How Democracy Slips on Oil

Have you ever wondered how oil shapes the political system of a country?

While oil and democracy may seem unrelated, scholars argue that the extent to which a state depends on oil revenues can influence whether it becomes more democratic or more authoritarian.

Democracy, from the Greek demos (people) and kratos (rule), refers to a system where power lies with citizens, exercised directly or through elected representatives; or in the words of theformer US President Abraham Lincoln, the “government of the people, by the people, for the people”.

This article tests the relationship between oil dependence and democracy using quantitative analysis, while also examining whether this pattern holds as some oil-rich states attempt to diversify their economies.

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The relationship between oil and democracy

To understand this relationship, we turn to Rentier State Theory to see how oil breaks the usual rules of global development. Some of the world’s most resource-rich countries are incredibly wealthy yet they have not moved towards democracy at all.

Economist Hossein Mahdavy had first introduced the theory in 1970 and it was later expanded upon in a foundational study in 2001 by political scientist Professor Michael L. Ross of UCLA, U.S. In simple terms, the theory suggests that for the political system of a country, what matters is not how much revenue a state earns but where that revenue comes from.

Normally, when governments rely on taxation, they are more accountable to citizens. But when they rely on oil revenues, that relationship weakens significantly. As Professor Ross noted in an email interview, reduced taxation lowers the demand for democratic accountability.

“Yes, the link between oil revenues, reduced taxation and reduced demand for democratic accountability is at the heart of the phenomenon,” the professor commented in an email interview with us. Prof. Ross said that many oil-rich countries, including those in the Gulf, have made efforts to diversify their economies, before adding that, his other research shows that this has very limited effectiveness.

This dynamic blocks democracy in a few very clear ways. First, since the government does not need to heavily tax its citizens, people lose their main reason to demand a say in politics, something Ross called the “taxation effect”. Second, the state uses its massive oil profits to hand out perks and jobs, basically buying people's silence through the “spending effect”. Finally, oil money pays for massive security forces to shut down any protests, called the "repression effect.”

However, not all scholars see oil as the dominant explanation. Professor Giacomo Luciani of the Paris School of International Affairs at Sciences Po also told us via email that the Rentier model is only one part of a broader picture, emphasising that historical, regional and institutional contexts are equally important in shaping political outcomes.

Similarly, Professor Michael Herb of Georgia State University cautions against over-emphasising oil alone, commenting in response to our questions via email that “we need to contemplate the counterfactual: what would Saudi Arabia be like without oil?” and pointing out that comparable non-oil states in the region are often not democratic either.

As far as the repression effect is concerned, it is not just about funding the police forces as historian Toby Craig Jones points out that the state often exercises significant control over essential resources such as water and desalination. When the state controls the drinking water, fighting for one’s rights becomes almost impossible. Moreover,research by Steffen Hertog shows that Gulf countries avoid dealing with their own citizens’ demands for democracy by simply outsourcing everyday jobs to migrant workers who do not have a political voice.

To make matters worse, this system is held together by an economic trap called the “Dutch Disease”. Basically, when massive amounts of oil money flood into a country, it can weaken or crowd out other productive sectors, wiping out everyday jobs for the middle class and taking away their financial independence. This economic imbalance hurts the private business sectors and when people have to rely wholly on the government just to survive, it makes it very hard for them to push for any real democratic changes.

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Analysing the relationship using data

To test this relationship, we ran a bivariate analysis by plotting the dependence on oil against the state of democracy in a country, starting with the hypothesis that countries with higher dependence on oil rents will exhibit lower democratic institutional quality than less oil-dependent countries. 

For that, we selected two datasets:

• First, Oil Rents (% of GDP) from the World Bank, which shows how much a country’s economy is dependent on oil revenues. Here, “rents” refers to revenues above the cost of extracting the resources; hence, “Oil Rents” here refer to the surplus profit earned by a country by extracting and selling oil in the global market. And the wider measure shows how much they account for in a country’s GDP, according to the World Bank.

• Second, the Liberal Democracy Index (Lib-Dem) from the Varieties of Democracy (V-Dem) dataset as it focuses on the presence of democracy, and also on the extent to which a liberal democracy is achieved. It is a more comprehensive measure that takes into account civil liberties, rule of law, an independent judiciary, and effective checks and balances that, together, limit the exercise of executive power, alongside the level of electoral democracy, according to V-Dem. The Rentier State Theory states that these checks on institutions and civil liberties are usually ignored by oil-rich states in the absence of taxation.

For 2021, the latest year with data available in both datasets, we find a negative correlation (−0.313), indicating that higher oil dependence is associated with lower democratic quality. While this supports our hypothesis, it is important to note that correlation does not imply causation. Oil revenues do not automatically lead to authoritarianism but interact with other structural and institutional factors.

To ensure this relationship was not simply driven by income differences or regional effects, additional regression models were run controlling for these variables. The negative association remained consistent, reinforcing the robustness of the findings. At the same time, Prof. Luciani urges caution in interpreting such results, arguing that regression-based approaches in this context often rely on limited observations and indices that may not fully capture the complexity of political institutions.

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What it actually means

Countries that rely more heavily on oil rents tend to have lower democracy scores, while those with low dependence show greater variation in democratic outcomes, which aligns with the Rentier State Theory and our hypothesis.

The negative correlation (−0.313) indicates an inverse relationship, meaning that as dependence on oil increases, democratic quality tends to decline. On a scale with 0 on one side of the spectrum and 1 on the other extreme, 0.313 represents a moderate yet meaningful association.

However, it is important to remember that correlation is not causation. Oil revenues do not automatically lead to authoritarianism but interact with other political and economic factors. To account for this, we ran further regression models controlling for income levels and regional differences. The relationship remained consistent, suggesting that the link between oil dependence and democracy is not simply driven by wealth or geography.

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Case studies: Saudi Arabia and Norway

To better understand how this relationship plays out in practice, we examine Saudi Arabia and Norway; two major oil producers with very different political systems.

We plot time-series graphs for the two countries that show a clear contrast. Norway maintains consistently high democratic standards while keeping its reliance on oil rents relatively low. In contrast, Saudi Arabia remains highly dependent on oil revenues and shows little change in its low democracy scores over time.

This contrast reflects a broader pattern. In Norway, strong institutions and taxation create accountability between citizens and the state. In Saudi Arabia, oil revenues reduce that pressure for political participation. Although Saudi Arabia’s Vision 2030 aims to diversify the economy, there is little evidence so far that economic reform has translated into political change.

Prof. Luciani is particularly critical of the initiative, describing it as largely a public relations exercise and suggesting that many of its goals are unlikely to be achieved. Similarly, Prof. Ross notes that diversification efforts have had “very limited effectiveness,” with Gulf states remaining overwhelmingly dependent on oil revenues.

More broadly, Prof. Herb argues that political outcomes cannot be explained by oil alone, emphasising that “democracy does not follow automatically from virtually anything” and that authoritarian regimes can remain stable for decades despite changing economic conditions.

In short, Norway highlights an important exception: oil wealth does not automatically undermine democracy. Where strong institutions already exist, resource wealth can be managed without weakening democratic systems.

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Conclusion

Overall, the findings suggest that oil dependence is linked to weaker democratic outcomes, but the relationship is not deterministic. Rather than directly causing authoritarianism, oil reshapes political incentives by reducing reliance on taxation and weakening accountability.

Where strong institutions exist, as in Norway, democracy can endure. Where states remain heavily dependent on oil revenues, as in Saudi Arabia, meaningful political change is far more limited even when economic structures evolve.