[Marxism] Oil’s Swift Fall Raises Fortunes of U.S. Abroad

Louis Proyect lnp3 at panix.com
Thu Dec 25 07:27:24 MST 2014

NY Times, Dec. 25 2014
Oil’s Swift Fall Raises Fortunes of U.S. Abroad

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 

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 

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 

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.

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