The Forum for Partners in Iran's Marketplace

September 2008, Nos. 48&49

Special Report: Iranian Oil Industry Turns 100

Discovering Wealth before Democratization

The relationship between oil and democracy is the relationship between economy and politics and there is no doubt that there is a close relationship between them.

Ali Akbar Moeinfar

Many people have cursed oil. History of oil-rich countries has prompted many intellectuals to complain that the powerful arms of colonialism and despotism were supported by oil and oil revenues. They have noted that oil revenues made governments needless of people and their taxes. Others have put more emphasis on historical and cultural factors of a nationís failure to establish a civil society instead of blaming everything on oil. They ask whether participation of social institutions and classes in political affairs has existed before oil discovery and domination of totalitarian government on oil resources. Wasnít there any other factor but oil revenues to cause a nation fail to form a modern government? Ali Akbar Moeinfar was employed by the National Iranian Oil Company following the coup díťtat of August 19, 1953 and after the victory of the Islamic Revolution in 1979 was chosen as the first minister of petroleum of the Islamic government. He belongs to the second group. He considers oil a national asset of the Iranian nation which cannot be left to legal or real entities and has been trusted to the government which should preserve it for future generations. Moeinfar notes that a nationís awareness when forming governments determines the limits to which that government may take advantage of natural resources. He maintains that attention to politics takes precedence over economy and has noted that when oil was discovered there was no supervision of people over the government. Since that time, although democratization process has been progressing, but state monopoly over oil revenue has been a major stumbling block on the way of that progress.

Do you actually believe that there is any relationship between oil and democracy?

The relationship between oil and democracy is the relationship between economy and politics and there is no doubt that there is a close relationship between them. In a country, where democracy has not been realized, you cannot expect use of public revenues to be optimal because people are not masters of their destiny and will not have any control over consumption of public revenues. Thus, the public wealth will serve the government alone.

You consider oil revenue as a public asset. However, some argue that the government is earning that revenue and since its power does not depend on people, it feels no need toward people. What is your opinion?

This argument as always existed in Iran. They say if the Iranian oil was not monopolized by the government, as is the case in the United States, the way would have been paved for the realization of democracy. However, I think that a comparison between Iran and the United States is a sheer mistake because oil wealth belongs to the nation and it cannot be privatized like some plants and economic entities. According to religious and common laws, underground resources belong to the nation. In the United States, if you buy a land and discover underground natural reserves in it, it would belong to you. I believe that if this was practiced in our country, the situation would have been worse and like privatization of many economic entities, it would have been monopolized by certain social classes that are not even ready to pay taxes. Therefore, such an approach cannot be positive in our national economy. Oil should belong to the whole society with the government as manager. Therefore, there is no reason why state control over oil resources should not be beneficial to the nation. At the same time, some believe that governments which depend on such revenues develop special behaviors and this theory is probably correct. Anyway, the oil wealth has been forcefully bestowed upon our nation and it has been handed down to the present generation. If the society can use it to good effect, it would be the best tool for the realization of democracy. Otherwise, if the society were not able to hold government accountable, oil would turn into a factor for underdevelopment.

The proponents of oil privatization may ask why an economic model, which has led to prosperity in another country, has failed to do the same in Iran. In other words, what factor(s) differentiate Iran from the United States?

Democracy is the main issue in the United States followed by the way natural resources is used. In Iran, utilization of resources takes precedence over the system of government. That is, in the United States there is no argument over how oil revenues are consumed because democracy and rule of law has been realized there and the existing model has been sanctioned by law. In Iran, the opposite is true. We have resources whose owners are known. The Iranian nation is the owner. It should be noted that even in the United States, owners of oil resources and major consultant and contractor companies are influential in the government, but different political factions are so powerful that owners of oil resources cannot seize the power. Anyway, without intending to introduce the US government as an ideal system of governance, it should be accepted that plurality of power sources has let the society to breathe. Therefore, I emphasize that private exploitation of oil resources has nothing to do with our country.

Although Iranian governments have always claimed to be serving national interests of the country and despite the fact that they control all revenues earned through oil sales, a civil society has never been established in the country. Therefore, there is no powerful institution to promote political participation of people. How citizens are supposed to resist against totalitarianism of governments under such conditions and take another step? To put is in a simpler way, how a rentier government can be harnessed?

The only way is to gain more awareness and allow citizens to oversee details of every development. There is no other way. Despite the fact that democracy has its own flaws, nations are gradually realizing that it is the best formula for management of democratic societies.

Didnít such awareness exist among constitutionalist intellectuals and hasnít one hundred years passed since that time?

Both in the constitutional revolution and in subsequent movements, we simply stressed on what we did not want. During the constitutional revolution, people were fed up with dictatorship and did not want the Qajar rule. But they had no idea what was going to supplant it.

However, they established a parliament.

Yes, the parliament was established, but even in that parliament, there was no consensus on what the Iranian nation was looking for. If from the time that the parliament was established, they had known what they were looking for, there would have been no conflict between constitutionalism and religious rule. The main problem is that since that time, Iranians have had no clear idea about how they want to manage their society.

Since the history of Iran is full of dictatorial rules and, as you say, even during the constitutional revolution, they had no clear idea of how they intended to run their society, donít you think that if there was no oil, their relationship with democracy would have been different today?

Most probably, there would have been limited grounds for those who intended to misuse this public wealth. However, I donít think that absence of oil would have led to democracy.

What impact can high oil prices have on economic relations of oil-rich countries and the world of politics? Take 1970s Iran as an example. Were high oil prices influential on governmentís behavior at that time?

There is no doubt that high oil prices are followed by development. The public culture and willingness to know the world also changes in parallel to development. Also, other countries pay more attention to the country. The economic situation of the Iranian people was better in 1970s, but some social classes became aggressive and protested to human rights violations and ignorance of democratic principles. High oil prices have also led to new economic problems. When a government fails to use those revenues to activate the existing potentials, the whole economy would be in disarray. This is what has happened in Iran during the past few years. At present, disagreement is rising among some social classes that avail of oil revenues. After being appointed as prime minister, Mahmoud Sharif Emami ordered 7500 rials to be given as bonus to all civil servants. He did this to satisfy them, but increased liquidity in the society led to more protests.

At present, the world is witnessing high oil prices and the governmentís revenues are likewise on the rise. If you were to be a cabinet member once more, what measure would you have taken to prevent high revenues from damaging the national economy and to prevent the government from becoming too powerful in the face of the nation?

More than anything else, the government is very willing to earn more petrodollars. I think this is not reasonable. We must earn as much as our economic needs require. Experts may foresee that if output is not increased when prices are high, oil prices may finally fall and the opportunity is lost. Or we may need to increase revenues by selling oil from those fields which are shared with neighboring countries. In that case, production and exports would be reasonable.

Basically, earning revenue through oil sales should follow a precise plan. Otherwise, we would not be able to use petrodollars in the best manner and instead, we may be willing to produce more and sell more. This is a mistake unless secret deals have been made with Western countries. On the other hand, the use of oil revenues should be regulated by such organizations as the former Management and Planning Organization. We should have tried to eliminate that organizationís weaknesses not to dissolve it altogether. The Management and Planning Organization was economic brain of the country which could have found scientific methods for optimal use of oil revenues. Investment in other countries was an option. Such investments will provide the country with reliable revenue sources.

Like what Norway has done with its oil revenue?

There is no other way. The Oil Stabilization Fund was established for this purpose. In the past regime they made investments outside the country and regardless of where those investments were made, the decision per se, was correct.


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  September 2008
Nos. 48&49