By Editorial Board, October 19, 2014
THE SILVER lining in the recent financial market turbulence has been the continued decline in the price of oil, which is down about 25 percent since June. In addition to creating a windfall for U.S. consumers — one analysis reckoned the savings could amount to $600 per household — the drop, if sustained, will place considerable pressure on three problematic petrostates: Russia, Iran and Venezuela. The aggressively anti-American foreign policies pursued by all three countries in recent years have been financed in large part by soaring oil revenue.
THE SILVER lining in the recent financial market turbulence has been the continued decline in the price of oil, which is down about 25 percent since June. In addition to creating a windfall for U.S. consumers — one analysis reckoned the savings could amount to $600 per household — the drop, if sustained, will place considerable pressure on three problematic petrostates: Russia, Iran and Venezuela. The aggressively anti-American foreign policies pursued by all three countries in recent years have been financed in large part by soaring oil revenue.
Though separated by culture and continent, the regimes of Vladimir Putin, Ali Khamenei and Nicolás Maduro have in common autocratic government and ambitions to dominate their regions. More than half of their state budgets come from petroleum exports, and their spending plans depend on high prices: $100 a barrel in the case of Russia, $120 for Venezuela and $140 for Iran, according to the Economist. Last week, benchmark Brent crude was selling for just $85 a barrel, while Venezuela’s heavy oil dropped below $80, according to the VenEconomía Web site.
The falling prices could compound the effect on Iran and Russia of international sanctions. Iran, which lost some 45 percent of its oil revenue in the past two years, has been able to increase its exports and return to economic growth under an interim agreement on its nuclear program. That advance could be nullified by the drop in prices, which in turn could increase the pressure on the regime to strike a long-term nuclear agreement with a U.S.-led coalition by a late-November deadline.
Mr. Putin has embarked on an expensive military adventure in Ukraine, but his finance minister warned this month that the country can no longer afford an ambitious 10-year defense spending plan — not to mention promised social spending. As the Kremlin well knows, a drop in oil prices during the early 1980s helped bring about the collapse of the Soviet Union. While he has yet to give up his ambitions in Ukraine, the Russian ruler may soon have to cope with a domestic economic recession and the unrest it could provoke.
Venezuela’s government is celebrating its election on Thursday to the U.N. Security Council — a position it secured thanks in part to its long-standing policy of buying the support of Caribbean and Central American countries with heavily subsidized oil. Venezuela also props up the Cuban economy with energy deliveries estimated to be worth $10 billion annually. The oil price drop may be most painful in Caracas, where the government is already failing to deliver hard currency to drug importers and international airlines. The cost for insuring Venezuelan debt has recently soared amid speculation about a default. If one is to be avoided, Mr. Maduro may have to adopt painful domestic measures, including a major currency devaluation and cuts in gasoline and electricity subsidies. That will make it hard to maintain the unpopular largesse for Cuba, Nicaragua and other clients.
The willingness and ability of Russia, Iran and Venezuela to challenge the United States and the post-Cold War order has steadily risen along with oil prices since the turn of the century. If, as seems possible, the recent decline is sustained over several years, the geopolitical dividends for the United States may be even greater than those reaped by consumers.
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