Global Oil Resources and the Persian Gulf: Security and Democracy

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Abstract
The oil of the Persian Gulf has been of considerable interest to oil companies and Western governments (and to Russia) for more than a century. Remaining global conventional crude oil resources are on the order of 3 trillion barrels, with more than 50% of that amount in the Persian Gulf. Since 1986, a price range framework has resulted in stable crude oil prices and reliable supply. In economic terms, it is a Nash game theory equilibrium between Gulf producers and Western (and Asian) consumers. Military support is an important part of the system. Given the very low cost of production in the region (about $5 per barrel) and the great magnitude of resources, the oil wealth in the Gulf is on the order of $60 trillion. It is the existence of past and potential efforts to seize this resource which creates a major policy problem for the 8 countries in the region and for global security. The security framework which made a stable world oil market possible has itself contributed to growing instability in individual countries, the rise of Al Qaeda, and the U.S. occupation of Iraq. There are three broad policy approaches to this dilemma. The dominant policy in the 1973-1990 period was generally a “hands off” position by the U.S. and Europe. In the years following the Gulf War (1991-current) a security system has been organized and led by the United States. A third type of security structure would be essentially international. The paper concludes by discussing each approach in the context of 6 conditions or requirements for democratic governments and a stable world oil market.
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WP 2003-40 December 2003
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2003-12
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Charles H. Dyson School of Applied Economics and Management, Cornell University
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