Russia’s reigning judo aficionado has been staggered by a one-two economic punch.
A Russian oil platform sits in the Caspian Sea in April 2011. International sanctions and a steep drop in oil prices have forced Russia to agree to sell gas to Ukraine, experts say.
A panel of experts said Friday that international sanctions and record-low oil prices forced Russian President Vladimir Putin to the bargaining table with Ukraine this week, spurring his administration to sell Kiev desperately-needed natural gas despite an ongoing armed conflict between the two countries. Russia, one of the region's top oil producers, really needs the money.
“There was pressure on Russia to at least come to some agreement on gas,” William Pomeranz, deputy director of the Woodrow Wilson Center’s Kennan Institute, said during the discussion at the Washington-based think tank. “Russia did enter this crisis with almost a half a trillion dollars in the bank. It is their rainy-day fund, but it is indeed raining in Russia, and indeed their money is going out.”
But the Kremlin, which draws the vast majority of its export revenue from oil and gas, isn’t alone in feeling the pain from falling crude prices. Even as American motorists rejoice over gas prices at or below $3 a gallon for the first time in four years, the 20-percent drop in crude oil prices – from more than $100 in 2010 to about $85 this week – threatens to destabilize so-called petro states that rely on oil revenue to prop-up their government coffers, from Russia to Iran to Nigeria.
At the panel, titled, “Impact of Low Oil Prices: Petro Power or Petro Poverty,” Pomeranz and five fellow experts broke down the situation country by country, including Venezuela, Iran, Saudi Arabia and Nigeria along with Russia. Each state, highly dependent on high oil prices, faces risks if bargain-basement oil prices - pushed well below $100 a barrel in part by an energy boom in the United States - continues to flood the global market.
THE MIDEAST
Saudi Arabia vs. Iran
Cracks are showing in the oil cartel the world loves to hate.
Saudi Arabia, OPEC’s biggest member, is fighting with Iran over market share in China, each country slashing prices to gain an edge over the other. Meanwhile, Venezuela’s share-the-wealth populist government, - built on $100 a barrel crude prices – is reeling from the sudden lack of revenue. (More on that below.)
“They’re in this incredible rivalry with Iran now,” Kalicki said of Saudi Arabi, “kind of a showdown between the two across the Gulf and the Levant.”
As Wilson Center senior scholar David Ottaway described: “There’s an enormous scramble among oil producers for its share of the Chinese oil market. China has been going around the world buying the lowest price it can find.”
Iran and Saudi Arabia each have strong incentives to gain a foothold in China: Saudi Arabia has faced two to three years of especially high spending to quell social unrest in the wake of the Arab Spring, Ottaway said.
Meanwhile, Iran’s economy, already ailing from international sanctions over the country’s nuclear program, has been further weakened by the plunge in oil prices.
“Iran is really hurting,” Ottaway said.
But that presents potentially major opportunities for the United States.
Iran’s Nuclear Program
Iran’s oil revenue has fallen by 30 percent, and “enormous economic pressure” on top of that could make the country’s leadership more amenable to compromise with the West over its nuclear program, Ottaway said.
“Everybody who’s following this is wondering how this is going to affect the negotiation over Iran’s nuclear program,” he contended, “and whether they’re going to be willing to make exceptions because the economic situation is really difficult for them now.”
Interestingly, Russia, which has sided with Iran throughout their negotiations with the U.S. and the United Nations, could face potential conflicts of interest if American-led sanctions are ultimately lifted.
“From a certain standpoint [the Kremlin] doesn’t want to let another player onto the international market that will be competing with Russia on a number of levels,” Pomeranz said, notably energy exports.
Greater Price Stability
The United States also has another opportunity, Kalicki said: “A window, which is not a very wide one, to do some significant things in energy diplomacy.” In particular, he argued, the U.S. could push OPEC to restore the so-called “price band,” lower and upper limits on oil prices that Kalicki contended would bring “more predictability and stability” in global energy pricing.
OPEC instituted a price band in 2000, but it was abandoned just four years later as rising demand in China pushed prices through the artificial price ceiling.
