The Fuse

Author of “Blood Oil” on Petrodollars, Resource Rights, and Clean Trade

by Leslie Hayward | March 21, 2016

Leif Wenar is Chair of Philosophy and Law at King’s College London. He earned his degrees in Philosophy from Stanford and from Harvard, where he worked with John Rawls and Robert Nozick. He has been a Visiting Professor at Princeton and Stanford, and has been a Fellow of the Carnegie Council Program in Justice and the World Economy. Wenar took the time to speak to The Fuse about his important new book, Blood Oil, which explores how an antiquated system governing global natural resources enables tyranny and human rights abuses—and how the tools to move away from this system are easily within our reach.

Hayward: What are the top three things you want readers to get out of this book?

Wenar: The world is both more frightening and more hopeful than we usually think.

The first thing I want readers to get is that it’s frightening because there’s this old, bad rule in the global economy which forces us, as consumers, to send hundreds of billions of dollars to men overseas—who are not only oppressing and attacking their own people, but threatening us in return. Let’s look at what we see now in the Middle East. We see ISIS with their beheadings and atrocities, Assad barrel-bombing his people, and Putin joining in to cause a refugee crisis that is pressuring our European allies. A few months ago, we saw Putin going into Ukraine, before that it was Saddam and Ghaddhafi, and going back further, Iran spreading terrorism through the region. And if you’re as old as I am, you remember the Soviet Union surging ahead of us in the nuclear arms race.

All of this is the work of our money. All of those countries, that I’ve just mentioned, are oil countries and that’s our money paying for the missiles and the bombs and the guns, which not only cause so much trouble in these regions, but also washes back on to us.

All of those countries, that I’ve just mentioned, are oil countries and that’s our money paying for the missiles and the bombs and the guns, which not only cause so much trouble in these regions, but also washes back on to us.

The second thing I want people to think about is why this happens. Why do we send so much money to these men of violence overseas? It all comes from this old rule that we take entirely for granted, which essentially says that we will buy oil from whoever can control it by force. That rule has been around for a long time, but if you think about it, it makes no sense. If there’s an armed gang that takes over a gas station down the street, nobody thinks that we should give the armed gang the right to sell off the gasoline and keep all the money. But when Saddam took over Iraq in a coup, we started buying Iraq’s oil from him, and years later when ISIS took over those same wells, the world at first made it legal to buy Iraq’s oil from ISIS. This rule boils down to “might makes right”—because power over there leads to property rights here, and puts us into business with coercive actors abroad.

We’re in a tough spot. Everyone thinks that this is the way the world works, and lots of powerful actors are in favor of this rule. For example, Saudi Arabia’s regime is in favor of this rule because it sends that regime hundreds of billions a year. They use that money only to oppress their own people but also to spread this extremist doctrine around the world—by funding madrassas and study centers—which we now see mutating into jihadi violence, not only in the Middle East and Asia but also in Europe, and maybe even here at home. The rule is causing the rest of the world, and us, a lot of trouble.

The third thing is the optimistic one. The world is much more hopeful than I thought when I started this project ten years ago. At least on the level of ideas, the world has already converged on a better, modern rule for resource trade—the idea that a country belongs to its people, and they should have the right to determine what happens to the land and natural resources. Obviously, that’s an American political principle, our own country runs on it, and the world says that it believes in that principle, too.

Large majorities of individuals all throughout the world, including the Arab states and China, all say that they believe in popular sovereignty. This idea is declared in primary documents of international law, and 98 percent of the humans in the world already live in a country that has signed off on one of these treaties. We all talk the talk, but nobody has taken the steps to move from “might makes right” to this better rule, that we already believe in, which is that the resources belong to the people.

How does this fit with the ideology of resource nationalism that often underpins national oil companies? The idea is that government-owned companies extract the oil, redistribute the wealth in social spending, and in this way the natural resource wealth does belong to the people. However, many states with national oil companies are the worst examples of the resource curse.

The principle that the oil belongs to the people is a very general one—it just means that citizens have to have some way to hold their government accountable for decisions made over resources. Resource nationalism is one thing that people can decide to do, but here in the United States, we don’t do it that way. If there’s oil in the Gulf of Mexico, there’s an auction on the rights to extract it, and that money goes into the Treasury. This approach is totally compatible with the American idea that oil begins in the hands of the people and they can do whatever they want with it: Nationalize it, privatize it, keep it in the ground.

Oil is found in many countries, and in some it has been a blessing, and in others it has been a curse. The ones where it has been a blessing are the ones where the government was already accountable to the people when the resource money started coming in, such as the U.S., U.K., Norway, or Canada. But when strongmen or armed groups are in control when the oil or resource is found, they can use the money to buy the means to stay in power. Thus, accountability to the people at a very basic level is the key to lifting the resource curse.

Speaking of the resource curse, especially with oil, let’s pivot towards Professor Michael Ross at UCLA and his research. You point out that oil exporting countries are 50 percent more likely to be ruled by an authoritarian regime—an issue that Professor Ross has explored in great depth. You also cite him extensively in this book. Where does his work end and yours begin?

If I can recommend that people read one book in this field, it would be Ross’s The Oil Curse. It’s a one-stop shop with terrific social-scientific research showing that oil drives authoritarianism and civil war—and that oil is bad for financial transparency, accountability, and even women’s rights. His work is essential in defining and showing that there is a problem—I build on it by proposing a solution to that problem.

Oil is the largest source of absolute power in the world. Because we buy oil from whoever can control it coercively, it’s like there’s a giant funnel of money that goes to coercive actors with no conditions or terms.

Oil is the largest source of absolute power in the world.

In the past, how have we sought to contain this unaccountable power? We’ve tried to make an alliance with an authoritarian regime. How has that gone with Ghaddhafi, and Iran, and the Saudis? We’ve tried invading problematic countries. How did that go in Gulf War 1, Gulf War 2, Libya, etc.? We’ve tried sanctions: On Russia, Iran, Iraq, Syria, Sudan—how has that gone? The Director of the Central Intelligence Agency just testified before Congress, saying that the Middle East is the worst it’s been in 50 years, and made dire predictions that the region is facing unprecedented bloodshed. That’s how well it’s gone so far.

So, the power of oil goes unchecked in these regions, and the tools at our disposal to manage this problem are clumsy, expensive, and they have huge human costs. You can’t control oil from the outside—the only effective way to check the power of oil is through popular sovereignty.

So, for the United States, due to our oil dependence, we are drawn into dealing with regions and people that we wouldn’t otherwise have to deal with. And ironically, we’re often directly funding them through our petrodollars. Tell us about the Clean Trade Policy—a framework that you put forward in this book about how the international community can respond to this issue.

The main thing we have to do is taper off our imports of authoritarian oil, which is so much easier now than it was when I started this project 10 years ago. The West is producing so much more energy, that even as we transition to alternatives, we don’t need to buy authoritarian oil anymore, and we don’t need to send the authoritarians our money.

I spoke with Nick Butler, a former Vice President of BP who writes the energy column for the Financial Times, and I asked him how long it would take the U.S. and Europe to get entirely away from authoritarian oil. He said that North America could transition away from authoritarian oil in a matter of months. We don’t import that much of it anymore. It would be easy. Europe, of course, is much harder, because of its dependence on Russia. Butler thought it would take a number of years and tens of billions of dollars, but in the scale of what the U.S. spends on defense in the region, it’s not impossible money. The West can do this—the economics of switching away is not the hard part, it’s the politics.

Many describe the global oil market as a big bathtub, which you discuss in the book. All the oil flows into the stocks and everybody draws out of them—so while the oil market is composed of individual tankers and pipeline flows between countries, it is also a bathtub on a price level, and in terms of the fungible nature of the product. Knowing that, do you feel like we can ever fully divorce ourselves from the largest reserve holders, as long as we are dependent on oil?

We should start getting less dependent on oil, you and I are in full agreement on that. But even where we are today, we already have six out of the seven barrels we need in the West (and if places like Angola or Algeria would improve their governance, we would get closer). We don’t need to buy authoritarian oil anymore.

Of course, once we stop buying authoritarian oil, then it will come down to the big Asian importers if they want to continue. The idea of popular resource sovereignty might not have a big ideological pull in China—but imagine the day that China makes the calculation purely on national interest. The Chinese are finding out that governance in the countries where they get their resources is important not for ideological reasons, but simply for return on investment. They’re starting to worry about it for resource security.

Let’s talk about low oil prices. When we look at this problem, do you think low oil prices make matters better or worse? On one hand, there’s more desperation on the part of authoritarian leaders, but on the other hand the rents are lower. Low oil prices are also discouraging investment in some higher-cost oil reserves in Western countries.

Tom Friedman has a famous first law of petropolitics, “As the price of oil goes up, the pace of freedom goes down.” I think we’ve seen that in the past few years, before the oil price collapse: Putin and other petrocrats were so powerful because they had so much money. We can hope that Friedman’s law holds in reverse—that as the price of oil goes down the pace of freedom goes up.

Tom Friedman has a famous first law of petropolitics, “As the price of oil goes up, the pace of freedom goes down.”

Ten years ago, when I started this project and I said we should go Clean Trade, people thought it was impossible. It was all about peak oil at the time. And now, people think we will get away from authoritarian oil whether we make a deliberate shift or not. Also, the actors who would oppose a transition towards good governance are much weaker. Even the Saudis are feeling the pinch—they just took out $8 billion and they are talking about putting Aramco up for an IPO.

While writing this book, did you travel to many of the countries discussed, and can you share any personal experiences that influenced this work?

I’m a Harvard-trained philosopher. I spent most of my graduate years reading books. When I began to travel, I went to Nigeria as my first “oil-cursed” country. It was a real eye-opener to see how the system works (or doesn’t work), the extreme levels of corruption and oil funded violence in the Niger Delta. That was in 2010, when militancy in the Delta was strong. I saw the oil men only moving around in helicopters, most of the population living on $2 a day. I have a huge admiration and affection for the Nigerians that I know—like Americans, they are proud, commercial, and religious people.

At the time, I just went around asking everyone I met the same question. “Imagine that the United States would do the best possible thing for the people of Nigeria and you could snap your fingers and make it happen—what would it be?” And everybody, including the OPEC minister, the head of the central bank, the fixer for Shell, militants in the Delta, they all had the same answer: Travel bans.

As one of them explained, you want to change the incentives of those in power, but they don’t need development money… they are already rich. What will change their incentives over four years is not where they can send their money, but where they can go themselves. They want to take their girlfriend shopping at Harrods and buy a condo in St. John’s Wood, when they get sick they want to go to the Mayo Clinic, and they want to send their kids to Georgetown. If you ban them from travelling to the United States, the U.K. and the Schengen zone—them, their family, everyone in their clan if you can—you would really change the motivation. It’s a solution I never would have come to as a theorist.

As I travelled through different petrostates I realized that the fundamentals were always the same. The governments of oil states stay in power through divide-and-rule, and the two fundamental techniques of patronage and coercion. There were differences based on the amount of oil money and the number of people, and what the citizens had come to expect from their governments. For example, in the post-Soviet states there were higher expectations of patronage from the government. In Africa, without a post-communist system, there was more coercion. So the balance of patronage and coercion from the government changes, but many of the pathologies of oil states comes from the fact that the oil money is poured in at the top, and the government can use that money to stay in power through patronage and coercion. It never has to become accountable to the people.

On a final note—you mentioned earlier that you are more optimistic now than you were when you started the project. Give us some of the reasons for your optimism.

The good news is that we’ve abolished so many of those old practices that legitimized violence. We can do it one more time.

I’m optimistic because what’s at the heart of the current oil market is this philosophy of “might makes right,” which has existed for centuries. It looks like a huge part of the way the world works, and it seems insurmountable. But at the same time, we have overcome “might makes right” so many times before. It used to be the world’s rule for almost everything, not just resources, but also human beings. The world used to say, “Whoever could control a human being by force could sell them,” which legitimized the Atlantic slave trade. Three-hundred years ago, the world said that if a country captured territory from another, it could rule that territory. If one country could dominate the people of another country, it had the right to do so. Apartheid, ethnic cleansing and genocide were legal, too, because of the old rule of “might makes right.”

But look—all the things I just mentioned are now illegal. They’ve been replaced with new laws that require respect for individual human rights and the self-determination of people. Now, just because we have better international laws doesn’t mean we don’t have power structures, and power finds ways to break those laws. But at least we’re on the right side of history when it comes to slavery, colonialism, and genocide. We’re still on the wrong side of history when it comes to natural resources. The good news is that we’ve abolished so many of those old practices that legitimized violence. We can do it one more time.