Plummeting oil
prices — down more than 25 percent since June to three-year lows —
should relieve pressure on consumers at the pump. But is it pushing
oil-exporting regimes past the breaking point?
The answer is no.
Despite their reliance on oil revenue, the governments of Russia, Iran,
Saudi Arabia, and Venezuela are not teetering. This is no “oil Arab
Spring,” where cratering prices topple governments, spreading like
wildfire from one dependent authoritarian state to another. In fact, the
price drop won’t even change their stances on the geopolitical issues
Washington cares most about.
Cheaper oil won’t
shift Iran’s posture in nuclear negotiations. Despite the looming
deadline, there is still a huge gulf between the two sides. Iran refuses
to eliminate most of its existing stockpile of enriched uranium and
centrifuges; Washington insists that any proposal without those
concessions would be stillborn. Yet, Iran doesn’t feel pressured to cede
ground, particularly when Moscow has offered support to Iran if there
is no sanctions relief. And Iran’s economy has stabilized somewhat:
since President Hassan Rouhani took office last year, inflation has dropped from 40 percent to 21 percent.
A deal could still happen, but it would be the result of creative
diplomacy and deeper compromise on both sides — not oil forcing Iran to
capitulate.
Nothing will deter
Vladimir Putin in his bid to destabilize and maintain influence over
Ukraine. Russia can stomach the economic consequences inflicted by
Western sanctions and cheaper oil for the foreseeable future. Despite
massive capital flight and a battered ruble, Putin still has the will,
the foreign reserves, and the popular support — his approval ratings are
near historic highs — to continue his offensive.
For the time
being, Saudi Arabia remains the oil supplier of last resort. It can cut
and expand production to alter global supply-demand dynamics. Riyadh has
amassed an enormous rainy day fund to weather storms such as this.
Saudi Arabia will participate in Washington’s anti-Islamic State
campaign only insofar as it aligns with its own aims. A sectarian
anti-Shi’ite stance is the guiding force in Saudi Arabia’s foreign
policy; cheaper oil will have no bearing on that.
Lower oil prices
are an additional strain on Venezuela’s ailing economy. But $75-80 oil
won’t send the country into default. President Nicolas Maduro is
committed to servicing Venezuela’s external debt and he has room to
maneuver: Venezuela will likely implement a managed devaluation of its
currency and unlock additional liquidity from things like asset sales
and changing the terms of its loans with China. Caracas can handle the
economic pain for now, without ushering in social dislocation or
political upheaval that would make the military withdraw its support for
Maduro.
Longer term, it’s
very clear that these regimes’ overdependence on oil revenue could
threaten their survival. But each regime faces unique stresses, and the
breaking points, should they come at all, are neither imminent nor
interconnected. When it comes to regime stability, don’t read much into
this price drop just yet.
But there is an
overarching trend affecting all of these petrostates: a shifting energy
landscape will make them dramatically more dependent on China.
It’s already on
display in Russia and Venezuela. Venezuela relies on loans from China
that it repays in future oil exports; pushing for more lenient terms of
these loans is part of Caracas’ strategy for dealing with the recent oil
price drop. Moscow has hedged against its cratering relations with the
West by sidling up to Beijing. In May, the two countries completed a
30-year, $400 billion gas deal after Russia dropped its asking price;
they inked additions to that agreement over the weekend.
Two structural
changes will accelerate Russia’s tack to China in the years to come.
First, as Russia continues to wield its energy as a political weapon, it
will alienate European consumers who will actively seek out new
supplies of natural gas that don’t carry such a hefty geopolitical price
tag. Second, the North American unconventional energy revolution will
help provide that source—and undermine Russia’s pricing power by
offering alternatives and boosting global supply.
The North American
unconventional energy revolution (from fracking, tar sands and other
sources) will rattle geopolitics in the Middle East above anywhere else.
The U.S. Energy Information Administration predicts that by 2020, more
than four-fifths of the oil the United States consumes will come from
the Western hemisphere. By that point, America could be the world’s
largest oil producer, and energy self-sufficient by 2035 (according to
the International Energy Agency). A reduced reliance on energy from the
Middle East will make the US less dependent on the world’s most volatile
region—and less interested in getting involved in its geopolitical
flare-ups. Meanwhile, to feed its expanding economy and growing middle
class, China will become increasingly attached to Middle Eastern energy
producers—and vice versa.
Petrostates’
tectonic shift away from the United States towards China will have
far-reaching ramifications for these governments, their neighborhoods,
and the global energy picture. A risk-averse Chinese leadership will not
address the geostrategic issues and security concerns that go hand in
hand with energy production in volatile Eurasia and the Middle East.
While Washington doesn’t have a formal strategy to intervene on behalf
of American energy companies, U.S. engagement does coincide with these
linkages. For example, robust energy ties between the United States and
Saudi Arabia have underpinned the strategic alliance. That will not be
the case with China as it increasingly inherits the United States’ role
as the world’s principal energy importer. China will work to engage
commercially with no strings attached: it will gladly ink sweetheart
energy deals with Russian leadership, but that doesn’t commit Beijing to
any deeper geostrategic engagement. That is a very different style of
“partner” indeed.
China will likely choose to maintain this more transactional approach
to diplomacy, contributing to an expanding power vacuum in these
regions. Interventionist diplomacy beyond the Asia Pacific region is new
for the Chinese, and meddling in distant countries is particularly
troublesome for a leadership that so adamantly believes sovereignty is
sacrosanct as it safeguards its own internal affairs against outside
intervention. The only thing more problematic than an absence of
leadership could be an inconsistent and opaque Chinese presence.
Don’t overestimate the near-term impact of oil prices in free fall.
Yet, even if cheaper oil doesn’t upend these regimes — or align them
with Washington — it will accelerate their deepening dependence on
China. That is a recipe for greater instability and a more volatile
global energy landscape.
No comments:
Post a Comment