11 March 2011

The article at a glance

Unrest in the Middle East is injecting “fear” into energy prices – but democracy may well benefit the West in the long …

Jim krane

Unrest in the Middle East is injecting “fear” into energy prices – but democracy may well benefit the West in the long term.

Colonel Gaddafi needs to engage the ‘hearts and minds’ of his people to keep power, and even if he does survive, the new Libya will look more like the old Iraq says Jim Krane, a researcher in Energy Policy at Cambridge Judge Business School, in a new broadcast for our podcast series.

The fact Libya is a republic gives it less flexibility in its governance than its neighbouring, oil-rich Gulf monarchies says Krane, author of City of Gold: Dubai and the Dream of Capitalism:

“We’re seeing some long serving leaders face the wrath of their people and this will lead to all sorts of implications across the Arab world.

“The monarchs have a lot more flexibility in which to rule and to potentially co-opt their populations, using ‘favouritism’ to control and using oil revenues to bring stability to their countries, which the republics haven’t been able to do as effectively. In republics, citizens believe they are entitled to ‘equal rights’ which has lead to the formation of these active interest groups which we are seeing corrode away at Libya’s stability.”

Krane said the situations of Egypt and Libya differed because Colonel Gaddafi has less power to use the country’s oil reserve revenues:

“Libya is an interesting case. It has a small population and relatively large reserves of hydrocarbons per capita, whereas in Egypt they had a lot less resources to quell unrest. Gaddafi has more at his disposal but he couldn’t use it like some of the countries in the Gulf.

“At the end of the day it is probably more of a ‘hearts and minds’ exercise than using the army to bring order. If your people’s hearts and minds aren’t in it, and if Gaddafi uses the army to keep power, Libya will end up looking more like Iraq and that wouldn’t be good for their reputation. I can’t see Gaddafi being the person to run Libya for the long term.”

Krane said predictions about the price of oil in the future where hard to make but that the Middle East does have a ‘self-healing’ quality to its market forces:

“There is a lot of fear factored into the oil price now and I wouldn’t like to make a prediction for the future, but if this unrest continues and spreads to Saudi Arabia, prices may still stay high. Unrest in the Middle East also has a ‘self-healing’ property through the oil price, as the regimes seeing this unrest are generating increased oil revenues, providing them with extra resources to combat this problem.”

Krane ended the podcast by saying that it would be in the long term interests of the West to deal with democracies rather than autocracies:

“In the long term, dealing with democracies in the Middle East rather than autocracies maybe in the West’s long-term interests …we will see. High oil prices are a wake-up call. All the green technologies are coming out of the closet and become viable now; it would be nice to think it will give them a boost.”

This article was published on

11 March 2011.