Russia, America and the Rise and Fall of Oil Prices
At first glance, one might think the drop in oil prices was an unexpected windfall for the United States. If we reflect upon how inherently mechanical this drop was, it is clear that it was planned out before being set in motion. And as a bonus, it had huge geopolitical ramifications.
In his last interview on National Public Radio, Barack Obama confirmed or revealed that his foreign policy during the past two years was based on "strategic patience." Basically, this patience depended on the economic sanctions imposed on Russia after its actions in Ukraine and the reinforcement of those imposed on Iran by George W. Bush after discovering the ayatollahs' nuclear ambitions.
During the interview, the president stated that "over time it would make the economy of Russia sufficiently vulnerable that if and when there were disruptions with respect to the price of oil — which, inevitably, there are going to be sometime, if not this year then next year or the year after — that they'd have enormous difficulty managing it." It will be especially difficult because the country's economy depended and remains dependent on the price of black gold.
Because of this dependence, everyone knows the correct and "boring" reason why President Vladimir Putin has been unable to modernize and diversify the country's economy since he rose to power and gas prices unexpectedly jumped in 2000. Simply put, Russia exports natural gas, oil and some weapons, and imports practically everything else. The Kremlin has been extremely irresponsible: Income from the sale of natural gas and oil was over 8 percent of the budget in the early 2000s, but today it is 52 percent! In short, the entire country is fueled by black gold.
The 50 percent drop in oil prices during the last six months had incredibly brutal consequences. To stop the ruble’s value from plunging, the central bank increased interest rates to 17 percent from 10.5 percent in June. Its GDP shrank by 4 percent during the last quarter. The budget deficit was 3 percent and will remain that way in 2015. What else could they expect? Russia's budget was created when oil was $70 a barrel, so it became a piece of fiction in practice.
The same goes for Iran and Venezuela. The economic situation in these countries is nearly a carbon copy of Russia's. Successive economic difficulties left these three nations with little room to maneuver politically. They no longer have the means to fulfill their geopolitical ambitions and are completely paralyzed. Let's start with Venezuela, the most straightforward of these three cases.
It is now public knowledge that the most convincing political factor in Raúl Castro’s decision to sign an agreement with the United States over 15 years ago was fear. Fear of what? That a significant drop in oil prices would force Venezuela to do what Russia did after the fall of the Berlin Wall: stop supporting Cuba financially.
In the Middle East, Iranian and Russian support for Bashar Assad in Syria will likely be significantly modified during the upcoming months. Especially since Iran's old regional enemy, Saudi Arabia, will not reduce its oil production and thus hurt Tehran financially in the long term.
In this complex game of diplomatic chess, the United States has a huge advantage not only over their main Russian, Iranian and Venezuelan "adversaries," but also over Saudi Arabia. It so happens that in recent months, the United States dethroned Saudi Arabia as the world's top oil and natural gas producer, meaning it no longer needs Gulf oil. It is not dependent on Saudi Arabia, Venezuela or any of these other political rivals. In short, the United States added black gold to its strategic arsenal. To borrow a term used by a former French foreign affairs minister, America is and will remain a superpower.
In his last interview on National Public Radio, Barack Obama confirmed or revealed that his foreign policy during the past two years was based on "strategic patience." Basically, this patience depended on the economic sanctions imposed on Russia after its actions in Ukraine and the reinforcement of those imposed on Iran by George W. Bush after discovering the ayatollahs' nuclear ambitions.
During the interview, the president stated that "over time it would make the economy of Russia sufficiently vulnerable that if and when there were disruptions with respect to the price of oil — which, inevitably, there are going to be sometime, if not this year then next year or the year after — that they'd have enormous difficulty managing it." It will be especially difficult because the country's economy depended and remains dependent on the price of black gold.
Because of this dependence, everyone knows the correct and "boring" reason why President Vladimir Putin has been unable to modernize and diversify the country's economy since he rose to power and gas prices unexpectedly jumped in 2000. Simply put, Russia exports natural gas, oil and some weapons, and imports practically everything else. The Kremlin has been extremely irresponsible: Income from the sale of natural gas and oil was over 8 percent of the budget in the early 2000s, but today it is 52 percent! In short, the entire country is fueled by black gold.
The 50 percent drop in oil prices during the last six months had incredibly brutal consequences. To stop the ruble’s value from plunging, the central bank increased interest rates to 17 percent from 10.5 percent in June. Its GDP shrank by 4 percent during the last quarter. The budget deficit was 3 percent and will remain that way in 2015. What else could they expect? Russia's budget was created when oil was $70 a barrel, so it became a piece of fiction in practice.
The same goes for Iran and Venezuela. The economic situation in these countries is nearly a carbon copy of Russia's. Successive economic difficulties left these three nations with little room to maneuver politically. They no longer have the means to fulfill their geopolitical ambitions and are completely paralyzed. Let's start with Venezuela, the most straightforward of these three cases.
It is now public knowledge that the most convincing political factor in Raúl Castro’s decision to sign an agreement with the United States over 15 years ago was fear. Fear of what? That a significant drop in oil prices would force Venezuela to do what Russia did after the fall of the Berlin Wall: stop supporting Cuba financially.
In the Middle East, Iranian and Russian support for Bashar Assad in Syria will likely be significantly modified during the upcoming months. Especially since Iran's old regional enemy, Saudi Arabia, will not reduce its oil production and thus hurt Tehran financially in the long term.
In this complex game of diplomatic chess, the United States has a huge advantage not only over their main Russian, Iranian and Venezuelan "adversaries," but also over Saudi Arabia. It so happens that in recent months, the United States dethroned Saudi Arabia as the world's top oil and natural gas producer, meaning it no longer needs Gulf oil. It is not dependent on Saudi Arabia, Venezuela or any of these other political rivals. In short, the United States added black gold to its strategic arsenal. To borrow a term used by a former French foreign affairs minister, America is and will remain a superpower.