When the long-heralded transition from fossil fuels finally begins to bite, fragile fossil fuel producing states will face a revenue squeeze. In fact, they will likely be the first countries to do so, because they are less rich and less stable, and so less likely to meet the climate-related conditions laid down by international financial institutions for investing in oil and gas.
Nearly one-third of the world’s oil reserves are in countries which are classified by the World Bank as experiencing conflict or fragility – what we call fragile fossil fuel producers (FFFPs). Around one-fifth of these reserves are in Venezuela alone. These countries don’t plan for decarbonization because the elites know it spells crisis. So the decarbonization is traumatic – unplanned and a cause for political trauma.
In two essays just published, we have presented the results of our research into this phenomenon, drawing on case studies of Ecuador, Indonesia, Iraq, Nigeria, South Sudan, Sudan and Venezuela, as well as a quantitative study of the relationship between oil revenues and peace agreements, and a literature review.
In ‘Fragile Petrostates and the Green Transition’, published in the India Forum, Aditya Sarkar and Alex de Waal describe how oil revenues play a role in FFFPs, that is somewhat different from its function in wealthy petro-states:
Oil funds elite transactional politics. In many fragile fossil fuel producers, politics is based on personal transactions where political loyalties and services are sold to the highest bidder in a competitive manner. Politics is based on constant elite bargaining rather than the rule of law. Access to discretionary sources of money in these countries allows politicians to purchase or rent the loyalty of other elites, armed militia, vigilantes, and security operatives. Oil rents are an excellent source for this type of ‘political finance’ because they are highly centralised, plentiful, and easily diverted.
Oil can fund a large military security apparatus to both effectively repress dissent within a state, and to negate external threats.
[And] oil rents fund peace agreements, which are, in effect, elite payouts. This was the case in Sudan and South Sudan, discussed below, but also in both Papua and Aceh, in Indonesia. In general, during periods of high oil prices, when there is a lot of money to go around, there is a greater incentive for leaders to establish a more inclusive political bargain. When oil prices fall, however, these peace agreements and the elite bargains underpinning them tend to crack.
In ‘Traumatic Decarbonization in Fragile States,’ a special report published by the US Institute of Peace, by Aditya Sarkar, Benjamin Spatz, Alex de Waal, Jared Miller and Tarun Gopalakrishnan, we reach a sobering conclusion:
The research shows that decarbonization reshapes these states’ political economies, creating winners and losers and reconfiguring elite political incentives along the way. But tellingly, even as the specifics vary (different dominant elite players, available sources of income, and formal regime types), the underlying character of these systems does not. They remain elite-dominated, transactional, rent-seeking, and often violent systems, and—regardless of ideological leaning or formal regime type—the logic of power in them is remarkably resilient.
Far-reaching implications follow for the prospects of these countries and their citizens. The case studies show that when faced with a cash crunch, leaders fell back on tried-and-true strategies: they sought replacement sources of political finance, typically through rent seeking, corruption, and exploitation, and also resorted to repression. Populations suffered. Patterns of peacemaking, too, shifted on the basis of availability of discretionary oil rents. Increased oil revenue made possible more inclusive and robust peacemaking processes, whereas austerity made such processes unviable. None of the countries discussed transitioned toward a productive, development-focused economy or a democratic system—a sobering finding for those aspiring to link an energy transition with a broader sociopolitical transition. Even when populations responded to increased repression and rent seeking with demands for democracy and accountability through protests and civic engagement, any short-term gains they made were easily reversed.
The energy transition is the world economy’s single biggest challenge. In our view, it just got harder.
