Aside from having a break from school, one of the most enjoyable parts of my winter break was the falling gas prices. I, like many other Americans, was overjoyed when only $15 practically filled up my tank, freeing up some extra cash for gifts, dinners and books.
While it’s easy to enjoy this sudden decrease in oil prices, many Americans haven’t stopped to wonder why such a trend is taking place.
The price for a barrel of oil has dropped from nearly $120 to just over $50, marking the lowest oil prices in almost five and a half years. While this may be good for American wallets, it’s bad for international relations.
I often hear people claim the United States is controlling all of this in order to get back at Russia. These low gas prices reveal to what extent this new pseudo-Cold War era rhetoric is developing between the two countries.
Sadly, this fails to capture the entire picture.
Simply put, the falling gas prices are the consequence of supply and demand. The demand for oil in large oil consuming countries is falling while production is still going steady, ultimately driving the price down.
What is driving commentators to speculate on the deeper cause of this economic trend is that despite its favorable effect at American gas stations it is hurting economies all across the world and is causing many nations to draw lines in the sand.
Some have suggested that Saudi Arabia is intentionally driving down the price of oil in order to hurt the economy of their political rival, Iran.
Nations whose economies are centered on oil production rely on higher oil prices in order to balance their budgets and look to Saudi Arabia to cut production when prices drop. Since Saudi Arabia has not slowed down production, oil producing countries such as Iran, Russia, Venezuela and Nigeria are beginning to suffer.
However, despite ignoring calls from other OPEC nations to help stop the six-month-long slump, Saudi Arabia’s economy is not benefiting.
Saudi Arabia’s economy is completely reliant upon the sale of oil, which makes up 90 percent of export earnings, 80 percent of government revenues and 40 percent of their gross domestic product. Saudi Arabia even expects a deficit of $39 billion in 2015, which is the largest in the country’s history.
Clearly there is some political motivation behind such actions. Similar strategies did not play out favorably in the past. In the ’90s, Kuwait’s overproduction of oil was one of the major factors which caused Iraq to invade the country.
To the media’s excitement, this current trend with oil is straining the United States’ relationship with our long-term political rival, Russia.
Putin, in a recent televized broadcast, claimed that U.S. sanctions were not the consequence of Russia’s annexation of Crimea or their influence in eastern Ukraine, but were merely a punishment imposed on all of Russia due to their desire for self-preservation. Along with this, Russia’s new military document names NATO and the United States as top foreign threats to Russia.
While Obama did not take credit for messing with oil prices during his recent interview with NPR, he was very critical of Russia’s alleged attacks on Ukraine’s sovereignty and claimed that their economy was already rocky prior to the collapse of oil prices. He also went on to defend the U.S. sanctions against Russia.
Obama even challenged the notion that Putin is some sort of political mastermind and even claimed that other people might perceive him as “not so smart.”
This comes at a convenient time since Russia’s currency is tanking due to the low oil prices.
Like Saudi Arabia, Russia collects a large amount of revenue from oil sales, which roughly accounts for half of Russia’s budget. This decrease in the country’s exports has caused the value of the ruble to plummet. Along with this, Western sanctions are preventing financial institutions from lending to Russia’s banks, and oil companies are effectively cutting them off from credit markets.
In response, Russia’s central bank increased its key interest rate from 10.5 percent to 17 percent, which is not helpful to struggling citizens at home.
Regardless of whether or not Obama cut some sort of deal with Abdullah iba Abdilaziz the Saudi Arabian king, it’s clear that the current rhetoric which prevails between various countries is that of suspicion and blame.
Venezuela, another country affected by the falling oil prices, is hitting record levels of inflation and is plunging into a recession. Venezuela’s president even accused the U.S. of starting an oil war with Russia which he blamed for his country’s economic downturn.
Even more interesting is the growing relationship between Russia and countries like Iran and Venezuela. Venezuela has seen a 2,081 percent increase in imports from Russia since 2009.
Russia has also made it clear that U.S. sanctions could end bilateral cooperation on issues such as Iran’s nuclear program and Syria.
It’s sad that most Americans don’t appear too concerned about what is going on and are easily pacified by gas prices below $3 per gallon. What’s even more upsetting is that the Americans who are trying to pay attention can’t escape attitudes of a romanticized bygone era of Cold War rhetoric.
I’ll be honest, I can’t say for sure where all this is headed. All I know is these sort of political maneuvers have not been very favorable in the past and might do more to drive nations apart than to bridge gaps.
But hey, at least we can watch The Interview now.
