Oil, Not Islam, Is At Fault in the Middle East

January 7, 2004

Oil, Not Islam, Is At Fault in the Middle East

Whenever we run into a brick wall in the Middle East, do not want to admit the reason behind a problem we have over there, or just do not know what to do, we blame it on Islam.

Whenever we run into a brick wall in the Middle East, do not want to admit the reason behind a problem we have over there, or just do not know what to do, we blame it on Islam. Most notably, the received wisdom in Washington is that the Islamic faith is incompatible with democracy and economic development. There is nothing to support such a divisive assertion. The reason is much simpler: human greed-Islamic, Christian, Judaic and Agnostic.

The vast pool of oil reserves and the oil revenues that accrue to governments in the Middle East are the key to understanding the region's dismal failures. Because oil revenues accrue to governments in the Middle East they should, in theory, facilitate many desired policies. Governments could ensure equitable benefits from oil depletion to all citizens and finance economic growth. Oil should, in theory, be a blessing, but sadly, in practice, it has been a curse. Why?

First and foremost, corruption is a great temptation in the Middle East. The size of oil deals is so enormous that a "tiny" percentage here and there is a fortune. Be it a small cut on a $ 5 billion investment to develop an oil field, a few cents' kickback on a multi-year 100,000 barrel/day of oil exports, the re-routing (i.e., disappearance) of a few thousand barrels/day to a partner in crime or a "generous" service contract to house foreign oil or engineering company workers, the dollar amounts are huge and one deal can be enough for many generations of any ruling family.  But, of course, such gains are never enough; indeed, corruption has thoroughly soaked the fabric of society. It is hard to imagine a single Middle Eastern oil-related contract that does not embody some sort of payback to a ruling family or to senior government officials. Corruption has become the norm in the oil industry and has invaded all other areas of business life. The oil exporters of the Middle East are drowning in a sea of corruption. It is difficult to imagine a decision adopted on the basis of economic efficiency or of what is good for society. Instead, most decisions are based on what will result in the biggest payback without the likelihood of a scandal. The end result is that the brightest and the best fight for a share of the corruption pie, as opposed to pursuing productive economic opportunities to increase national output to benefit themselves as well as society at large.

Second, given the high financial stakes inherent in oil-related corrupt practices, ruling families and autocratic governments have little incentive to adopt sound economic policies and democratic principles. Whereas without oil, they would have to promote economic growth and get a cut to support their lavish lifestyles, with oil there is little incentive for sound policies. They brutally hang on to power so as to continue to reap the financial benefits afforded by oil for themselves and for their cronies. In their quest to hold on to power, Middle Eastern dictators are supported by Western politicians, oil companies, oil service companies, engineering firms and other large multinationals, which stand to benefit financially.

Third, given that oil revenues accrue to Middle Eastern governments, the average citizen believes it is his or her right to get some direct benefit from oil. As a result, many Middle Eastern governments refrain from imposing taxes and rely on subsidies to appease their citizenry. Consumer subsidies for fuel, electricity, bread, sugar, etc. are the norm. Fuel subsidies have invariably become a birthright and may amount to 10-20% of GDP. The downside of these fuel subsidies is that they encourage fuel consumption, thereby increasing waste, reducing the amount of oil available for exports, degrading the environment and adversely affecting local health. In addition, subsidies divert resources away from productive investment, squeeze fragile government budgets and encourage government borrowing and excessive debt. But governments continue to "buy" citizens with crumbs while they rob the country blind.

Fourth, the quest to stay in power has shaped financial and economic policies. Military expenditures are high in order to crack down internally as well as to discourage an oil grab by neighbors. More cynically, military expenditures afford a lucrative channel for lining the pockets of rulers. The government assumes a large role in the areas of employment and of contribution to GDP so as to demonstrate its benevolence and to reward supporters. Optimal, or even efficient, economic policies have no place in the scheme of things. As a result, real per capita income in the Muslim Middle East is lower today than it was twenty-five years ago in 1979.

Instead of facing up to these facts, Washington prefers to blame the Islamic faith for the pervasiveness of autocratic governments, for widespread corruption and for continuing dismal economic performance in the Middle East. Rumor has it that Islam is incompatible with democracy, good governance and economic development. Yet the truth is much simpler and closer to home-human greed is its name. If in fact Middle Eastern rulers and senior government officials believed in Islam and thus in life after death (let alone in the paradise promised in the Koran), they would hardly dare to criminally mismanage their countries as they do. Ironically, Islam is quite clear on the subject of the proper exploitation of mineral deposits. All minerals belong to society as a whole (to current as well as future generations), because they were put on the earth by God, not by man. Thus, the benefits of mineral deposits are to be shared equally by all citizens. What the Middle East needs is better governments and rulers; whether or not they get them has nothing to do with Islam.


Hossein Askari is the Iran Professor of International Business and Professor of International Affairs at the George Washington University.