Many observers are puzzled by Russian President Vladimir Putin’s belligerent stance on Ukraine and his disdain for Western diplomatic overtures. His intransigence has been attributed to his roots in the Cold War, domestic political incentives or even Russia’s enigmatic culture. But there is another factor that may contribute: oil. Indeed, we found that when countries become richer in oil and natural gas, they grow less inclined to cooperate with other states.
Russia is the world’s third-largest oil producer and second-largest natural gas producer; in 2012, petroleum made up 70 percent of its exports and 50 percent of the government’s revenues. There is ample anecdotal evidence that Russia’s oil wealth makes other countries, especially in Europe, less motivated to implement strong sanctions. Most countries need large, uninterrupted imported flows of petroleum to keep their economies afloat; this gives oil exporters easy access to foreign markets. Even if European governments wean themselves off of Russian natural gas, other countries – particularly China – will be happy to buy the extra supplies. And like many large oil exporters, Russia manages to attract foreign investment in its oil and gas industry, no matter how badly it treats them.
If a government anticipates that it can sell its main export irrespective of its foreign policy behavior, then abiding by bothersome international norms and institutions becomes less of a priority. A large fraction of the world’s rogue regimes – Iran, Venezuela, Sudan, Libya (under Qaddafi) and Iraq (under Saddam) – are financed by oil wealth.
Curious about this pattern, we studied the relationship between a country’s petroleum exports and its inclination to cooperate with other countries. To measure cooperation we looked at a wide range of indicators –including the number of treaties that a country signs, the number of international organizations it joins and its willingness to abide by decisions made by international courts.
The graph below shows the correlation in 2005 between per capita oil income and one of these indicators for cooperation: the KOF Index of political globalization, which represents the number of international organizations that countries have joined, the international treaties they have signed, the number of peacekeepers it contributes (per capita), and the number of embassies against the oil revenues per capita.
We find that beyond a certain level of oil income (around $100 per capita) more oil wealth is correlated with sharply lower levels of political globalization. Strikingly, this pattern shows up when we compare oil-rich states to oil-poor states, and when we look at individual states over time, as their oil production rises and falls. The findings also hold when we control for possibly confounding factors, such as democracy, economic development, and regional effects. We find very similar effects when we use other indicators to measure the degree to which states are integrated into and cooperate with international institutions.
What makes this finding so troubling is that many oil-rich states are influential and very well integrated with the rest of the world along social and economic dimensions. For most countries, economic and social globalization is closely linked to political globalization. As states become more economically globalized – meaning dependent on international trade, finance, and labor migration – they gain a greater incentive to become “politically globalized,” by joining and cooperating in intergovernmental organizations and treaty regimes that harmonize regulations, stabilize relationships, and foster multilateral cooperation. Conversely, political globalization leads to greater economic globalization: When countries participate in international institutions, it helps them attract foreign investors and trade partners by assuring them that they will abide by international standards, rules and norms.
We found that this did not apply to oil-rich states. The figure below sums up the evidence from a panel analysis of data between 1970 and 2010. On average, oil-poor countries that become more globalized on economic and social dimensions have commensurate increases in their levels of political globalization. This is on average not true for oil-rich states (states with at least $100 per capita in oil income). (Full details are in the paper).
We call this phenomenon the unbalanced globalization of oil-rich states. It matters because it leaves the world with a set of countries on which most others countries are highly dependent but who are not well integrated into the world’s political and legal institutional infrastructure.
This underscores the complex dilemma that Obama faces in imposing costs on Russia. How can you penalize a government that sits on top of such extraordinary wealth – and can prosper while thumbing its nose at international institutions?