The recent dramatic drop in global oil prices has significant geopolitical as well as economic implications. Consumers in the United States and other countries enjoy substantial savings, while marginal producers, both here and abroad, find their profit margins severely squeezed. As I discuss in an article at Aspenia Online, some of the oil-producing states that have been especially hard hit include Russia, Venezuela, and Iran. All of those countries are governed by regimes that are on bad terms with the United States, so there is a temptation among American political leaders and pundits to relish the current discomfort of those governments.
Greater restraint is warranted. The geopolitical benefits to the United States from the current depressed pricing environment are not trivial. Increased economic constraints appear to be one factor making Iran’s clerical regime more willing to negotiate seriously about that country’s nuclear program. Venezuela’s already substantial financial woes, caused by the leftist government’s chronic economic mismanagement since the late 1990s, has made that country a less appealing political model for the rest of Latin America. Washington’s worries about a leftist “Bolivarian” revolution sweeping the region, which were prominent just a few years ago, have faded considerably.
The Obama administration is especially pleased about how lower oil prices are putting pressure on Vladimir Putin’s government. Although Western economic sanctions, imposed after Russia’s annexation of Crimea, account for some of the country’s distress, the precipitous drop in oil prices (with Brent crude now selling for well under $50 per barrel) is a more important factor. Not only has the value of the Ruble shrunk by more than 50 percent, the Russian government faces a budgetary squeeze verging on a crisis. U.S. officials hope that the growing financial and economic discomfort will compel Putin to make major foreign policy concessions.
Washington’s expectations of drastic concessions, much less outright capitulation, from Iran and Russia are likely to prove illusory. Tehran’s behavior over the past two decades indicates that gaining international acceptance of the country’s nuclear program is a high policy priority. Increased economic pain resulting from depressed oil prices is unlikely to alter that calculation.
Likewise, Moscow will probably stay the course regarding its foreign policy, despite the ongoing financial and economic turmoil. It is difficult to imagine any Russian government agreeing to disgorge Crimea or to tolerate Ukraine joining NATO. Both the Russian leadership and the Russian population are prepared to endure considerable hardship before surrendering to Western demands.
Indeed, U.S. leaders need to exercise caution. Lower oil prices may provide some geopolitical benefits to the United States and its Western allies, but officials must guard against unrealistic expectations. Pressing economically stressed countries too far could even backfire, making incumbent regimes more recalcitrant. U.S. policymakers need to carefully consider whether the onset of severe economic instability in Iran and Russia would really benefit American interests or the cause of peace. Such a scenario might instead strengthen extremist forces and produce a surge of public hostility toward the United States, as angry populations make America the scapegoat for their problems. At a minimum, we must recognize that the oil price crash does not provide geopolitical benefits for Washington without some worrisome potential drawbacks.