Falling Oil Prices Knocking Down America's Biggest Opponents
A
plunge in oil prices has sent tremors through the global political and
economic order, setting off an abrupt shift in fortunes that has
bolstered the interests of the United States and pushed several big
oil-exporting nations — particularly those hostile to the West, like
Russia, Iran and…
Huffington Post
BRUSSELS
— A plunge in oil prices has sent tremors through the global political
and economic order, setting off an abrupt shift in fortunes that has
bolstered the interests of the United States and pushed several big
oil-exporting nations — particularly those hostile to the West, like Russia, Iran and Venezuela — to the brink of financial crisis.
The nearly 50 percent decline in oil prices since June has had the most conspicuous impact on the Russian economy and President Vladimir V. Putin.
The former finance minister Aleksei L. Kudrin, a longtime friend of Mr.
Putin’s, warned this week of a “full-blown economic crisis” and called
for better relations with Europe and the United States.
But
the ripple effects are spreading much more broadly than that. The price
plunge may also influence Iran’s deliberations over whether to agree to
a deal on its nuclear program
with the West; force the oil-rich nations of the Middle East to
reassess their role in managing global supply; and give a boost to the
economies of the biggest oil-consuming nations, notably the United
States and China.
It might even have been a late factor in Cuba’s decision to seal a rapprochement with Washington.
After a precipitous drop, to less than $60 a barrel
from around $115 a barrel in June, oil prices settled at a low level
this week. Their fall, even if partly reversed, was so sharp and so
quick as to unsettle plans and assumptions in many governments. That
includes Mr. Putin’s apparent hope that Russia could weather Western sanctions
over its intervention in Ukraine without serious economic harm, and
Venezuela’s aspirations for continuing the free-spending policies of
former President Hugo Chávez.
The price drop, said Edward N. Luttwak,
a longtime Pentagon adviser and author of several books on geopolitical
and economic strategy, “is knocking down America’s principal opponents
without us even trying.” For Iran, which is estimated to be losing $1
billion a month because of the fall, it is as if Congress had passed the
much tougher sanctions that the White House lobbied against, he said.
Iran
has been hit so hard that its government, looking for ways to fill a
widening hole in its budget, is offering young men the option of buying
their way out of an obligatory two years of military service. “We are on
the eve of a major crisis,” an Iranian economist, Hossein Raghfar, told
the Etemaad newspaper on Sunday. “The government needs money badly.”
Venezuela,
which has the world’s largest estimated oil reserves and has used them
to position itself as a foil to American “imperialism,” received 95
percent of its export earnings from petroleum before prices fell. It is
now having trouble paying for social projects at home and for a foreign
policy rooted in oil-financed largess, including shipments of
reduced-price petroleum to Cuba and elsewhere.
Amid
worries on bond markets that Venezuela might default on its loans,
President Nicolás Maduro, who was elected last year after the death of
Mr. Chávez, has said the country will continue to pay its debts. But
inflation in Venezuela is over 60 percent, there are shortages of many
basic goods, and many experts believe the economy is in recession.
But
the biggest casualty so far has probably been Russia, where energy
revenue accounts for more than half of the government’s budget. Mr.
Putin built up strong support by seeming to banish the economic turmoil
that had afflicted the rule of his predecessor, Boris N. Yeltsin. Yet
Russia was back on its heels last week, with the ruble going into such a
steep dive that panicked Russians thronged shops to spend what they had.
“We’ve
seen this movie before,” said Strobe Talbott, who was President Bill
Clinton’s senior Russia adviser in the aftermath of the Soviet Union’s
1991 collapse and is now president of the Brookings Institution in
Washington.
Russia’s
troubles have rippled around the world, slashing bookings at ski
resorts in Austria and spending on London real estate; spreading panic
in neighboring Belarus, a close Russian ally; and even threatening to
upend Russia’s Kontinental Hockey League, which pays players in rubles.
“It
is a big boost for the U.S. when three out of four of our active
antagonists are seriously weakened, when their room for maneuver is
seriously reduced,” Mr. Luttwak said, referring to Russia, Iran and
Venezuela.
The only major United States antagonist not hurt by the drop in oil prices is North Korea, which imports all of its petroleum.
David
L. Goldwyn, who was the State Department’s international energy
coordinator during President Obama’s first term, warned that an
implosion of Venezuela’s economy could hurt the Caribbean and Latin
America in ways that the United States would not welcome.
But
“on balance, it’s positive for the U.S.,” he said of the low price of
oil, because American consumers save money, and “it harms Russia and
puts pressure on Iran.”
Even
some of the indirect consequences of the price slump, like last week’s
break in the half-century diplomatic logjam between Washington and
Havana, have generally worked in the United States’ favor. Fearful that
Venezuela, its main benefactor, might cut off supplies of cash and cheap
oil, Cuba sealed a historic deal that has in turn lifted a shadow over
the United States’ standing in much of Latin America.
Another
casualty of the price collapse has been Belarus, a former Soviet
territory long reviled by American officials as Europe’s last
dictatorship. It produces no significant amount of crude oil itself but
has nonetheless taken a big hit. This is because its economy depends
heavily on the export of petroleum products that Belarus produces using
crude oil supplied, at a steep discount, by Russia.
Marwan Muasher,
a former foreign minister of Jordan who is now a vice president at the
Carnegie Endowment for International Peace, predicted another domino
effect in Syria as Russia and Iran find it difficult to sustain their
economic, military and diplomatic support for President Bashar al-Assad.
Others
speculate that Persian Gulf oil producers, though still wealthy, might
trim their financial support for radical Islamist rebel groups in Syria.
Mr.
Muasher said the drop in oil prices could also prod Middle East oil
producers toward political and economic change by challenging so-called
rentier systems in which governments derive much of their income from
rents paid by foreigners for resources. “Whatever the case, it is clear
that the effect of the new oil price levels will not be limited to the
economic sphere,” he wrote in a Carnegie report.
Hard-hit anti-American oil producers have blamed foreign machinations for their woes, suggesting that Washington, in cahoots with Saudi Arabia, has deliberately driven down prices.
This
view is particularly strong in Russia, where former K.G.B. agents close
to Mr. Putin have long believed that Washington engineered the collapse
of the Soviet Union by getting Saudi Arabia to increase oil output,
driving down prices and thus starving Moscow of revenue.
In
many ways, the recent price fall really is the United States’ work,
flowing to a large extent from a surge in American oil production
through the development of alternative sources like shale.
By
offsetting declines in conventional oil production, increases in shale
oil output have allowed overall American crude oil production to rise to
an average of about nine million barrels a day from five million a day
in 2008, according to the United States Energy Information
Administration. That four-million-barrel increase is more than either
Iraq or Iran, the second- and third-largest OPEC producers after Saudi Arabia, produces each day, and it has put strong downward pressure on world prices.
The
geopolitical shakeout set off by the oil market has not gone entirely
America’s way. Russia’s troubles have so far shown no sign of pushing
Mr. Putin toward a more conciliatory position on Ukraine, and some
analysts believe they could make Moscow even more pugnacious and prone
to lashing out.
The
Bank of England’s Financial Policy Committee, which monitors possible
systemic threats, warned in minutes released this week that “sustained
lower oil price also had the potential to reinforce certain geopolitical
risks.” It voiced alarm, too, over an increased risk of deflation in
the eurozone, the 18-nation area that uses Europe’s common currency.
The
price drop could also encourage more freewheeling use of oil products
like gasoline, undermining what appears to be a growing consensus among
nations that carbon emissions must be reeled in to offset the most dire
effects of global warming.
While
authoritarian oil producers like Russia are clearly suffering, China is
enjoying a huge windfall thanks to the price drop. It imports nearly 60
percent of the oil it needs to power its economy.
China
became the world’s largest importer of oil in 2013, surpassing the
United States, and so stands to benefit from plummeting prices. Bank of
America Merrill Lynch estimated last month that every 10 percent decline
in the price of oil could increase China’s economic growth by 0.15
percent.
Strong
growth in China would lift demand for oil and help reduce the current
agonies of OPEC, which pumps around a third of the world’s oil but,
largely as a result of increased American production, has lost much of
its ability to dictate prices by controlling output.
In
an interview with the Middle East Economic Survey this week, the Saudi
energy minister, Ali al-Naimi, indicated a fundamental rethinking by
OPEC, saying that it needed to focus on keeping its market share rather
than trying to raise prices by slashing production. “We have entered a
scary time for the oil market,” he said.
Reporting was contributed by
Stanley Reed from London; Jane Perlez from Beijing; David D.
Kirkpatrick from Cairo; William Neuman from Caracas, Venezuela; Thomas
Erdbrink from Tehran; and Simon Romero from Rio de Janeiro.
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