Oil crash has economic benefits but geopolitical risks for US

GMT 09:01 2016 Friday ,29 January

Arab Today, arab today Oil crash has economic benefits but geopolitical risks for US

The 70 percent plunge in crude prices benefits the US
New York - AFP

The oil price crash is mostly a godsend for the United States, delivering American consumers and businesses cheaper gasoline prices while hobbling the economies of adversaries like Russia.

But analysts say that the longer the oil price stays so low, the greater the chances it will generate new geopolitical problems that Washington would not like to see.

Even if the 70 percent plunge in crude prices has battered the homegrown US oil industry, overall its economy benefits: it remains a net importer of oil and as the price of crude falls, the country's trade imbalance improves.

"There's no question that low oil prices are very good for the US. Painful for some people obviously, but for the US economy and US consumers a very good thing," said Bruce Everett, a former ExxonMobil official and professor at Tufts University.

There are apparent strategic benefits of cheap oil, too.

Countries like Russia, Venezuela and Iran, with which Washington shares chilly relations, are overly dependent on oil exports and their economies have been heavily battered by the downturn.

"If you don't care especially about the (other) oil producers, it's a plus," said George Perry of Brookings Institution.

But the flip side is that strains from a loss of oil income can trigger destabilizing behavior as well.

Energy specialist Jan Kalicki of the Wilson Center posed the question of whether Russia would be less or more troublesome on the world scene if the economic climate worsens.

"The pressure is on Russia from oil prices and their general economic decline," Kalicki said.

"You could make an argument that the Russians have been influenced to some extent by that in taking stronger steps internationally... in Ukraine or in Syria for example.

That, he said, serves to "take domestic attention away from the economic problems that it is facing."

- Convergence of interests -

For Iran, the price fall comes as the country is being permitted to resume a high-level of oil exports with the lifting of international nuclear sanctions on the country.

The net effect, income-wise, is little significant immediate gain for the country, according to Anthony Cordesman, a Middle East and security expert at the Center for Strategic and International Studies in Washington.

Even at a price of $40 a barrel -- some 15 percent higher than now -- the resumption of oil exports won't have a big economic effect for the country of 84 million people.

However, he said, any surge in income in could become the focus of an intensified internal power struggle pitting military versus civilian needs, according to Cordesman.

That fight "may become even more serious," he said.

"The impact of the nuclear agreement on Iran's future petroleum revenues will be far more limited than many thought when the agreement was signed, and Iran will face serious internal pressure over how any additional revenue will be used," he told AFP.

Cordesman raised another potential pitfall from falling oil revenues across the Gulf and other producers: social turmoil as governments are forced to cut spending.

"It's very unclear that stability in the Middle East is going to get better if the same forces which tend to drive Islamic extremism -- all of which relate to youth unemployment and economic growth and modernization -- are not going to be helped by a decline in oil revenues by exporting states," he said.

Kalicki added that the fall in the oil price hurts US allies too, including Mexico and Canada, both of whose economies depend significantly on crude production.

In that sense, he said, oil producers and consumers have similar interests in a firmer market.

"There is a rebalancing going on between purchasers and the buyers," he said, creating "a convergence of interest developing among countries active in the oil marketplace in a way that it hasn't in the past."

For that reason, the United States needs to be concerned over "the broader impact of lower oil prices on the international economy and on countries trying to fend their way which are not creating issues internationally," he said.


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