The Geopolitics of FDI: Can Weak States Deter Hegemons Using Foreign Investment?
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Weak states have two well-known strategies for securing themselves from hegemonic countries, according to the international relations literature. The first is the “balancing” strategy of aligning with others against the threatening state. If balancing is unavailable, weak states turn to “bandwagoning,” or aligning with and conceding some level of influence to the threatening power. There are variations of these two overarching strategies. One variation of balancing that appears little explored is the deliberate use by weak states of foreign direct investment to balance against a regional hegemon, an indirect path to an improved security environment.
Scholarly examinations into the nexus of foreign direct investment (FDI) and US security involvement in host countries tend to take two directions. One portrays US military support for American corporations overseas as a form of subsidy (See Gaffney 2018). The other examines conditions when security factors in host countries either enable or prevent foreign investment (Such as Li and Vaschilko 2010).
This paper investigates a different path. It explores the phenomenon of host country governments leveraging American FDI – and the inferred or demonstrable enhancement of US strategic interest – to militarily balance against a regional hegemon. The two cases examined here appear to depict host countries seeking security through investment, rather than leveraging security ties to attract investors.
The first case involves Qatar, a tiny Persian Gulf monarchy which sought to balance against a dominant neighbor, Saudi Arabia. Qatar’s success in securing Mobil’s investment in liquefied natural gas exports conferred a sense of US backing and even hard security provision for Qatar that reduced risk perceptions of other foreign investors. Mobil’s presence helped create conditions that opened the way for many other foreign firms to invest, resulting in a very successful LNG export sector. In the process, Qatar was able to assert its autonomy and shake off Saudi domination.
A similar phenomenon appears to be unfolding in Guyana, a small state that seeks to protect itself from territorial claims of a much larger neighbor, Venezuela. Guyana secured the participation of ExxonMobil in exploring for and producing its offshore oil and gas resources. Exxon’s presence infers an indirect US interest in Guyana’s territorial integrity and may even increase the likelihood of US hard security provision in the event that Venezuela sought to pursue its claims by physical means. In fact, the Guyanese government has acknowledged that intangible security benefits led it to choose Exxon over rival companies, despite having to accept contractual terms from Exxon that were less favorable than those that might otherwise have been achieved. As in Qatar, the “anchor” investment by a US major in a country exhibiting significant security risk factors appears to be encouraging participation by other foreign investors.