DO OIL EXPORTS FUEL DEFENSE SPENDING?

Economic power allows nations to influence events
within and outside their borders. In today’s globalized
world, many countries that export manufactured
goods, provide services, supply financial credit, and
control vital raw materials have the ability to
significantly affect their economic well-being. Those
countries can wield their financial resources to improve
the condition of their citizens and neighbors or threaten
a region through the development of a large military
or security capability. Oil is the lifeblood of the world
economy. For the past decades, oil-exporting countries
have experienced great economic gains due to the
world’s hunger for petroleum. Undoubtedly, oil profits
allow some nations to acquire advanced weapons
systems or develop internal security programs. When
economic conditions worsen and oil revenues fall, logic
argues that with reduced profits defense spending
should shrink.
This monograph explores the impact that oil
revenue had on the national defense spending of five
oil-exporting countries. Despite periods of falling
oil revenues, these countries typically did not lower
defense spending. In some cases, defense spending
increased sharply, or the rate of decrease was much
lower than the drop in oil revenues. This condition
creates challenges for national security professionals.
If nations face falling oil revenues and still have the
will and ability to expand their military or security
capabilities, then they might do so through the
sacrifice of domestic spending or regional stability.
Economic sanctions, worldwide recession, or falling oil
demand may not stop these oil-exporting nations from
purchasing weapons and creating large security forces.
Although oil might have been a key to provide past or
future earnings expectations to fund defense, perhaps
there are other reasons why nations want relatively high
defense spending levels despite lower oil revenue. The
politics of oil and its impact on government control,
regional threats, national interests, and other strategic
factors may explain why these nations pursue defense
spending despite falling oil revenue.
Policies that attempt to limit oil revenues of potential
enemies alone may not be sufficient to inhibit them
from creating regional instability through expansion of
their defense capabilities. Hopes for reduced defense
expenditures, by countries like Iran, as a result of a
drop in energy demand seem to be diminished by these
findings. A more complex picture emerges that forces
analysts and policymakers to search more broadly for
options to stem potential arms races that may be fueled
by the riches of oil-exporting countries.