Mission & Name
US Foreign Policy (Dr. El-Najjar's Articles)
Oil Prices Changing the Face of Global
By Andrew Topf
Al-Jazeerah, CCUN, January 28, 2015
In a documentary that aired recently on the Canadian Broadcasting
Corporation's popular The Fifth Estate program, an allegory of Vladimir
Putin was presented. The wily Russian president was described growing up in
a shabby St. Petersburg apartment, where he would often corner rats.
Now, punished by low oil prices and Western sanctions against Russian
incursions in Ukraine/ Crimea, Putin is himself the cornered rat. Many
wonder, and fear, what he will do if conditions in Russia become
In the last six months oil prices have
plunged over 50 percent and the Russian economy is hurting. The country now
faces slowing economic growth, a depressed ruble, and
inflation estimated to be up to 150 percent on basic foodstuffs.
The Kremlin is counting on austerity cuts to help balance its budget,
which has revenues coming in at $45 billion lower than earlier projections.
The exception, significantly, is defense. With the military exempted from
the austerity plan, it begs the question of whether Putin will "play the
nationalist card," such as he did in Crimea, in an effort to strengthen
greater Russia during a period of economic weakness.
Georgia On His
We are already seeing this to be the case. As Oilprice.com
reported on Tuesday, Putin is set to absorb South Ossetia – Georgia's
breakaway republic that declared itself independent in 1990. Under an
agreement "intended to legalize South Ossetia's integration with Russia,"
Russia would invest 2.8 million rubles (US$50 million) to "fund the
socio-economic development of South Ossetia,"
according to Agenda.GE, a
Tbilisi-based news site.
The situation is analogous to Crimea
because, like Crimea, South Ossetia contains a significant Russian-speaking
population with ties to the Motherland.
If Putin succeeds in
annexing the tiny province, it will be a real poke in the eye to the United
States, which provoked Russia in the early 1990s by promoting construction
of a pipeline between the former Soviet republics of Azerbaijan and Georgia.
The BTC pipeline moves oil from Baku in Azerbaijan to Tbilisi in Georgia and
then onward to Ceyhan on Turkey's Mediterranean coast.
operating in 2006. Then, two years later, Putin built his own pipeline to
cut out Georgia. The South Ossetia pipeline run by Gazprom stretches 75
kilometers from South Ossetia to Russia.
The current move on South
Ossetia is a way for Russia to assert its energy independence in the face of
Western sanctions and low oil prices.
It comes as Russia announced
plans to divert all of its natural gas crossing Ukraine to a route via
Turkey. As Bloomberg
reported last week, Gazprom will send 63 billion cubic meters through a
proposed link under the Black Sea to Turkey – after the earlier South Stream
pipeline, a $45-billion project that would have crossed Bulgaria, was
scrapped by Russia amid opposition from the European Union. By sending the
gas to Turkey and on to Europe via Greece, Gazprom is in effect sending
Europe an ultimatum: build pipelines to European markets, or we will sell
the gas to other customers.
According to one observer, the proposed
land grab in South Ossetia combined with the snub to Europe by shifting its
gas to Turkey and bypassing Ukraine, is a classic Putin power play:
"Russia is preparing to absorb a province of neighboring Georgia, and
delivering an ultimatum to Europe that it could lose much of the Russian gas
on which it relies," Steve LeVine
writes in Quartz. "Putin has argued that the west is simply intent on
ousting him and weakening Russia... Faced with these perceived attempts to
undercut him and his country, Putin suggests that he has no choice but to
pull around the wagons and stick it out. This could go on a long time."
Iran: Falling Oil Prices Spur Peace Dividend
speculated that the oil price crash was orchestrated by the Saudis, possibly
in collusion with the United States and other Gulf states, to
punish Iran, its main political and religious rival in the Middle East.
Whether or not that is true, there is no denying the effects of a
low oil price on Iran's economy. "Iran is already missing tens of billions
of dollars in oil revenue due to Western sanctions and years of economic
mismanagement under former President Mahmoud Ahmadinejad,"
Bloomberg reported on Jan. 7. Like Russia, Iran is looking at spending
cuts in next year's budget, which is based on an overly-optimistic $72 a
barrel crude oil price.
However, unlike Russia, which is "circling
the wagons" and pulling further away from the West currently, the oil price
drop could actually lead to more of a détente between Iran and Western
countries. In a speech on Jan. 4, President Hassan Rouhani said Iran's
economy "cannot develop in isolation from the rest of the world," while at
the same time, Iran's foreign minister was negotiating a nuclear deal that
could see the lifting of UN sanctions, the Washington Post
Then there is the cooperation between the West and
Iran over the terrorist group ISIS. The National Post's J.L. Granatsein
wrote in a column on Tuesday that Iran has deployed substantial numbers of
its Revolutionary Guard elite Al Qods brigade into Iraq and Syria to fight
ISIS, along with Western allies including the US, Britain, France and
Canada. This is despite Iran's support for Hezbollah in Lebanon and Syria's
"Politics makes strange bedfellows indeed, but not
much can be stranger than this. Led by the Americans, hitherto the Great
Satan to the Iranian leaders, the ties between the West and Iran are
becoming tighter, each side reacting to the horrors of Islamist
fundamentalism throughout the region," Granatsein
writes. "The Iranians have been hurt by sanctions, and they are being
wracked even more by the falling price of oil. Easing curbs on trade and
Iranian banks may mitigate the effects of the oil price collapse."
Venezuela Bracing For The Worst
The other major loser in the oil
price collapse, Venezuela, may not see such a positive outcome. Wracked by
decades of economic mismanagement by Hugo Chávez, the South American oil
producer was already struggling to pay its debts when new president Nicolás
Maduro came to power.
Now, with inflation running at 60 percent and
lines forming outside state grocery stores for food and other basic
supplies, Maduro faces the specter of serious social unrest if conditions do
not improve. The country has some of the world's cheapest gasoline prices,
but Maduro has refused to end fuel subsidies, fearing, no doubt, a repeat of
widespread riots in 1989 that left hundreds dead after gasoline prices were
allowed to rise.
Venezuela is even more dependent than Russia on the
price of oil, earning some 96 percent of its foreign currency from oil
sales, putting Maduro in the untenable position of either borrowing more,
despite crushing debts, or slashing spending:
"With only $20 billion
left in its reserves, and $50 billion in debt to China alone, Venezuela
appears headed toward a choice between abandoning its oil giveaways and
defaulting on its debts, or starving its own population to the point of
according to the Washington Post.
By Andrew Topf for Oilprice.com
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