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Geopolitics

World Weighs Cheap Oil: Iran, Venezuela, Europe, Beyond

Statues of people kneeling before an oil derrick
Statues of people kneeling before an oil derrick
Alidad Vassigh

PARIS — Initially a welcomed spark for a global economy in need of a boost, the drastic fall in the price of crude oil — losing half its value since mid-2014 — has now begun to destabilize markets and worry investors and political leaders around the world. Still, this rapidly evolving situation is prompting some notably contrasting reactions in different parts of the world.

El País' top story Wednesday was headlined, "The Price of Oil Hits Bottom and Revolutionizes the World Economy," as the Madrid daily reported that money was already "fleeing to safe havens" at the prospect of turmoil in emerging economies.

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Oil producers are certain of its depressive effects on their budgets even if the traditional top producers — Saudi Arabia, the Persian Gulf monarchies and even Russia — are disinclined to cut output for now.

Analysts around the world widely agree that the most notable new factor in the current trend in energy production is the flood of mostly American-extracted shale gas into the market.

The Guardian notes that U.S. oil production has increased 48% over the past five years, which was originally offset by drops elsewhere. But as demand has also abated, prices have dropped, and may continue downward. Stephen Schork, a U.S.-based market analyst, told the London daily that investor “psychology” is driving oil trading. “We could get a rebound to $70 but we could see $30 before we see $70.”

The political ramifications weigh in the most immediate way on Russia, which may have to reconsider its aggressive policy vis a vis Ukraine, as it suffers the effects of both Western sanctions and the sustained drop in oil prices. After Russia's record oil production in 2014, Radio France Internationale reports that it now had to maintain sales by diversifying its clients and as elsewhere in the world, most notably to China.

La chute des cours du pétrole pèse lourd sur les finances de l’Algérie http://t.co/PkcvSyRf6ypic.twitter.com/h1ct30iycM

— RFI (@RFI) December 29, 2014

The drop in oil prices is weighing heavily on Algeria's finances

Yet the Persian daily Kar va Kargar, which represents labor sectors in Iran, cited Iran's Oil Minister Bijan Namdar Zanganeh as saying that Iran and Russia had been discussing cutting production without reaching an agreement; "we need to keep negotiating with the Russians."

The leading oil producer in Latin America, Venezuela, was meanwhile negotiating another big loan with China, as it takes a battering from the price drop and its own planned economy. While Venezuelan President Nicolás Maduro was in Beijing on , the daily El Nacional reported that China had already lent Venezuela more than $50 billion since 2007, though about half of that had been written off. Every Venezuelan it noted, owed China over $761. In oil-rich Mexico, experts were observing that the state may well have to envisage smaller budgets for several years, not just this year, as Mexico's own export blend may end up costing around just $30 a barrel. Milenio newspaper cited the Senate President Miguel Barbosa as suggesting that the cabinet should start drafting "austerity" plans — a word rarely heard in Mexico.

The South China Morning Post reported on the economic stakes of the visit of Latin American leaders in China, although the Hong Kong daily also noted that the first windfall of lower oil prices could be felt in the air: lower costs for the world's airlines.

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Colombia's Finance Minister Mauricio Cárdenas was less concerned. He told El Colombiano that oil sales only provided 16% of the state budget and the country remained set for a growth rate of 4.2% in 2015.

Like Venezuela, one of the countries most affected will be Iran, also over-dependent on oil and still working with elements of a planned economy. The reformist daily Sharq termed Jan. 6 "Oil's black day," as prices changed "by the minute" and fell below $50 a barrel. It noted that legislators were considering a bill to "detach" the next state budget from oil revenues — something the country has effectively failed to do since the 1979 revolution. Presumably, this would involve spending cuts, though Iran has said it will not curb its regional involvments or contested nuclear program for having less cash to spend.Jaam-e Jam, the newspaper of the state broadcasting body, noted on Jan. 7 that if "the plot by the United States and certain OPEC members against Iranian and Russian" oil continued, Iran may well earn $14-18 billion less in the 2015.

The editor of London-based pan-Arab daily Al Sharq al-Awsatobserved that falling prices were a "slap in the face" of Iran and its "disgraceful meddling" in Middle East affairs, yet "who would have believed" that it should ask its arch-foe Saudi Arabia, as it has in recent weeks, to help save its "seriously tanking" economy by cutting output? The Kingdom he noted, had no intention of being that savior: "It will do nothing except watch."

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Geopolitics

D.C. Or Beijing? Two High-Stakes Trips — And Taiwan's Divided Future On The Line

Two presidents of Taiwan, the current serving president, Tsai Ing-wen, and her predecessor, Ma Ying-jeou from the opposition Kuomintang party, are traveling in opposite directions these days. Taiwan must choose whom to follow.

Photo of Taiwan President Tsai Ing-wen

Tsai Ing-wen, the President of Taiwan

Pierre Haski

-Analysis-

PARIS — Tsai Ing-wen, the President of Taiwan, is traveling to the United States today. Not on an official trip because Taiwan is not a state recognized by Washington, but in transit, en route to Central America, a strategy that allows her to pass through New York and California.

Ma Ying-jeou, a former president of Taiwan, arrived yesterday in Shanghai: he is making a 12-day visit at the invitation of the Chinese authorities at a time of high tension between China and the United States, particularly over the fate of Taiwan.

It would be difficult to make these two trips more contrasting, as both have the merit of summarizing at a glance the decisive political battle that is coming. Presidential and legislative elections will be held in January 2024 in Taiwan, which could well determine Beijing's attitude towards the island that China claims by all means, including force.

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