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In the oil exporting countries of the Middle East, four recent developments challenge the conventional academic theories that model the region’s governance parameters.1
First, at least nine Middle Eastern governments have partially retracted energy subsidies that provided citizens with cheap fuel, electricity, and desalinated water.2
Second, Saudi Arabia, the United Arab Emirates (UAE), and Bahrain imposed a 5% value-added tax (VAT) on goods and services, including energy and food. Other countries, including the three remaining Gulf monarchies as well as Egypt, Algeria, and Iran, have levied VATs or announced plans to do so. For autocratic regimes that fund their national budgets with oil and gas export rents, the imposition of taxes and retraction of subsidies run counter to social contract stipulations enshrined in the rentier literature.
A third development also confronts theoretical conventions about linkages between rent and Middle Eastern autocracy. It turns out that rentier theory’s claim about oil’s influence on politics also works in reverse. Yes, oil rents probably do increase the durability of autocratic regimes, but autocratic governance (at least in oil-exporting Middle Eastern countries) also appears to increase demand for oil. That is because regimes stay in power not just by distributing oil rents, but also by distributing oil itself, a practice that stimulates demand. The Middle East’s oil-exporting states tend to be both autocratic and oil-intense, a notion that has largely been ignored in the literature (Figure 3 and Table 1).
The fourth development is that the growing burden of domestic demand for oil and gas has begun to threaten the core rentier structure. High rates of energy demand growth are eventually incompatible with steady exports. It now appears that a common manifestation of rentier social policy, energy subsidies, risks undermining the rentier economic structure—the rent lifeline that funds the state.3
These four developments are interconnected. Recent tax increases and subsidy reforms address the energy intensity incubated by subsidies. The state’s policy prescriptions aim to reduce domestic consumption and preserve exports. These activities would not seem remarkable in a participatory governance setting where economic and social policymaking sometimes require corrective retrenchment. But in the rentier Middle East, they run contrary to four decades of scholarship.4
Academics have long held that the oil kingdoms of the Middle East are subject to a strict set of governance conditions. Rulers cultivate support from their citizens by providing them with welfare benefits and subsidies, funded through export rents. These rents were sufficient to eliminate taxes and other forms of extraction, thus allowing regimes to avoid accountability links with taxpayers. Energy subsidies have been described by scholars as “rights of citizenship,” provided by regimes in exchange for public acquiescence to autocratic rule.5 The no-tax, no-vote social pact was supposed to be sacrosanct. Were the state to break its side of the bargain, the entire pact was liable to unravel.6
These tenets proved robust during the 1986-2004 oil bust period, when oil rents were strangled by a 20-year glut in global supply. Despite intense fiscal privations that squeezed rentier distribution, none of the six Gulf monarchies raised energy prices or re-imposed taxation that had been phased out during the boom period.7
Initial signs that longstanding subsidy policy and theoretical tenets were weakening came in 2010 when Iran launched a major increase in energy prices. Dubai followed with a more modest reform in 2011.8 Increases elsewhere, delayed by pan-Arab uprisings, began to unfold in 2014 (Figure 1).
Price increases were greeted by an uproar in social media. In Saudi Arabia, commentary ranged from outright support to vehement opposition, including personal attacks on ministers, technocrats, and even royal family members. Cautious Saudi opponents of the reform began tweeting pictures of King Abdullah unaccompanied by text. The portraits evoked the late ruler’s patronage of the poor as commentary on his successor’s turn toward extraction. Physical protests broke out in populous oil and gas exporting states, including Iran and Algeria, as well as in Oman, where citizens picketed the Ministry of Oil and Gas after gasoline price increases.
The outcry over rising prices met with stepped-up repression in most of the affected countries.9 The use of mild repression to quell breaches of the state-society pact is predicted by early rentier works, while later writing argues that the state prefers to head off dissent with patronage and consultation.10 The ongoing crackdowns on speech along with the state-directed murder of a Saudi dissident in Istanbul provided further evidence that benevolent characteristics of Gulf autocratic rule were eroding.
These developments suggest that a reassessment and update to theory is due. Rents certainly remain of primary importance to governance in these autocratic export states, but some rules that theorists have advanced over the past four decades now appear more like guidelines; and guidelines can be disregarded when circumstances allow.
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