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High oil prices burn US policy
Financial independence has contributed to more assertive actions by Russia, Iran and Venezuela in the international arena
- By Marwan Kabalan, Special to Gulf News
- Published: 00:07 June 27, 2008
- Image Credit: Illustration: Dwynn Trazo/Gulf News
Last week, Saudi Arabia hosted a major conference that brought together the world's major oil exporters and consumers to discuss potential measures to control oil prices. At the end of the conference King Abdullah Bin Abdul Aziz of Saudi Arabia announced a major increase in his country's oil production from 9 to 9.7 million barrel per day , its highest in more than 30 years. King Abdullah also pledged to pump even more if the market demanded it.
The US government welcomed the Saudi measure, hoping that it would help contain major domestic challenges in an election year. The rising bill for imported petroleum in the US lowers already anaemic consumer savings rates, adds to inflation, worsens the trade deficit, undermines the dollar and makes it more difficult for the Federal Reserve to balance its competing goals of fighting inflation and sustaining growth.
But the Bush administration was more concerned about the geopolitical consequences of rising oil prices. Economists believe that at current prices, roughly $700 billion a year are flowing to the world's oil exporting countries. Three of those nations - Iran, Venezuela and Russia - are better equipped to defy the Bush administration because of swelling oil revenue. Venezuela has used its oil wealth to dispense patronage around Latin America, vying for influence even with longtime US allies. Iran is becoming less vulnerable to sanctions designed to pressure it into giving up its nuclear programme or opening it to inspection. Russia, the world's second largest oil exporter, shows oil's transformational impact in the political as well as the economic realm.
When Vladimir Putin came to power in 2000, less than two years after the collapse of the rouble and Russia's default on its international debt, the country's policymakers feared total economic breakdown. Those days are long gone. Soaring oil prices have helped Moscow increase the federal budget tenfold since 1999 while paying off its foreign debt and building the third-largest gold and hard-currency reserves in the world, about $580 billion.
Assertive actions
This financial independence has contributed to more assertive actions by Russia in the international arena. Today, there is a strong drive within part of the Russian elite to show that they are off their knees. Russia is trying to reclaim former Soviet republics as part of its sphere of influence. Freed of the need to curry favour with foreign oil companies and Western bankers, Russia can resist what it views as American expansionism, particularly regarding Nato enlargement and US missile defence system in Eastern Europe, and forge an independent approach to contentious issues such as Iran's nuclear programme.
Russia, Venezuela and particularly Iran are key challenges for US policy world-wide. Many analysts believe that neither air strikes nor negotiations seem likely to derail Iran's nuclear programme. Low oil prices might do. The Iranian regime, many argue, is precarious. It holds on to power by financing internal security services and buying off elites with oil money, which accounts for 70 per cent of government revenues. If the price of oil were suddenly to drop to, say, $40 a barrel (from a current price of $135) the regime in Tehran would lose its steady income.
This explains why Iran has acted as a spearhead in opposing any increase in oil supplies. It also explains why Tehran has always regarded Saudi Arabia's spare production capacity as a threat to its national security. Saudi Arabia's supremacy in the oil market is undisputable. Saudi Arabia is not only the world's largest oil exporter; it is also the only oil producer with a spare production capacity of 2 million bpd. Riyadh's plans to shift its main oil shipping resorts from east (the Gulf) to west (the Red Sea), is sending shockwaves across Iran. When this project is completed, Iran's ability to block oil supplies from the Gulf would be extremely curtailed.
Hence, oil supplies, prices and transport shouldn't be regarded as economic matters. They are in fact political and strategic questions and must always be viewed as such.
Dr Marwan Kabalan is a lecturer in media and international relations, Faculty of Political Science and Media, Damascus University, Syria.
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