Publications: Notes at the Margin

Democracies Required by Oil Producers for Survival (March 17, 2025)

 

Few oil-exporting nations can be labeled democracies. Neither Kuwait, Russia, Saudi Arabia, the United Arab Emirates, nor now the United States of America can be characterized as such. Oil- and mineral-exporting nations work best as autocracies.

 

On the other hand, excellent economic research by the Nobel-prize-winning economist and MIT professor Daron Acemoglu and three coauthors shows that long-run per-capita GDP increases by almost twenty percent when a nation transitions from autocracy to democracy while declining by a similar amount when an autocrat, i.e., one who rules with unlimited authority and absolute power, attains control.

 

The Trump administration’s takeover of the US government has made America an autocracy. Consequently, as Acemoglu’s research suggests, our long-term economic growth will slow—the specious claims of Treasury Secretary Bessent and Commerce Secretary Lutnick notwithstanding—unless democratic institutions and practices are restored. By 2050, US energy demand will be thirty-three percent lower than the EIA predicts in its most recent forecast if current circumstances persist. Fossil fuel consumption may bear the largest share of that decline should renewable costs keep falling.

 

Two other forces could accelerate the economic downturn. First, China’s mercantilism could push fossil fuels out as it aggressively boosts exports of renewable energy equipment and electric vehicles made in state-subsidized factories. Second, a collapse in the expansion of massive AI data centers could arrest the expected surge in electricity demand that would be fulfilled mainly by natural gas-fired power plants.

 

The US economic slowdown could be greater and quicker if the Trump-caused economic calamity prompts our traditional trading partners to shun US goods and services. Trade wars can precipitate recessions and depressions. One hundred years ago, tariffs on the US agricultural sector sparked the Great Depression. Today, that sector is being heavily penalized by its foreign customers. It will take substantial government grants, similar to what they received during Trump’s first term, to offset the losses caused by Trump’s trade actions. The resulting deficit increase and further tax cuts could spawn a financial crisis, especially if the AI bubble bursts.

 

On the global energy front, the autocratic oil-exporting nations cannot count on economic growth in China or India, two major world consumers, because, in practice, they are not democracies. Chinese economic growth remains depressed as its citizens, put off by political repression and other factors, refuse to spend, while a global trade war could stunt India’s growth. The aggressive movement by European democracies to limit their fossil fuel use will further depress consumption.

 

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