A petro-state could be described as a mining country with weak institutions and a malfunctioning public sector. Its most important feature are laws that grant subsoil rights to the government, from which spring the extraordinary size and duration of the “petro-rent” which is much greater than the profits which can be made in the private sector. Petro-states are structurally different from other countries in the advanced and developing worlds, especially the agricultural or manufacturing exporters, whose products are not thought to be depletable. To complicate matters, state-owned companies must face the fact that oil is a “capital-intensive” business: the more crude you pump out, the more money you must “reinject” into the same oil well to keep it pumping at the same rate of productiveness. Finally, unlike other economies, petro-states are prone to all kinds of “externalities”; the most unsettling of these is that the petroleum industry is prone to booms and busts. Two “behaviors” can be discerned with amazing regularity in petro-states going through an oil-boom. Their governments first seem to be seized by a sort of schizoid “manic” spell and urgently demand from their citizens special powers to direct the capital accumulation from oil revenues into other productive activities and thus try to catch up to the developed world. Deadly fights over who controls the country’s oil revenues become the only important issue in domestic political life. These “wars” over petro-rents annihilate already weakened institutions, favor the concentration of power, promote the bending of the law, and, last but not least, increase corruption which is already all-pervasive. Furthermore, the very large oil revenues which come into the hands of the state put pressure on exchange rates that foster imports and discourage exports. Inevitably, inflation sets in. The market is soon saturated with imported automobiles, electronic gadgetry, luxurious home appliances and name-brand whisky. The currency becomes overvalued because the oil sector is the core of the economy and extensive reliance on imports undermines local production. To make matters worse, the oil industry employs comparatively few people. A second “behavior” closely associated with the idea of “sowing our petroleum” appears when the benefits of government spending are cancelled out by an overheated economy. As demands from the population rise, unwieldy and inefficient bureaucracies, suddenly thrust into new roles, find themselves incapable of scaling down expansionist public-sector programs or warding off private-sector requests. Thus they ultimately contribute to growing budget and trade deficit and foreign debt. Many times, Petro-states cannot cope with oil booms without running into almost unrepayable debt and without undermining democracy in the end. Venezuela and Russia are both good examples of petro-states. Petro-states also denotes states that want to use oil and gas to become global powers. It is often used to denote for example how President Putin uses oil and natural gas strategically deployed as punishments, rewards and threats vis-?-vis other countries. In a book by Marshall Goldman, the author details the lengths to which Putin has gone to retain control over the delivery of natural gas from Central Asia to the West.
