Jim_Krane]_Energy_Kingdoms__Oil_and_Political_Sur

78UNNATURALLY COOL

and even more the previous year, when international prices were higher
(table 4.1). At times when oil production was flat, growth in domestic
demand inevitably meant diverting exportable crude into the domestic
market. The opportunity cost of domestic consumption rose for each
tanker that wasn’t loaded and sent steaming through the Strait of
Hormuz.
For regimes reliant on oil rents to stay in power, this was a pyramid
scheme. Trading away exports in favor of domestic consumption began
to strangle the rent stream. As figure 5.3 shows, the process played out
in a self- reinforcing loop of negative feedback. Practices meant to bring
political legitimacy to the regime undermined the economy, which, in
turn, undermined the regime’s wherewithal to maintain political legiti-
macy.^23 The rentier governance practices of the 1970s had become a big
problem.
But oil exports are not only the linchpin of the economy and political
systems; they are also the region’s biggest strategic asset. Crude exports

Subsidies needed

for political

legitimacy

Subsidies

stimulate energy

demand

Local demand

reduces exports

Rent flows

undermined,

damaging

economy

Reduced rents

damage political

legitimacy

FIGURE  5.3 The negative feedback loop created by subsidizing energy in autocratic
petrostates.