Print By Ben Wolfgang and Guy Taylor – The Washington Times – Thursday, May 28, 2020 The sustained plunge in global oil prices has brought deep, unexpected shifts on the geopolitical landscape, with impacts felt in the Arctic and the Middle East, and in the fortunes of the American heartland and the future of the…
A U.S.-engineered market truce has helped energy prices rebound slightly this month after flatlining in April, but analysts say reverberations will likely be felt for years to come as they chip away at the foundational international partnerships in the post-World War II era and create new alliances and rivalries.
Analysts say there is no way the U.S. and its international position will avoid alterations from the oil markets, no matter who sits in the White House the next four years.
The Trump administration’s public pressure on Saudi Arabia this spring to slash oil production sparked tensions with Riyadh that reportedly led to the White House’s decision this month to pull American Patriot missile systems from the kingdom.
The health of the U.S.-Saudi alliance looms large in national security circles. In recent years, U.S. officials sought Saudi support for the administration’s Israeli-Palestinian peace plan and help with the mutual goal of containing Iran.
But America’s own ambitions to be a global energy player, built on a fracking production revolution that all but ended Washington’s dependence on foreign suppliers, could take a major hit if oil prices stay below $50 a barrel indefinitely.
The U.S. could well find itself on the outside looking in as green energy gains momentum and depresses demand for American shale oil. Such an outcome could further strain the relationship between the U.S. and key European allies such as Germany and France, which have largely stuck by an Obama-era emissions reduction deal that President Trump abandoned long before the oil price plummet and COVID-19 pandemic took hold.
For Russia, meanwhile, a yearslong strategy to deepen its footprint and exploit vast energy resources in the Arctic could fall flat if prices remain low. A frustrated Moscow could respond to the energy crisis in a number of ways, specialists say, perhaps by seeking to expand its influence in Eastern Europe or retreating from conflicts in Libya and Syria.
Russia and China has shown signs of more strength as Russia this week overtook Saudi Arabia as the No. 1 supplier of foreign fuel to China.
Specialists warn of more immediate, deadly consequences.
Incidents such as last year’s attack on Saudi oil facilities, which the Trump administration blames on Iran and its proxies, could become more frequent as oil-rich nations turn to violence to cripple competitors and preserve their place in the remade energy landscape.
“The ongoing struggles for revenue in oil-dependent economies could lead to more regional unrest with incentives to damage one another’s oil-producing capacity,” Marie N. Fagan, chief economist with London Economics International LLC, told reporters on a conference call this week.
More broadly, specialists say, the relative stability of oil markets and the subsequent ties that helped keep the global economy together for decades are facing new pressures.
“As nations come under unprecedented economic and political strains in light of the pandemic, important bilateral relationships that underpinned oil market stability are now realigning,” Amy M. Jaffe, a senior fellow for energy and the environment at the Council on Foreign Relations, wrote in a recent blog post.
“This realignment is creating new geopolitical uncertainties at a time when stronger bilateral and multilateral relations are required.”
The Russia question
Oil prices have crept up in recent weeks after dipping below $20 per barrel last month as economies shut down to contain the COVID-19 outbreak and global travel ground to a near halt. At one point, demand was so low and supply so glutted that oil future prices briefly dipped below zero.
But prices remain at historically low levels. The international benchmark Brent Crude price stuck at roughly $35 a barrel Thursday, and the key U.S. WTI Crude price failed to crest at $34.
Coupled with COVID-19 social distancing shutdowns of factories and airlines, the dramatic price fall has crippled economies around the world but has hit major oil producers such as Russia especially hard. Given the uncertainty of world oil markets, specialists say, the crisis could fundamentally reshape President Vladimir Putin’s foreign policy.
The International Monetary Fund estimates that Russia loses money on oil exports any time global crude dips below $40 a barrel. With current prices hovering barely above $30, many are questioning how Mr. Putin will continue to underwrite his provocative military adventurism in Ukraine, the Middle East and beyond.
William Taylor, a longtime U.S. diplomat and former ambassador to Ukraine, told The Washington Times in a recent interview that Mr. Putin “may have no choice but to rein in some of Russia’s malign activities around the world.”
“It is possible that all these storms combined — the economic, political, financial and health crises — mean he may need to pull back from the adventures in Ukraine, Syria, Libya and Venezuela,” said Mr. Taylor, now with the U.S. Institute of Peace.
Others say Mr. Putin’s grand plan to dominate the Arctic in an age of rising global temperatures could crumble. The Russian leader has said he intends to transform the icy waters of the Arctic into a key commercial corridor with portions largely under Russian control.
Moscow also has undertaken massive energy exploration efforts in the region in the hopes of using the money generated there to keep its economy afloat and fund its foreign policy adventures.
A sustained oil price drop could scramble that strategy.
“We are in a sustained period of economic recession. I am almost worried about Russia’s policy in the Arctic failing and what that means,” Heather Conley, senior vice president for Europe, Eurasia and the Arctic at the Center for Strategic and International Studies, said in a recent interview.
“You have to have the energy prices and global commodity prices to sustain” Russia’s Arctic strategy, she said. “If you don’t, no matter how much you can push it, it’s not going to develop.”
Others have argued that the uncertainty surrounding Russia could ultimately give Washington and its allies a rare strategic window to undercut Moscow’s vexing meddling in certain theaters.
Reshuffling the deck
For all of the negative impacts on Russia, the COVID-19 pandemic and subsequent oil crisis seem to be deepening Moscow’s willingness to align with China rhetorically and strategically.
Russian Foreign Minister Sergey Lavrov, in sharp contrast to Washington and U.S. allies, has heaped praise on China over its response to the pandemic.
Although Russia has viewed China as a potential threat more than a partner in recent decades, U.S. officials say, it has recently coordinated at unprecedented levels with Beijing’s attempts to spread disinformation pinning blame for the pandemic that first emerged in Wuhan, China, on the United States.
Beyond rhetoric and propaganda, there is oil, and Russian exports to China in April were roughly 18% higher than a year earlier. That means Russia has surpassed Saudi Arabia as China’s top crude oil supplier.
Contrary to any hope of getting Russia to “turn to the West to face the threat of China, we’re seeing the opposite dynamic unfolding at the moment,” said Anna Borshchevskaya, a Washington Institute fellow focused on Russia.
Ms. Borshchevskaya said in an interview that “the pandemic has shown Russia and China moving closer together, not just in terms of countering the disease but in terms of strategic rhetoric against Washington.”
But other analysts say that banking on China to be a top customer could prove foolish in a post-COVID world.
“For oil producers, especially the Arab OPEC producers and Russia, relying on China to consume a majority of their future production is a dangerous game,” longtime oil analyst Cyril Widdershoven wrote in a recent piece for OilPrice.com.
“Just as U.S. shale is far too heavily reliant on Cushing storage and paid the price when WTI prices crashed into negative territory as Cushing hit capacity, Arab producers have been hit hard by Chinese demand destruction,” he said.
The Trump administration faces a major decision on whether to loosen U.S. ties with producers such as the Saudis or help them navigate the new market landscape.
Longtime Saudi Arabia expert F. Gregory Gause said the relationship was never based on Saudi oil flowing to the United States in exchange for American security for Riyadh.
“I think the American view of this was always that Saudi Arabian oil was important for the world economy,” Mr. Gause, who teaches at Texas A&M University, said this week during a webinar hosted by the Quincy Institute for Responsible Statecraft.
“Because it was important for the world economy — it was important for our allies in Europe and Asia,” he said, “the U.S.-Saudi relationship had its foundations before the United States imported a single drop of oil from anywhere.”
Asked whether U.S. and Saudi interests still align the way they did in the post-World War II era, Mr. Gause said the answer depends on whether Washington still views oil as a “strategic commodity.”
“If it is, then does the United States want to have some influence in an area that exports more oil than any others?” he said. “I think that that’s an open question and worth debating.”
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