Examining Rentier State Theory in the Case of Iran before and after Revolution Pooyan Fakhraei 11768118 Supervisor: Dr. Farid Boussaid Second Reader: Mr. Said Rezaeiejan June 2018 Master of Political Science / Public Policy and Governance 1 Contents Introduction ...................................................................................................................................3 Literature Review............................................................................................................................5 Rentier State Theory..................................................................................................................10 Democracy and Autocracies .......................................................................................................11 Research Question ....................................................................................................................18 Methodology ................................................................................................................................19 Case Study ................................................................................................................................19 Case Selection ...........................................................................................................................20 Data .........................................................................................................................................20 Limitation of Study ....................................................................................................................21 Background ..................................................................................................................................22 The Role and History of Oil in Iran ..............................................................................................22 Contemporary Political History of Iran ........................................................................................23 Political System in Iran...............................................................................................................28 Finding and Analysis......................................................................................................................31 Democracy................................................................................................................................31 Oil Rent ....................................................................................................................................33 Political Economy of oil rent in Iran before and after the revolution .............................................34 1957 to 1979 (before the revolution)..........................................................................................35 Political economy of oil rent of governments after the revolution ................................................39 1989-2007 (Presidency of Rafsanjani) .........................................................................................39 1997 to 2005 (Presidency of Mohammad Khatami) .....................................................................43 2005 to 2013 (Presidency of Ahmadinejad) .................................................................................48 Discussion and Conclusion.............................................................................................................53 Discussion .................................................................................................................................53 Conclusion ................................................................................................................................54 Suggestion ................................................................................................................................55 Bibliography .....................................................................................................................................56 2 Introduction Oil in the contemporary history of Iran is more than a source of production. It can be said to play a vital role in social and political history. Some examples are the role of oil as a key factor in the 1953 movement, when the U.S.S.R wanted the oil in northern Iran to balance power with the British, but instead the Parliament nationalized oil production. Later, the oil price shock became the reason of many changing policies under the Shah, which resulted in Dutch disease (Cammett, 2018). Many believe his policies in that era facilitated the revolution (Alikhani, 2013), which was heavily bolstered when staff and technicians of Iran’s oil company went on strike (Yazdi, Last attempts in the last days, 2007). Even when there were secret talks between Ayatollah Khomeini and United States government, the main question was the sale of the oil (Yazdi, 118 days in Neauphle-le-Château, 2013). All of these incidents contribute to the popular belief that if Iran did not have oil, it might have become a democracy much earlier. And This is not only a popular belief among ordinary people. The relationship between oil rent and democracy has been discussed for years in academia. An overview of this belief, came as an empirical literature, provided by Ross (2001), in which he explains that while many studies connect an increase in the revenue streams of a government to the development of a more democratic system, this trend has a notable exception in the case of rent. This, however, is not the only view that has been discussed by scholars. Others such as Herbs (2004) believe it is not oil which causes this situation, pointing to other conditions that should be together understood as the origin of the authoritarian undemocratic rentier state. Some like Habermas and Lewis believe that Islam is the main factor. Others still like Bellin believe it is a lack of stable institutions in these countries. Finally, the heritage of colonization is commonly provided as the reason of undemocratic behavior of states that have oil (Martorell, 2012). As a way to further understand the case of oil rent and its relationship with democracy and authoritarianism, Iran is a good candidate as a case for study. As a country whose budget is heavily dependent on oil revenue, it is categorized under rentier states. Today’s definition of 3 rentier state even originated in Iran’s situation during the period of 1973 to 1979 when oil prices were raised dramatically. However, after the 1979 revolution and especially after the Iran-Iraq war (1980-1988), Iran has had a different experience in struggling with democracy. Although after the 1979 revolution Iran has experienced partly effective and meaningful periodic elections for members of parliament and the office of President and in some era had more published newspapers and media and developed in the sense of freedom of the press. Based on these two examples, it can be assumed there is a change in democratic indexes, over time. It should be mentioned when it is a talk about the level of democracy; there is a range from full democratic to full autocratic. Any country could be somewhere in between these two extreme and Iran is not an exception. This study would look to Iran’s records of oil rent and its growth in democracy indexes to test if the rentier state theory was applicable to Iran in the timeline of this study. Moreover, it questions the various explanations offered by scholars and seeks to determine if the possibly harmful effects of oil rent can be connected to struggles with authoritarianism. 4 Literature Review The relationship between oil rent and democracy has been discussed for years in academia. A study by Link, W. K. (1952) looks at the exploration history of the important oil areas of the world, proving conclusively that oil and gas seeps gave the first clues to most oil-producing regions. Many great oil fields are the direct result of seepage drilling. Iran as a country, which depends on oil selling, is categorized under rentier states. From 1981, Iran was considered an important subject by many scholars (Assareh,2010), making it one of a number of countries that were discussed under the same category. For instance, Nigerian political history shows that the oil economy can also be a site of successful contention and democratization—and that oil workers played a key role in these processes. Although struggling in a deeply unfavorable context of state fragmentation, chronic societal mistrust, corruption, and lengthy, brutal military rule, at key junctures, oil workers are able to exercise leverage far beyond their numbers. A study by Aslaksen, S., & Torvik, R. (2006) indicated that, after controlling for other factors, countries rich in oil have a higher probability of dictatorship than other countries. In general, it seems fair to say that the results from the abundant empirical literature indicate that oil, gemstones, minerals and other “lootable” resources are associated with civil conflict, but that less lootable (and less valuable) resources such as agricultural land do not appear to have a similar effect. There are several studies on the issue of oil rent and its effect on democracy. Some scholars such as Ross (2001), who studied the effect of oil rent on democracy, and Tsui (2010), who examined the relationship between democracy and oil sources, believe there is a negative relationship between oil and democracy. Ross uses cross-national data from 113 states between 1971 and 1997 to test