International politics and oil prices

Dear Editor,

The price of oil has fallen dramatically in a very short period of time. While this is having a huge impact on oil producing/exporting countries, those non-producing countries are benefitting significantly.

In Guyana, it is estimated that the cost of generating electricity has dropped from US$0.28 at the beginning of last year to about US$0.09 per kilowatt today.

The explanation/s for the current low oil prices varies. The talk about the slowing down of the world economy, mainly China, is one prominent explanation.

Another is the over-supply of oil on the world market. The traditional economic axiom – demand is way below supply – thus a fall in price.

At the same time, Iran, the world’s second largest oil producer, is back on the market after sanctions against it were lifted.

Many commentators are predicting the prices will remain low for a long time because supply is high. This is particularly true, since Saudi Arabia, the largest oil producer in the world, has announced that it has no intention on cutting back on production.

Since the Saudis have maintained this stance, the other major oil producers will follow suit for fear of losing their market share.

In the past, when oil prices fell, producers tried to slow down production to allow supply to fall in relation to demand and to push prices up again. The big question remains: why is that not being done today?

In order to find a true answer to this question, we must not confine ourselves to economics. The answer could be found in international politics and the struggles taking place in the international arena.

Since the collapse of the Soviet Union, the US and their European allies seem determined not to allow Russia to rise again. Russia’s economy was devastated by the shock therapy it received during in the post-1990s period. Few people thought that Russia posed a threat to anyone and/or any country.

With a weak Russia, the US reneged on its promise to Gorbachev, the last President of the Soviet Union that NATO would not expand towards the east of Europe.

NATO began to expand and many Eastern European countries joined the alliance. The biggest fear of Russia was being realized. It was being surrounded by NATO forces. Poland, the Czech Republic, Slovakia and others joined. Some states called on NATO to station troops in their territories and in the name of ‘peace’, weapons were being put on Russia’s border.

In a bid to advance the ‘circle’ round Russia, NATO forces moved to bring the Ukraine into its camp. By then though, Russia’s economy improved tremendously and this recovery was due to the high price of oil. This enabled the Russian government to boost their military forces.

When NATO moved to take over the Ukraine, Russia was much stronger than it was in the 1990s. It counter attacked. With a large Russian population in the Ukraine that was being oppressed, there was an attempt to ban the use of Russian language there.

Russia moved to stop the snatching of the Ukraine. It organised a referendum in the Crimea and repossessed that territory after the people there voted to join with Russia. That was the first significant blow that the revived Russia struck against NATO’s expansion programme.

The other significant area is the Middle East. The former Soviet Union had considerable influence in that region. However, with the fall, a lot of that influence was lost in that region. In Syria though, Russia inherited a naval base located there from the former Soviet Union.

Since 2011, Syria came under attack when the opposition to the government was supported by international terrorists and financed by the West to get rid of Assad, who did not see eye to eye with the West.

The West did nothing to stop the growth of the terrorists since it was against Assad. It is a well-known fact that thousands of terrorists passed through NATO territories, including Turkey, to join the notorious ISIS group. No attempt was made to stop the sale of captured oil by ISIS forces across the border to Turkey. This forced Assad to seek Russia’s assistance.

Russia, having its own interest in Syria, mainly its naval base, agreed to help the government of Syria. This intervention has turned the tide in favour of the Assad administration.

The West was caught flat-footed on this move, since they themselves described the Syrian opposition as terrorists. Therefore, Russia’s intervention to diminish the terrorist forces should have been a welcome initiative.

However, the West is clearly not happy with this. They are worried that the one leader standing up for the Palestinians in the Middle East, Assad, is still maintaining his stance.

Moreover, Russia’s influence could increase with a Syrian victory. The Western forces, therefore, are determined to hurt Russia economically and force it to stop helping Syria.

Russia’s economy is vulnerable since almost 20 per cent of its GDP depends on oil exports. So far, it has not yet transformed its economy to more manufacturing, etc. It is still heavily dependent on the sale of its natural resources, particularly oil.

So the NATO countries, mainly the US will use their influence to keep oil prices low. This is their strategy to damage the Russian economy. Last year, Russia’s economy contracted by 3 per cent and this percentage is expected to increase this year. Will this force Russia to renege on its position in the Middle East and the Ukraine? Only time will tell.

Moreover, it should be pointed out that history has shown that the Russian people are strong and resilient. They have had to bear a lot of suffering in the past and their sacrifices to defend their country have been great.

Russia, therefore, could very well surprise the West, as they have done so often.

Sincerely,

Donald Ramotar