The Geopolitics of Tumbling Oil Prices

December 2, 2014

Michael Klare, the author of The Race for What's Left: The Global Scramble for the World's Last Resources, connects the dropping oil prices to global politics and climate change

Michael Klare, the author of The Race for What's Left: The Global Scramble for the World's Last Resources, connects the dropping oil prices to global politics and climate change



hqdefault

Story Transcript

SHARMINI PERIES, EXEC. EDITOR, TRNN: Welcome to The Real News Network. I’m Sharmini Peries, coming to you from Baltimore.

Here at The Real News, we are continuing our analysis on the geopolitics of oil and the tumbling oil prices as a result of OPEC’s decision on Monday to continue producing at the same rate as they did before. If that seems a bit odd to you, it is. What caused the prices to fall if things are staying the same? What you may have noticed is that the oil prices have been going down at the pumps since this summer.

Our next guest writes about President Obama’s sophisticated weaponization of oil that puts the energy mavens of the Bush administration to shame.

Now joining us from Amherst, Massachusetts, is Michael Klare. Michael has written hundreds of essays and 14 books. His most recent book is titled The Race for What’s Left: The Global Scramble for World’s Last Resources. He is the energy and climate change expert at the blog Tom Dispatch. His recent articles include Fossil Fueled Republicanism: The Grand Oil Parties Takes Washington by Storm and Obama’s New Oil Wars: Washington’s Take on ISIS, Iran, and Russia.

Thank you so much for joining us, Michael.

MICHAEL KLARE, AUTHOR, THE RACE FOR WHAT’S LEFT: My Pleasure.

PERIES: Michael, you’ve written about the use of oil as a weapon by President Obama, his foreign policy exemplified not only in targeting oilfields that Islamic State has seized in Syria, but also sanctions against both Iran and Russia. So will the drop in oil prices after the recent announcement by OPEC not cut production?

KLARE: The drop in oil prices that we’ve seen over the past few months–and they’ve dropped by about 30 percent–this is going to have a very harsh impact on Russia and Iran in particular, because those countries need high oil prices to finance their government operations. They budget, they expect that oil prices will be $90 or $100 per barrel to balance their budget, and they’re now about $70 a barrel. So they’re going to face harsh cutbacks as a result of dropping prices.

Now, the United States isn’t directly responsible for the drop in prices, but it’s certainly true that increased production in the United States–Shale oil production in Texas and North Dakota–has contributed to the glut of oil on the market. And that has brought down the price. And that has hurt Russia and Iran and not so much the United States.

PERIES: So the Russian economy appears to be suffering a real blow with the prices of oil dropping. On Monday, the ruble experienced the biggest one-day decline since 1998, and Russia has just announced that they will cut the pipeline that they were planning to do in Europe. What does all this mean?

KLARE: You know, you have to understand that the Russian economy, and especially the financing of the Russian state, of the Kremlin itself, is very heavily dependent on oil exports–as much as 60 percent of the Russian state budget comes from oil exports. This makes Russia very highly sensitive to shifts in the price of oil. When the price of oil was rising, President Putin had a lot of money, and he used that to bolster his power internationally and at home, and Russians saw an improvement in their standard of living, and Russia enjoyed more power and influence abroad.

So now that the price of oil is dropping, it means that President Putin, the Kremlin, will have less money to spend, and in all likelihood the standard of living of ordinary Russians will decline. And this is going to put a lot of pressure on Putin to either–either he’s going to have to move to be more accommodating to the West, or the other possibility, the more dangerous possibility, is that he’ll whip up nationalism and militarism and jingoism and try to conceal economic problems through even more attacks on Ukraine. And that’s a really very frightening prospect.

PERIES: And can you also talk about the China and Russia gas and oil deal and the building of the pipeline that was just recently signed while the APEC meetings were taking place?

KLARE: Sure. Now, in addition to oil, Russia also benefits a great deal from the export of natural gas, mainly to Europe. And Gazprom, the state-owned company, the biggest gas company in the world, has long been a major tool of Russian foreign-policy. But the E.U., the European Union, in response to events in Ukraine, has been trying to fight to combat Gazprom’s efforts in Europe, to dominate the gas market in Europe, and has opposed efforts by Gazprom to build a gas pipeline from Russia through the Black Sea into the South Eastern Europe, the Balkans, into Central Europe. This is called the South Stream project. And the E.U. has worked very effectively to block that pipeline.

So this week, President Putin announced he’s going to cancel the pipeline to Europe. So, meanwhile, he has to find some alternative market for all his gas and to keep the flow of money coming into the coffers of the Kremlin, and he’s been turning to China. And China obviously is a promising market for Russian gas, ’cause they need a lot of energy, they have the money. And so President Putin has kind of made a pivot of his own from the West, from Europe to Asia to China, just as President Obama announced a pivot to Asia two years ago.

PERIES: Right. So in terms of foreign-policy, this sort of inter-imperial contradictions that are going on in terms of China, Russia, and the United States, how is this getting played out vis-à-vis the oil prices?

KLARE: Well, now, that’s an interesting question. And there is a lot of suspicion that the United States has encouraged Saudi Arabia, which is the leading player in OPEC, the leading supplier of oil of the OPEC countries, to resist calls by Iran and Venezuela and others to curb oil production. So at the latest OPEC meeting that you discussed in Vienna this week, Iran, Venezuela, and some other countries want to reduce the amount of oil on the market to push prices up. That would be good for Iran. It would be good for Venezuela. It would be good for Russia. But Saudi Arabia refused to go along with that and chose instead to keep production at current levels, meaning the prices will not rise but possibly fall. And Saudi Arabia obviously is very much opposed to the Iranians in the Persian Gulf. They’re opposed to the Iranian ties with the Assad regime in Syria, which is tied to Russia. So you could see this Saudi move as being more geopolitical than economic, and it’s certainly something that Washington would welcome. Whether or not the United States played a role in this behind the scenes, I can’t say. You know, this would be a very secret kind of a thing. But there’s no doubt that Washington welcomes Saudi Arabia’s move to keep the price where it is lower.

PERIES: And what does this mean to OPEC as a cartel having these conflicts in terms of the level that they’re producing together?

KLARE: Well, OPEC has had these rifts before. This is hardly anything new. They’ve often had these kind of clashes. The question is: how much clout does OPEC have over the market. And when they once had more clout, that has been challenged in recent years, and it’s been challenged in particular by the growth of oil production in the United States. Five, ten years ago, we were all predicting that domestic U.S. oil production would continue its long-term decline. It’s been in decline since the 1970s. But as a result of hydrofracking and the development of shale oil in Texas and North Dakota, the U.S. is substantially increasing its production. And this has reduced OPEC’s clout.

And let me say something else I should mention. One could view the Saudi move at the OPEC meeting partly as a way to punish Iran and Russia, but it can also be interpreted differently as a Saudi move to try to undercut the economy of shale production in the United States. We really don’t know what their motive was. But by lowering–by keeping prices low, it might make it harder for U.S. companies to keep using shale in the United States, because their operations may become unprofitable. And that may be the ultimate Saudi objective, to drive some of the American companies out of the market and therefore increase OPEC’s influence. I hope that was clear.

PERIES: Yes. And, well, what’s actually clear is that things are actually better for the ordinary citizen, who is pumping gas into their cars. The prices have gone down for them. But at what cost?

KLARE: You know, that is a very important and an interesting question. It certainly has made it more attractive for people to keep their SUVs or to buy new SUVs that sales of SUVs have been booming, which I certainly wouldn’t have predicted a few years ago, because the price of oil is low enough for people to say, oh, it’s okay, I can afford an SUV, a big pickup truck. So this is going to increase U.S. oil consumption and will increase carbon dioxide emissions as a result. So that’s not good news.

On the other hand, there is some good news, and that is that the low oil prices are making it unprofitable to produce expensive oil like Canadian tar sands. Canadian tar sands are quite expensive to produce, and it may be that–and those, obviously, are much more dangerous to the climate. They emit a lot more carbon dioxide, which is why so many of us opposed the Keystone XL Pipeline. And it may be that lower oil prices will make investors move away from Canadian tar sands. And that would be good for the environment.

PERIES: It is ironic. As the COP 20 is taking place in Lima, Peru, all of this is going on in terms of geopolitics, and also in terms of the gas prices and OPEC, as if that is not even in their purview at the moment. Is there any indication that the American administration or any of these other countries–Russia and OPEC countries–are even thinking about the impact on the climate?

KLARE: You know, the administration in every government in the world–China’s, Russia’s, the E.U. countries, India–they have divided minds. On one part of their mind, they care about economic growth and economic prosperity. In another part of their mind, they worry about climate. We see this in China, where President Xi Jinping is–he talks about the importance of addressing the climate and curbing China’s carbon emissions. But at the same time, he talks about promoting economic growth in China. And the two are contradictory.

PERIES: Michael, what’s going on in Lima, Peru, in terms of the COP 20 discussions trying to come to a more binding agreement as far as climate change and CO2 emissions are concerned? This discussion doesn’t even seem to be a reference point as far as Russia, the United States, and China, the last two being the largest emitters in the world. What’s your take on the conversations that are not happening with these countries at the moment as far as climate change is concerned?

KLARE: Well, actually, I think these countries go back and forth. They’re divided in their head about what’s the priority. Is the priority climate change? Or is the priority economic growth and prosperity. And they speak for both. And you hear them speak for both. When President Obama was in Beijing a few weeks ago for the APEC summit, he met with President Xi Jinping of China, and they agreed on a plan to reduce Chinese and American carbon emissions.

But at the same time, both Obama and Xi Jinping are also talking about strategies to increase economic growth and prosperity, and both favor all kinds of fossil fuel projects in their own country. So they’re supporting contradictory programs all the time.

And this is our dilemma. This is the dilemma. We–around the world, we want our fossil fuels, we want our energy, we want cheap energy, and we want to address climate change at the same time. And you can’t do both. At some point we’re going to have to agree on very serious curbs on the emission of carbon dioxide. And that means burning less fossil fuels. And I don’t think that governments around the world are yet prepared to make serious cuts, to impose serious curbs on the use of carbon fuels. They’re just not ready yet.

PERIES: Right. Michael, I thank you so much for joining us today, and we’re going to be continuing this discussion in terms of the price of oil and also the climate change conversation at The Real News. And I hope you join us again.

KLARE: It would be my pleasure.

PERIES: And thank you for joining us on The Real News Network.

End

DISCLAIMER: Please note that transcripts for The Real News Network are typed from a recording of the program. TRNN cannot guarantee their complete accuracy.