Every recession has silver lining

November 14, 2008

And, in this case, it’s the crash of oil prices due to falling demand:

U.S. crude oil futures rose more than $1 after Thursday’s settlement, extending the day’s earlier gain which was tied to a late stock rally on Wall Street.

December crude was up as much as $1.26, hitting $59.50 a barrel on the New York Mercantile Exchange’s Globex trading platform, after settling earlier at $58.24 a barrel, up $2.08 from Wednesday’s finish.

That’s up from about $55 on Wednesday, which is down about two-thirds from its high last July of around $147. While that’s given relief to Americans at the pump (I never thought I’d be grateful to see gas at "just" $2.89), it spells trouble for three of the world’s troublemakers: Russia, Iran, and Venezuela.

Each has depended on the high price of oil to fuel their ambitions. Russia needs a high price to make it worthwhile to drill for hard-to-extract Siberian oil and keep Kremlin accounts in the black while funding their newly aggressive foreign policy. Moscow simply has no other revenue earners that anyone wants, besides weapons, and those keep getting embarrassed every so often in confrontations with US military tech. Without oil revenues, Putin is in pain. If this keeps up, expect him to play more nicely with the EU over natural gas deliveries, which the Central and West Europeans depend on to heat their buildings in the winter. In the past, Putin has used winter gas cutoffs to strongarm the EU, but now he’ll need the money from those sales more than ever.

Iran needs high oil revenues for several reasons, the most basic of which is their need to purchase refined fuel from other sources, since Iran has almost no refining capacity of its own — a major oil producer, it has to buy its gasoline from the outside world. The state already subsidizes the price of gas there, and declining revenues from oil sales will force them to make painful choices between further angering their already restive population or cutting funds for their precious "secret" nuclear program. Iranian economic mismanagement has been so bad that any further drop in oil prices may throw them into a crisis.

If anything, Venezuela’s economic management has been worse. The state oil company is hemorrhaging cash, and, when prices drop, Venezuelan crude becomes much less cost-effective to refine. President Chavez has depended on that revenue to supply funds and bribes to allies around Latin America (and probably to pay for the coca paste he gets from Bolivian President Morales), subsidize consumer goods, and pay for all the fancy weapons he’s been buying from the now cash-strapped Russians. If he can’t do that any longer, he may soon find himself without friends and violently out of a job.

Darn.

Now, it would be nice to think President-elect Obama will take advantage of this when he assumes office next year, both to advance American interests and to pay down our debt, but I don’t hold out much Hope he will.

LINKS: Ed Morrissey and Fausta.