06 April 2021
  • Oil
  • Resource curse
  • middle east
  • energy transition
  • Conflict

The Contradictory Influence of Low Oil Prices

A new report by the Institute of Security Studies discusses the dynamics of oil pricing and how it acts both as a driver and balm to conflict. Global discourse often points towards a positive reaction on revenues and economic safety for petrostates when oil prices increase, whilst the cost of living increases are felt acutely in historic oil-dependent regions such as Europe.

However, cheaper oil has a more nuanced and contradictory impact on petrostates. In particular, two competing theories collide to make conflict prediction even tougher:

1. "The Resource Curse" - A country's abundance of natural resources (particularly oil or natural gas) will raise the likelihood of conflict through motivations of 'greed' from the country's elite and unfulfilled grievances by the population, typically directed at the elites and the state. To read more about the impacts of the resource curse, see the latest PSI reporting HERE

2. "Rentier State Theory" - The presence of oil and natural gas has a positive impact on peace as regimes use the revenues to co-opt or suppress rebellious factions within a state

By using case studies in Iraq, South Sudan and Libya, the report highlights how the forces of the above theories clash and demonstrate that the likelihood of conflict is raised depending on the mechanisms the state has built around the natural resources and how dependent a country's economy is on said resources. Whilst contextual factors have to be taken into account, the impacts of the rentier theory are felt more in the short-term as it "disrupts the rentier state’s mechanisms of co-opting and coercing consent more swiftly". The natural resource curse typically has a more positive longer-term impact when oil prices are low given the long-term dissipation of the curse and the forced reduction in oil dependence.

This issue has increased in importance given the state of global oil pricing. What marks today differently from other price downturns is the fact that it did not follow a period of oil price hikes from a period of high demand. In 2020, the global oil market hovered around $30-40 USD/barrel, much of this was due to the collapse in demand and supply restriction from the COVID-19 pandemic. 2019 saw prices barely exceed a monthly average of $70 USD/barrel. Adding in the fact that the global movement towards renewable energy has picked up speed as countries take more and more seriously their climate pledges, low oil prices are likely to be the norm going forward. Thus, the best way to hedge against the perils of falling oil revenues is to reduce the dependence on oil revenues altogether and, most importantly, on the political structures that are built upon them. The experiences from the three analysed cases can be a vital experience for any petrostate looking to navigate this issue are. 


Read the full report HERE

Relevant topic: PSI policy brief "Natural Gas. The new ‘green’ resource curse?"



Photo credits: Zbynek Burival/Unsplash.com