Blog Article

Oil, patronage and corruption in the MENA region: the case of Saudi Arabia

By Ibrahim Gabr:

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Saudi Arabia is a country built on oil. By looking at the country through the theoretical lens of the resource curse, we can gain more insights into the relation between political patronage and this ‘resource curse.’ By examining a case study of patronage in Saudi Arabia, as well as the resource curse and the political patronage and corruption which are associated with it in the Kingdom, it is proposed that economic diversification represents one of the most critical policy avenues for this resource-dependent government. In the context of the Middle East and North Africa (MENA) region, the Kingdom has brought about the deep entrenchment of monarchical regimes that use patronage so as to secure the loyalty and quiescence of their domestic populations without making any legitimate efforts towards democratic reform.

On the basis of these realities, and in the context of the resource curse, a clear and negative causal relationship exists between a country’s degree of economic diversification and the amount of patronage which occurs in its society. Examining the regional level for a common denominator which serves to perpetuate patronage within the reason, the Organization of the Petroleum Exporting Countries (OPEC), as a centralizing force in the MENA region, is potent in allowing these regimes to perpetuate their unhealthy and undemocratic reliance on patronage as a pathway to regime stability. Thus, there is a certain extent to which the boom-bust cycle of the energy market, which is what lies at the crux of the resource curse, facilitates this type of patronage-based governance. On this basis, in spite of significant and publicly-disseminated promises of reform, the occurrence of an endogenous or exogenous shock in the international energy market could completely derail the Monarchy’s plans. With this, it would appear that patronage, in the context of the MENA region’s oil-producing states, is likely to continue well into the foreseeable future.

The nature of the resource curse and economic diversification as a solution

Many countries which have abundant mineral, gas and oil wealth have suffered from poor economic performance, and entrenched autocratic or dictatorial regimes. The notion of the curse is premised on poor policy because it is a corollary of states misusing the rents, which are accrued from their resource wealth and widespread corruption.[1] Much of this has to do with the fact that natural resources, in developing world contexts, are difficult to manage. As some of the countries’ governments do not have far-reaching administrative powers, they are often dependent on foreign oil companies, and have regime-based needs that are different from those of the population; they thus misuse their mineral and oil wealth and thus preclude the country’s economic or political development.[2]

In this context, the resource curse is thus a problem that tends to plague states that are newly beginning to produce oil or other mineral wealth, and absent optimal fiscal management, can continue to haunt them across decades of production. In other cases, like that of Saudi Arabia, a wealthy and long-standing oil-producing regime, the consequences of the Oil Curse have more saliently pertained to leading to the entrenchment of sub-optimal forms of governance, and to less effective production paradigms. Writ-large, the oil curse’s enduring reality is thus one of sub-optimal natural resource management which precludes both longitudinal economic development and governmental reform. In this context, economic diversification emerges as the key to eliminating patronage in these resource-driven contexts. Because patronage prevents democratization from emerging in these countries, the democratic corollaries of economic diversification are important in building a middle-class capable of pushing for democratic reform.[3] Contra-existing dynamics wherein these patronage-based regimes are capable of buying off important domestic stakeholders, because of wealth concentration, the pursuit of diversification allows for such a middle-class, educated in nature, to make a whole-hearted push for democratization, and the decline of patronage which is attendant to it.[4]

Saudi Arabia – high dependency/high patronage

The degree of political patronage and rent-seeking which exists in the country is perhaps one of the most significant in the MENA region. As noted by one regional commentator, the Saudi regime has completely obviated any shift towards economic reform, and has preferred to embrace policies which allow it to maintain a significant degree of control over the international oil market all the while engaging in significant patronage-based expenditures at home. Thus, because the Saudis do not have a legitimate program for the purposes of economic diversification, examining their case requires understanding how the country has sought to perpetuate its policy of regime stability through patronage by stabilizing its ability to meet expenditure needs in the contexts of an international energy market that still functions on the basis of a boom-bust logic.[5]

With this in mind, stabilizing expenditures has always been one of the most significant problems faced by oil-producing countries like Saudi Arabia. Due to the boom and bust nature of the oil economy, these countries require strong fiscal policies that are simultaneously responsive, responsible and transparent in nature. With this in mind, some of the best approaches to stabilizing these expenditures lie in creating sources of control, which are external to the state. Thus, one option is to use cash transfers to redistribute oil revenues throughout the population. In doing this, it then becomes possible to create a population that has a stake in the oil economy, and which is thus responsive in pressuring the government to stay responsible. In a similar regard, another option is to privatize domestic oil ownership, and thus create a structure in which the domestic private sector exerts similar fiscal pressure on government so as to create some aura of legitimacy for a government that would be otherwise nothing more than based on its ability to provide rents through patronage.[6]

These solutions are important because stabilization funds have simply not been efficient in precluding the oil curse or the economic suffering which occurs during bust portions of the boom-bust cycle. As all of these oil curse-related variables relate to improper fiscal management of the oil economy, stabilization programs are nothing more than a Band-Aid on a wound that is already infected. Given that some of these countries lack structures of governance needed for proper fiscal management, there is thus no way for their stabilization funds to be well-maintained or appropriately-managed. As such, these do not represent a reliable fix for either the problems of the oil curse or the boom-bust cycle.[7] Even where the potential for such structure exists, in wealthier contexts like Saudi Arabia, the insularity of the regime, combined with its ability to use patronage to buy off potential opponents, creates a context of insularity which detracts from the potential for reform.

In terms of the Saudi Arabian context, its stabilization is, to a very large extent, ensured by the volume of the oil which it exports, and its influential position in terms of international oil diplomacy. In truth, the Kingdom has done very little to diversify or stabilize its economy, especially when compared to a country like Qatar or the UAE. Instead, the Kingdom has relied on its sheer volumes, and the rents captured by the ruling family and dispersed throughout the population, so as to maintain stability in the contexts of downturns. With this, the Saudi strategy has always been to use volume and wealth for stabilization, rather than to embrace the type of domestic economic differentiation and diversification which might represent a solution or buffer vis-à-vis the shocks of the international energy market. Thus, it would appear that Saudi Arabia has not made a legitimate attempt to move away from the dependence on oil which lies at the heart of its patronage-based political system.

The perpetuation of patronage: the US as a facilitating institution

The relationships between the USA and KSA have themselves taken on characteristics analogous to those of client-patron relations. As MENA region oil powers like Saudi Arabia have such strong protectors, in this case in the form of the American hegemon, they do not necessarily face significant exogenous pressure for reform. Indeed, America and Saudi Arabia, as an example, are trapped in a dyad of mutual dependency wherein the Saudis can count on the Americans to protect them from regional or even domestic threats. Simultaneously, the Americans are guaranteed relatively open access to oil markets in periods of crisis inasmuch as they are aware that the Saudis can increase production so as to maintain price stability throughout the international system. Thus, this mutual dependency reinforces these MENA region states’ abilities to maintain regimes premised on patronage even in a context where economic diversification would represent a far superior long-term solution to the structural economic and political issues which they face.

 Conclusion

In the end, the case of Saudi Arabia demonstrates a clear causal relationship between significant energy reserves, the occurrence of the oil curse, low levels of economic diversification, and the perpetuation of political patronage and corruption. Tangibly, efforts which have been made to bring about diversification and thus endogenous economic growth across these countries have been modest. The likely reason for this continuing reality is that, even in the context of high state expenditures in a boom-bust market, the logic of patronage which underlies the stability of these oil-producing MENA-region regimes is one that is beneficial to their long-term political viability. Thus, absent an endogenous or exogenous shock, either in the form of an Arab Spring analog or a massive global energy disruption, the future of these states, as it pertains to the perpetuation of patronage, is likely very bleak indeed. While some states in the region have already taken anticipatory reforms to preclude the denouement of such revolutionary patterns in their own territories, such exogeneities remain a perpetual vulnerability, and thus dramatically shape the risk profile of the region.

 

Ibrahim Gabr is currently an honours undergraduate student in political science at McGill University in Canada.

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Notes

[1] M.L. Ross, ‘The political economy of the resource curse’, in World Politics, 51:2 (1999), pp. 297-322.
[2] M.L. Ross, The Oil Curse: How Petroleum Wealth Shapes the Development of Nations (Princeton, NJ: Princeton University Press, 2013).
[3] A. Gelb, Oil Windfalls: Blessing or curse? (Washington, DC: World Bank, 1988).
[4] Ibid.
[5] M. Al-Rasheed, A History of Saudi Arabia (New York, NY: Cambridge University Press, 2010).
[6] M.L. Ross, ‘Will oil drown the Arab Spring? Democracy and the resource curse’, in Foreign Affairs (September-October 2011).
[7] Ross, The Oil Curse.

Additional Sources

Alexeev, M. & R. Conrad, ‘The Elusive Curse of Oil’, in The Review of Economics and Statistics, 91:3 (2009), pp. 586-598.
Alhajji, A.F. & D. Huettner, ‘OPEC and Other Commodity Cartels: A Comparison’, in Energy Policy, 28 (2000), pp. 1151-1164.
Fasano, Ugo & Zubair Iqbal, GCC Countries: From Oil Dependence to Diversification (Washington, DC: International Monetary Fund, 2003).

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