Global Investing

What chances true democracy in oil-rich Iran?

March 2, 2012

Truly, oil can be a curse. Having it may enrich a country (more likely its rulers) but it does not seem condusive to democracy. And the more oil a country produces, the less likely it is to make the transition to democracy, according to research from investment bank Renaisssance Capital.

So as Iran goes to the polls today, what are the chances it will become a democracy? (Iran itself could argue, reasonably enough, that it is the most democratic country in the region — everyone over the age of 18, including women, are allowed to vote, though the choice of candidates is restricted)

Surprisingly, the Renaissance report’s author Charles Robertson concludes, Iran does have a chance to achieve democracy, though probably not this year. He says no oil exporting country that produces more than 150,000 barrels per day of oil per million of population has ever achieved a transition to democracy (note Norway was already a democracy before it found oil). But others which produce less oil have done so, notably Algeria, Gabon, Congo Indonesia, Nigeria and Ecuador (Some of these democracies are clearly flawed). Robertson writes:

This suggests that the Gulf states, Equatorial Guinea, and Brunei willl not change their political systems until their energy wealth dries up. ..Yet Iran’s net exports are 32,000 bpd per million people. This is insufficient to immunise it from democratisation pressures.

If Iran was not blessed with oil however, its per capita income of over $10,000 means it would probably have been a democracy. (Though it is equally possible that without the oil it may not have that wealth) Robertson’s “democratisation database” tells him an autocracy with per capital incomes of $6000 to $10,000 has a  6.4 percent chance of a transition to democracy. If incomes are shrinking the odds rise to 15.5 percent.

“So revolution is clearly not a base case scenario for this year but a plausible risk.”

On the positive side, these income levels generally portend peaceful political change rather than violent upheaval, he says, citing the example of Taiwan and Czechoslovakia which moved to democracy in 1992, as well as transitions in Spain and Greece in the 1970s.  But more is at stake in Iran — because of its oil. If a revolution awaits Iran, let us hope it is a peaceful one — the last one in 1979 triggered a huge oil shock that propelled the world into recession.

Lest we forget, another oil power, Russia, holds a presidential election this weekend and Vladmir Putin who has ruled the country for 12 years looks set to seal another 6-year term in the Kremlin. Despite decidedly autocratic features, Russia too is a democracy of sorts, having made the transition in 1991. Robertson’s database shows Russian oil exports at 50,000 bps per million people — like Iran, it is well below his “democratisation” threshold.

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