating seemingly boundless wealth while also promoting the formation of top-heavy, overly bureaucratized states that appear strong, but are in fact  quite brittle (Bremer, 2003, 34). So, weak state institutions make great opportunity for ruling elite to control the energy sector. The main interest of the ruling elite is to get more benefit at the expense of the welfare of population. Hoffman points out two nominally independent worlds –state politics and oil industry, which is a reflection of common logic of weak institutionalization and centralization of control. Those are also in interaction with each other in a way that shape both, in which the business in oil industry and the course of the state building are formed (Hoffman, 1999, 12-21). State building policy and oil politics are realized parallel (controlling of this field) by the ruling elite because possessing more money means keeping more support of bureaucrats, which strengthens its authority. Thus, weak political institutions, strong ruling elite and its monopoly over the oil industry in order to absorb all the inflow coming from oil impedes the democracy and development of political  culture in Azerbaijan.

        The increasing oil contracts with foreign oil companies since the “deal of century” turned Azerbaijan become a “petro-state”. The rising of oil prices increased the importance of Azerbaijan in world oil market. Actually, major oil consumers try to use Azerbaijani oil as a main substitution to other oil-exporting countries. For example, E.U wants to use Azerbaijani oil when there is a shortage in the supply of oil by Russia or the latter tries to increase the prices as a political leverage. The US has also such kind of policy, yet it attempts to use it as substitution or in decreasing its dependence on oil-wealth Arabic countries. Thus, competition with other oil exporting states and the need for investment for high amount of money make Azerbaijani government become a petro-state. The scarcity of other mineral or any kind of resources make Azerbaijani state continue on developing the oil field which was one of the reasons why Azerbaijan tried to develop this sector in early 1990s. While becoming a petro-state Azerbaijan could be faced some problems like resource-curse problem (practically “Dutch disease”).Its current issue is that the price changes in oil affect the economy of Azerbaijan negatively.

 

According to Ross, there is a growing body of evidence that resource wealth may harm a country’s prospects for development (Ross, 2001, 328). In above, we could see the reasons that why oil hinders the development of any state, in the case of Azerbaijan, as an oil-rich state. Hoffman even argues that there are some early evidences of Dutch disease in Azerbaijan such as the strong dependence on a single natural resource, an evaporating industrial and agricultural   base, the preponderance of state ownership in the economy, the concentration of political power on a single individual and other preconditions (Hoffman, 1999, 24). However, it is possible to escape from the resource-curse problem in Azerbaijan as it was done by Malaysia, Chile and Botswana, as Ross says in his article.

       There are some possible ways to save the economy from Dutch disease so, decreasing corruption, developing other fields of economy both industrial and agricultural, accelerating socialization of people, increasing the level of education, most importantly decreasing the influential role of ruling elite on oil industry. All these ideas are the signs of democracy, so is it possible to display clear ways to escape from the Dutch disease if there is no democracy and development of it because of the ingrained situation of the ruling elite to the oil industry that impedes democratic rule and economic development!? So, in my opinion it is the ruling elite and its policy that is the cause of underdevelopment in any way, we understand so that oil impedes democracy. Actually, oil is the track or tool for ruling elite to stay in power and keep stability in Azerbaijan in any case that is the most important for it. Creating monopoly over the oil industry by using some informal ways such as kinship relations, clan politics, patronage system and corruption and other ways prove non-existence of formal political institutions in reality in Azerbaijan.

       Studies on whether oil hinders democracy shows that oil-rich states have less democratic trends rather than poor states. Ross argues that not only Middle East, but also other oil-wealth states such as Mexico, Malaysia, Indonesia, Nigeria and Central Asian states. Azerbaijan can also be included to that list because of the claim is valid in the case of Azerbaijan as well.

 

Reference:

 

---Ross, Michael, “Does Oil Hiders Democracy”? World Politics 53(April 2001), pp 325-361

---Heradsveit, Daniel. “Local Elites Meet Foreign Corporations” The Examples of Iran and Azerbaijan, no. 32, juillet-decembre 2001

---Hoffman, David. “Oil and Development in Post-Soviet Azerbaijan,” NBR Analyisis, vol. 10, no. 3 (August 1999), pp 5-28

---Guliyev, Farid. “Post-Soviet Azerbaijan: Transition to Sultanistic Semiautoritarianism? An Attempt At Conceptualization.” Demokratizatsiya: The Journal Of Post-Soviet Demokratization, vol. 13, no. 3(Summer 2005): 393-435.

---Bremmer, Ian. “Nation and State Building in Eurasia,” Georgetown Journal of International Affairs, (Winter/Spring 2003): 29-37

 

 

Jeyhun Veliyev

Student of International Relations

Qafqaz University