Friday, September 19, 2008

Don't mention the Gulf

Condi Rice, in the Q&A part of her big Russia speech --

QUESTION: Madame Secretary, Russia is a petro-state, and its level of assertiveness pretty much correlates to the price of oil. The price of oil is down by 30 or 40 percent, and the oil markets look like they’re going to get softer. Would you expect Russian behavior to be at all modified because of the price of oil and its importance to their economy?

SECRETARY RICE: Well, I don’t know if their behavior will be modified. I do know that there are significant vulnerabilities for petro-states that do not diversify. And there are significant vulnerabilities for petro-states that depend on their ability to engage in monopolistic behavior during good times, when those – when the price of oil is down and that monopolistic behavior doesn't pay off in terms of customers. So those are facts that I understand and realities that I understand that are independent of Russia in particular ...

But there are just certain structural problems with being a petro-economy. And if you look at places that have handled it well, for instance like Norway, they have taken very different course, and of course, as a democratic state, have had to take a different course.

The petro-state/oil price concept comes from Tom Friedman. And it's not clear that on a systematic evidence basis, it's correct. But leave that aside. Everything she said about Russia and oil could be applied to Saudi Arabia.

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