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Here’s how falling oil prices could make the world more peaceful and cooperative

- January 28, 2016
Oil pumps work at sunset in the desert oil fields of Sakhir, Bahrain, on Oct. 14, 2014. (AP Photo/Hasan Jamali)

It seems as if oil prices can’t stop plunging. From 2011 until mid-2014, oil prices were pretty stable and high, mostly over $100 a barrel. Now they have fallen below $30.

Oil is the world’s most important commodity. Large price fluctuations do not just have economic consequences. They also matter for international politics. Some recent scholarship suggests that lower oil prices can be a good thing for the world: They might mean more peace and more international cooperation. As usual with this thing called social science, there are some caveats.

More peace

Oil-rich states are more war-prone. Iraq’s invasion of Kuwait, Russia’s intervention in the Ukraine, and Iran’s aggressive behavior are just some examples, but scholars have long documented the broader trend. A new article in Conflict Management & Peace Science by Cullen Hendrix finds that lower oil prices could dampen this bellicosity, as he noted in a Monkey Cage post about a year ago. Above $77 per barrel, oil-exporting states are significantly more dispute-prone than non-oil countries. Below $33 per barrel, oil-exporting countries are slightly less likely to be involved in militarized disputes than non-exporters.

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We can speculate on why this might be so. Countries such as Saudi Arabia and Russia have had to slash government spending because of the drop in oil prices. This makes military adventures more difficult. Perhaps when oil prices are high, oil-rich states are also less afraid that others will punish them for transgressions. Moreover, Michael Ross and others have shown that high oil wealth may stifle democracy, produce unequal gender outcomes and result in more civil wars.

That said, volatility in oil prices could also produce domestic unrest that could turn violent. Lower oil prices and slashed government spending make leaders less popular. Some scholars worry that leaders could start wars to distract people from domestic troubles (known as diversionary wars). Some anecdotes seemingly support such a theory, but the overall record is less clear. Scholars have argued that diversionary dispute initiation is usually not terribly effective. There is no evidence that oil busts bring down authoritarian regimes. Moreover, low oil prices reduce food prices, which may reduce domestic unrest in non-oil producing countries. Thus, the global effect of a decline in oil prices on international violence may well be positive, although we still need more research on this.

More cooperation

Lower oil prices could also mean more international cooperation. In a new article in International Studies Quarterly, Michael Ross and I find that the more that states depend on oil exports, the less cooperative they become. They join fewer international organizations and become less likely to accept the compulsory jurisdiction of international judicial bodies.

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The argument is simple. Economic interdependence is an important driver of international cooperation. Countries often participate in international agreements because it helps their exports or because it encourages foreign investment. But countries rarely have to beg and plead to sell their oil and gas abroad. Moreover, when oil prices are high, oil exporters often have difficulties exporting other goods thanks to the ‘Dutch Disease’: Large inflows of foreign currency due to high oil prices make the domestic currency (and thus exports) more expensive. This gives oil exporters few other reasons to cooperate in order to secure market access or attract investment.

When oil prices are high, oil exporters don’t need international cooperation as much as oil importers do. Examples abound. For example, in recent years Bolivia, Ecuador, and Venezuela canceled bilateral investment treaties and left ICSID, of the international investment regime. Countries typically partake in the international investment regime to tell foreign investors that they will not expropriate their investments. But amid high oil prices these countries were less concerned about potential losses in foreign investments than the immediate losses from investment disputes.

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But when oil prices are low, governments often want to diversify their economies. Russian President Vladimir Putin said so as soon as prices started to drop. This leads governments to look for international cooperation to help them along. Mexico started to get interested in NAFTA when oil prices fell in the 1980s. Indonesia looked to ASEAN when its oil income started to dwindle. Oil at $30/barrel does not turn Putin into an enthusiast for multilateral cooperation overnight. But it does change the incentives to play ball.

A student of mine at Georgetown, Griffin Cohen, also found that lower oil prices may help the United States get what it wants in international organizations. When oil prices are low, both oil importers and exporters vote more often with the United States in the United Nations General Assembly. Economic interdependence may explain why. When oil prices are high, importers become relatively more dependent on major oil exporters who have foreign policy preferences that are quite different from those of the United States. When prices are low, their relative dependence on U.S. market access or foreign aid becomes more prominent.

On the flip side, high oil prices may encourage cooperation among powerful oil importers. Let’s take the example of China and the United States. Most of the attention in China’s global hunt for energy goes toward its activities in Africa. Yet only Angola ranks in China’s top 10 energy sources. China actually gets its oil from pretty much the same places as the United States — most significantly, the Persian Gulf. This creates a common interest in cooperating on Iran, keeping shipping lanes open, and more generally, in stability. These shared desires may fade a bit when oil prices are lower.

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So what does this mean?

Lower oil prices are unlikely to turn Russia or Iran into peaceful, cooperative members of the international community overnight. Lower oil prices could have other, more ominous effects. They may lead to domestic unrest in oil-exporting states and they may undermine climate change cooperation.

But on balance, the evidence suggest that lower prices make oil exporters somewhat less interested in expensive military adventures and more inclined toward international cooperation. The world could surely use some of that.