So what happens when Petrostates no longer can rely on oil profits to fund themselves?
Here’s the fun part: Some OPEC nations in the Middle East, having already dipped heavily into their sovereign wealth funds to plug budget holes, are now starting to borrow against future oil revenues:
Some Middle Eastern oil producers are considering taking money upfront against future production, as the fall in the price of crude pushes them to look at new ways to plug budget holes.
In this type of pre-export finance, companies or countries pledge revenues from future sales to banks and trade houses that lend money to them.
So here’s an interesting question. What happens to those nations (like Venezuela) who are surviving as nations only because they have oil to export? What happens to OPEC and to the Middle East when they have to switch their economy to a mixed-economy with a diverse mix of economic activities?
Many Petrostates (like Saudi Arabia) have suffered a lot of cultural deterioration; with the oceans of petro-money flowing into that nation, the culture there could drift away from those cultural elements which encourage self-sufficiency, entrepreneurialship and economic dynamism. The fact that women are discouraged from engaging in certain activities in many middle-east countries (and in some, relegated to second-class citizenship) can only happen in areas of the world supported by the crutch of an excess of petrodollars, or in areas of the world where its leaders have no economic ambitions.
So what happens when oil becomes so plentiful that the petrostates have no money to spend?
Aligning with Russia is not an answer. Russia is itself a petrostate; the majority of its economy is supported by energy sales, and much of Russia’s influence on Europe comes from Russia cutting energy deals with Europe. Aligning with China is not an answer: China is facing its own problems, as (interestingly enough) the high price of U.S. real estate in larger cities demonstrates. (In those areas, the real estate market is being flooded with Chinese money, from wealthy Chinese citizens looking for a safe haven to park their wealth. China faces a number of problems, from increased automation destroying jobs which was helping China convert an agrarian country to a middle-class consumer country, to an oversupply of local real estate and over-spending on infrastructure projects which are not supported by China’s current population.)
Aligning with the United States is not really an answer, either; while the United States may be one of the most generous countries in terms of foreign aid (both public and private), the United States also tends to value self-sufficiency–and in the face of all the apparent wealth in places like Dubai, the United States would be loathe to supply aid to the poor of those countries who display an excess of wealth.
So what’s going to happen?
Beats the hell out of me. But things will be very interesting for the next two decades.
Ideally a lot of cultural assumptions will need to be changed in places who used to pretend things were fine under the flush of petrocash. Places like Norway, held up by the Left as the ideal example of a Democratic-Socialist state with a very generous welfare state–generousness funded by Norway’s petroleum exporting industries–now find themselves in financial trouble.
But as we see in Venezuela, where people are starving to death, but the country seems positioned to continue to punish any sort of entrepreneurialship which may help Venezuela stop being a massive Latin American basket case–culture is hard to change.
My fear? The Twenty-First Century will be one of massive warfare as states go to war to capture resources in neighboring states they desperately need, as those nations are unwilling to change within and allow their own citizenship to cut their own way through the world.
Because to national leaders, who see the population as an abstraction, warfare (which kills lots of the population for the chance of glory) is preferable to the English-speaking world’s solution: to become a nation of shopkeepers, a phrase used amongst many of the French elite (and later Germans who developed their ideas in France, such as Karl Marx) as a derogatory term for the petit bourgeoisie who people like Marx deplored.