Oil is so valuable that humankind fought for it and it caused many wars, as well as in modern times it has become one of the main factors that play role in our lives providing a comfort in transportation  and with its byproducts like plastic it is hard to think a life without oil. On the other hand, this matter has some side effects like global warming and in political sense it is claimed that in the absence of well developed institutional basis it paves the way for authoritarian regimes.

Michael Ross[1] making an analytical study, concludes in his article “Does Oil Hinders Democracy” with four findings,

i.                     Oil does hurt democracy

ii.                    Its harmful influence is not restricted only in the Middle East, but also in Africa, Latin America and it may well have the same effect on the oil rich countries of Central Asia.

iii.                  Not only oil but also wealth based on other minerals negatively affects a process of democratization in a country.

iv.                  Oil causes a rentier effect in a country.

Even though it was oil in the centre of the debate, it has become hydrocarbons, thanks to extended area of utilization of natural gas. It has become one of the main resources for electricity production as well as heating, especially for about two decades. Unlike oil, utilization of natural gas needs to pass several processes to be shipped or stored. Thus, it has a comparatively limited area than oil. However, thanks to recent developments like LNG, natural gas has become one of the most important energy components in countries’ energy policy formulations. Moreover, extension of pipeline networks makes it easier to transfer natural gas from producers to consumers. While oil is being called as the black gold, it seems that natural gas has become the blue gold of this decade. As a result, it is not oil rich countries, but also countries with vast natural gas resources have become important countries in geostrategic terms. Thus, it is hard to ignore the repercussions of hydrocarbons on these countries.

The Caspian region represents a good area of research for these debates about impacts of hydrocarbons on countries in political, economic and sociological terms. As known, there are five littoral states around Caspian Sea and four of these have appeared in world politics only seventeen years ago. On the other hand, Iran, being a Middle Eastern country has been in the centre of the rentier state debate for more than three decades. Below you may find a detailed discussion of hydrocarbons and its impacts on Caspian States, but this study is just an exercise that would represent a basis for a more detailed study in the future.

Iran

As stated before rentier state concept is not something new in the literature and was used by Hossein Mahdavy[2] for Pahlavi’s Iran and then it has become one of the popular instruments to be able to explain and understand the political and economic structure of other oil producer countries in the world.

Iran is a special country located in geography that has transitory characteristics and so affected by many civilizations in the history. Main civilizations or cultures affected Iran can be ordered as Islam, Hellenistic culture, Russians, Persian Empire and of course the West especially in the 20^th century.

Having a rich historical and cultural background, Iran is one of the pivotal states as well as regional powers as Brzezinski[3] defines it. It has vast energy resources in terms of oil and natural gas and comes the second with its reserves. According to BP Statistical Review Data, it has 15.5% of natural gas and 11.4% of oil reserves in the world. In terms of oil and gas production, it produces 5.4% and 3.7% of the world’s whole supply respectively.

For oil production, the peak[4] was reached in 1974, which is not a surprise when the environment of oil crisis in 1973 is taken into account. The main problem of Iran’s energy sector is its outdated technology. In this framework, the US embargo on Iran has an important role, which limits the investment of energy companies to this country. However, Iran tries to break this blockade via following a proactive foreign policy lately. As known, it has made agreements or signed Memorandum of understandings with several countries. Main projects are the ones with Austrian firm OMV and Turkey. In the framework of MoU with Turkey, both countries agreed on cooperation to develop three phases in south Pars as well selling extracted gas to the EU via Turkey. Negotiations continue between Iran and Turkey almost for about one year on this topic. While it has a reciprocal relation with China, Iran’s efforts to develop its relations with India and Pakistan fail to succeed due to several reasons.

As known Iran, Pakistan and India agreed to construct built up this 2600 km length pipeline –the Peace Pipeline-, which would carry 150 million cubic meters of gas per day.[5]. However, Iran’s capability to supply gas to these countries, the US pressure and parties lack of will on this project are the main questions about it. As known, Iran failed to send natural gas to Turkey both in the winters of 2007 and 2008. Its underdeveloped infrastructure fails to feed both domestic demand of Iran and its commitments to third parties. In fact, it imports gas from Turkmenistan to feed the demand of northern part of the country, but this year Turkmenistan stopped pumping gas to Iran due to several disagreements.[6] This development put Iran into a difficult position this year.

In terms of domestic repercussions, hydrocarbon resources have a great importance for the country. During Shah Regime as stated earlier Iran criticized of being a rentier state. It is hard to say this has changed in post 1979 period. Oil has a share of 79.5% in average in country’s exports in between the years 1997 and 2002.[7] In 2007, this number is estimated as 74.2%.[8]

Country cannot be defined as a liberal economy. The State is dominant and controlling economic means, but there are some initiatives to liberalize the economy. Especially, it has begun to ease the limitations on foreign direct investment. For instance Turkish company Gubretas bought Razi Petrochemical Company this year for €462, 465 million.[9]  I believe that economic liberalization can foster the democratization process in the country by allowing economic resources to be allocated in a relatively equal manner. However, state dominance is a similar symptom in resource rich countries, especially in the Middle East. Country experts indicate that Iran also subsidizes economy, especially agricultural sector as well as energy consumption in the country. In fact, similar to initiatives of economic liberalization, Iran deliberately rearranges these subsidized prices to decrease the burden on government budget.[10] In fact, subsidies have two dimensional effects on Iran. The financial burden on the budget and also due to subsidized prices necessary capital to modernize the infrastructure of energy sector cannot be generated. In addition to domestic capital deficit in the country, embargo on Iran also prevents foreign investment to enter in the country. Thanks to energy revenues, Iran can survive this situation and regime in Iran can resist pressures.

As can be seen from the analysis above, which surely could have been done in a more detailed manner, hydrocarbon resources have economic and political repercussions in the country in domestic and international scale.

However, it is hard to say that Iran is located in a peaceful geography. Political instability, in Iran’s neighbors, i.e. Afghanistan, Pakistan and Iraq, and international embargos on the country hinders its potential. Lastly, the crisis emerging due to its nuclear activities are the other side of the medal.

In economic sense, it draws a positive profile with its average growth rate of 5.7% between the years 2003-2007, but the inflation rate for the next five years 21.56% in average shows the main tendency of negative image of world economy.[11]  In a general sense, oil producer countries experienced a growing trend in the last five years, but continuously increasing price of oil caused capital accumulation and increasing consumption. When these factors get together with problems in governing economy and failing to implement policies to be able to canalize this capital to investments, they cause increasing inflation in these states. The most terrifying part of the story is the global economic turmoil that can cause bigger problems and it is hard to imagine it is repercussions in oil rich countries when all these concerns become real.