Tag Archives: oil

Collusion, Not Statecraft

I don’t usually cite to Daily Kos, because I am aware that its articles are reported through a liberal lens and I’m not interested in simply becoming part of an echo chamber.

Despite its clear–and acknowledged–editorial perspective, however, I have found the site to be factually accurate–and often, very persuasive. I was especially convinced by a post analyzing the effects of Trump’s decision to renege on U.S. commitments made in the Iran Agreement (an agreement our inarticulate President likes to call a “deal.”)

A number of foreign policy experts have expressed frustration with the withdrawal because it reduces America’s ability to exert influence in the region and rather dramatically increases the prospects of destabilization, if not war. The recurring critique is that no one  (not even Israel, Bibi notwithstanding) benefits from this decision.

As the post reminds us, however, there is a beneficiary. Putin’s Russia.

Crude oil futures have leapt from $26 at the time of Trump’s election to $77 today. Back in January, Trump actually certified that Iran was in compliance with the nuclear agreement. However, Trump threatened to end the agreement if it wasn’t expanded to include items unrelated to Iran’s nuclear program and “strengthened” in unspecified ways.

Trump increased his warnings that he would end the deal in February, and by March was engaged in talks with European allies—talks at which allies consistently urged Trump to remain in the deal and Trump consistently announced his intention to walk away. As the talks wore on, and Trump’s intransigence became clear, fears of a destabilized Middle East began to shore up oil prices.

Russian oil production hovers around 10 million barrels a day. That means the increase that has already happened in oil prices is providing Putin with an extra $520 million a day. …

Everything else that Trump has or hasn’t done about Russia, any sanctions, any tariffs, any expelled diplomats, absolutely pales in comparison to the huge boost he provided to the Russian economy by backing away from the Iran nuclear deal. In fact, short of actually starting a shooting war in the region, it’s difficult to find anything else that Trump might have done of more benefit to Putin. It’s certainly difficult to think of anything Trump might have done to generate a more certain boost for Russia.

As any political pundit worth her salt will confirm, poor economic performance is a threat to even an autocratic politician, and Russia–which is very dependent on oil prices–has been running up steep deficits and cutting vital programs.

As the post notes, Russia’s economic problems have also hobbled its ability to deploy its military.

In 2014, as oil prices declined again, the value of the ruble tumbled, making it more difficult for Russia to borrow or import goods. At the start of 2015, the purchasing power index for Russia—the actual value of the country’s money when it comes to buying a standard “basket of goods”—was the lowest in the world.

The falling ruble triggered waves of inflation across Russia, putting prices up by double digits across the board, raising the interest rates to near 20 percent, and leading to widespread calls for wage and price controls. In 2016, Russia faced growing debt and declining GDP. Retail sales and personal wealth were both sharply down. Predictions were for a sustained period of oil prices below $20.

Anti-Putin demonstrations during the past few years have addressed a number of grievances, but this economic reality was clearly a major source of popular dissatisfaction. But as long as Iran continued to participate in the world’s oil markets, the oil prices that are so important to Russia’s economy would remain low.

Oil prices could be driven up only if the U.S. re-imposed the sanctions that had prevented Iran–the third largest player in OPEC–from selling its oil on the world market.  Those sanctions had been lifted under the agreement Trump just trashed. Immediately after he reimposed them, Americans faced  additional sticker shock at the gas pump.

Rising pump prices are blunting the positive effects of sweeping tax cuts on Americans’ spending, potentially undercutting a pillar of economic growth this year.

Withdrawing the U.S. from the Iran agreement may have infuriated our European allies, imposed costs on American consumers and made the world less safe. But it was a huge gift to Putin.

For a communist, Putin sure understands return on investment.