30/01/2015

OilPricesChangingTheFaceOfGlobalGeopolitics

Oil Prices Changing The Face Of Global

Geopolitics
By Andrew Topf[1]
Posted on Sun, 25 January 2015 00:00 |
In a documentary that aired recently on the Canadian Broadcasting Corporations
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 increasingly desperate.
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
runaway inflation[2] 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 Mind
We are already seeing this to be the case. As Oilprice.com reported[3] on Tuesday, Putin
is set to absorb South Ossetia Georgias breakaway republic that declared itself
independent in 1990. Under an agreement intended to legalize South Ossetias
integration with Russia, Russia would invest 2.8 million rubles (US$50 million) to fund
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the socio-economic development of South Ossetia, according[4] to Agenda.GE, a Tbilisibased news site.
Related:Putin: Battered, Bruised But Not Broken[5]
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 Turkeys Mediterranean coast.
BTC started 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[6] 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[7] 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
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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
Is This The Most Lucrative Investment In Modern History?
A new type of investment just recently became available to individual oil & gas investors.
Because of the recent crash in oil and the timing of a new law, it could be the most
lucrative investment in modern history. I want to give you a step-by-step guide (at no
cost) on how you can get started and potentially retire from it.
Click here to get the free guide now.[8]
Some have 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[9], 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 Irans
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[10] on Jan. 7. Like Russia, Iran is looking at spending
cuts in next years 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 dtente between Iran
and Western countries. In a speech on Jan. 4, President Hassan Rouhani said Irans
economy cannot develop in isolation from the rest of the world, while at the same
time, Irans foreign minister was negotiating a nuclear deal that could see the lifting of
UN sanctions, the Washington Post observed[11].
Then there is the cooperation between the West and Iran over the terrorist group ISIS.
The National Posts 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 Irans support for Hezbollah in Lebanon and Syrias president Assad.
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Related:China Buying Up Latin American Oil[12]

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[13]. 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 Chvez, the South
American oil producer was already struggling to pay its debts when new president
Nicols 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 worlds 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 $20billion left in its reserves, and $50billion 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 revolt,
according[14] to the Washington Post.
By Andrew Topf of Oilprice.com
More Top Reads From Oilprice.com:
Join the discussion
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Links
1. http://oilprice.com/contributors/Andrew-Topf
2. http://www.themoscowtimes.com/article/514681.html
3. http://oilprice.com/Energy/Natural-Gas/Expanding-Russia-Issues-Europe-AnUltimatum.html
4. http://agenda.ge/news/27007/eng
5. http://oilprice.com/Energy/Energy-General/Putin-Battered-Bruised-But-NotBroken.html
6. http://www.bloomberg.com/news/2015-01-14/russia-to-shift-ukraine-gas-transit-toturkey-as-eu-cries-foul.html
7. http://qz.com/327184/putin-russia-is-about-to-absorb-part-of-yet-anothercountrys-land/
8. https://oilprice.com/goto/308/aHR0cDovL3d3dy5jcnVkZS5jb20vb3AtZWJvb2stcGFnZS12Mi8
9. http://business.financialpost.com/2014/12/27/nevermind-u-s-shale-saudi-arabiasoil-power-play-targets-irans-economy/
10. http://www.bloomberg.com/news/2015-01-07/oil-at-40-means-boon-for-some-noice-cream-for-others.html
11. http://www.washingtonpost.com/opinions/jackson-diehl-falling-oil-prices-hitvenezuela-iran-and-russia-hard/2015/01/18/a92ca05a-9cd9-11e4-bcfb059ec7a93ddc_story.html
12. http://oilprice.com/Energy/Crude-Oil/China-Buying-Up-Latin-American-Oil.html
13. http://news.nationalpost.com/2015/01/20/j-l-granatstein-canada-is-playing-bothsides-with-iran/
14. http://www.washingtonpost.com/opinions/jackson-diehl-falling-oil-prices-hitvenezuela-iran-and-russia-hard/2015/01/18/a92ca05a-9cd9-11e4-bcfb059ec7a93ddc_story.html

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