As the price of oil barrels downward, perhaps one of the most important stories is the significance for power politics. Much of the world’s oil production is controlled by nationalized companies, almost all members of OPEC. The severe drop in oil futures from its summertime high of $147 to the mid-$30′s today means many countries, such as Saudi Arabia, Iran, and Venezuela, are starving for revenue. Of course, the global recession doesn’t help the situation but this isn’t too unexpected considering overpriced oil was simply part of the unsustainable commodity bubble which had to burst at some point.
Of these affected countries who rely on oil for their livelihood, none have tried to use this boom period more to change their position in the world than Russia. As we speak, the ruble is dropping like a rock against the dollar (although the dollar is doing the same against the euro and the yen but that’s a different story for a different blog). This is occurring partly because of lost revenue for the government, but mainly because of the corrupt institutions Moscow has fostered over the last few years. Unsurprisingly, without guaranteed oil revenue, investors have lost almost all incentive to remain. The rule of law has also been severely distorted under Putin’s reign and those businessmen that once provided some value to the economy have been effectively removed (e.g., Mikhail Khodorkovsky is a good example). Regarding the issue of diminished free speech or a free press, this needs no elaboration.
So like many countries that nationalize their resource-rich industry, Russia has been foolish in the years of boom. Now it is time for bust.
I have read many articles over the past year or so warning on the impending strength of the new Russia and actions such as their invasion of Georgia brought to life some of these concerns. What happens when the money runs out though? This will be the question they will have to answer in the next year as the world sinks even lower in the global recession (or dare I say depression).
Considering the turn Russia has taken in the last few years, I can’t say this is particularly a bad thing – and the same goes for Venezuela as well. I would rather these dictators have less power and resources at their disposal with which to attack their neighbors and brutalize their citizens. But this also means we should expect more civil unrest in such regions. I envision some real turmoil visiting these countries in the next year. As well, the geopolitics of Eastern Europe and Russia’s much talked about re-emergence on the world scene might have to be reconsidered.