Stephen Harper has made no secret that it is his intention to transform Canada into a petro-state. Stanford professor Terry Lynn Karl has devoted her academic career to the study of petro-states. And she has concluded that petro-politics lead to self immolation. In an interview with Andrew Nikiforuk
she predicts that falling oil prices will have catasrophic consequences for several petro-states:
"The effects of falling oil prices will be quickly felt in Venezuela, which is extremely vulnerable. If oil keeps dropping, the country's employment, standard of living and GDP will be affected. This tends to make people not like their government.
"Venezuela, which is already extremely polarized, is in big trouble. In this respect, there is a big difference between how oil prices affect Canada and the U.S. and how they affect countries where the politics have become totally petrolized. Where there is simply no difference at all between wealth and power, where corruption and rent seeking have taken over the whole enterprise or where conflict is already very high, these are the most vulnerable countries.
Russia isn't quite as vulnerable as Venezuela, but because it is a global power its fate is more important. In the face of both sanctions and low prices, the ruble has plummeted, debt is rising, living standards are declining, and food prices are up sharply. With oil prices high, Putin took certain actions in the Ukraine and elsewhere because he felt untouchable; his popularity remains very high.
"But this could change very quickly if prices remain low.
"Most people don't understand that the decline of the former Soviet Union was closely linked to the 1986 collapse in oil prices. Putin later took advantage of high prices to build his own personal power. That could be at stake if prices stay low."
And for all petro-states:
"Debt is the Achilles heel of this picture. If prices remain low for several years, a lot of U.S. shale producers have high debt loads, especially in junk bonds. Today, energy debt currently accounts for a substantial 16 per cent of the U.S. junk bond market. If these producers start going bust, investors in junk bonds will be in for a shock.
"Dropping oil prices affect international debt as well, creating a high risk of default by countries like Venezuela. Around the world two sets of debt are coming in -- from the high cost bitumen and shale oil producers who borrowed to help create the current supply glut and oil exporting producers who have borrowed heavily. Both affect the entire financial system.
So, just as the financial system almost brought the house down in 2008, oil could be the cause of the next global economic collapse. And Stephen Harper happily assumes oil will lead to national Nirvana.
Who would you believe -- Karl of Harper?