Low prices at the pump could mean political and military problems abroad
THE MIL & AERO BLOG, 16 Dec. 2014. Two things today are worth about half as much as they were last summer -- the price of crude oil and the Russian monetary currency called the rouble. Taken together, these devaluations virtually guarantee a long period of increasing global political and military instability in an already dangerous world.
If you're a regular visitor to the gas pump, the sudden drop in oil prices is a godsend; I know it is for me. It costs me about $20 less to fill my car's tank now than it did at the height of the driving season last summer. With weekly visits to the gas station, that adds up to big money, so I'm not complaining.
Look at the bigger picture, however, and a different story emerges. The global price of a barrel of brent crude -- the light, low-sulphur stuff that's relatively easy to refine -- dropped below $60 today, which is its lowest in five years.
There's reportedly a glut on the worldwide oil market that likely will hold prices down for a year or more, and some speculate that the price of oil will drop close to $40 before it hits bottom and starts to rise again.
While $40 oil is great at the gas pump, it's disaster for the oil fields in Texas, Oklahoma, North Dakota, Canada, and other places that for the past several years have experienced a economic oil boom thanks to advanced oil-recovery technologies like hydraulic fracturing -- better-known as fracking.
Put simply, $40 oil will turn boom to bust in many of North America's oil-producing areas that have been bright spots in an otherwise-lackluster U.S. economy. To justify the relatively high costs of production, these oil fields need oil to trade at least $60 per barrel.
Lower than that means oil companies with expensive production operations can't make money and will have to scale back or temporarily shut down until prices come back up. That's bad news not only for oil shale operations in Canada and North Dakota, but also for heavy-crude operations in Texas, Oklahoma, and California, and for offshore oil operations in the Gulf of Mexico and the North Sea.
What could all this mean? Big oil industry layoffs in an American economy that barely can stand higher levels of unemployment, lower tax revenues, more dependence on government programs, and high reliance on imported crude oil from politically volatile areas like the Middle East and West Africa.
The shock waves of oil devaluation extend far beyond North America, and could hit oil-rich Russia particularly hard, coupled with the deflation of the rouble. Such financial hardships could make Russia even more politically and militarily unpredictable.
Russia already has taken over the Crimea region of Ukraine and is supporting civil war there. Experts predict that future Russian military adventurism in Kazakstan, Estonia, Latvia, Lithuania, or Belarus is not out of the question, which could put further pressure on the NATO alliance.
The destabilizing influences of the devalued rouble and dropping oil prices could make a tense situation in Eastern Europe and Central Asia even worse.
What about the Middle East, where an expansionist Iran, a destabilized Iraq, and an uncertain Saudi Arabia are major worldwide oil producers? A volatile oil market could encourage Iran to make military moves sooner rather than later, encourage radical Islamic forces to continue their territorial conquests in Iraq, and foment unrest in Saudi Arabia, which could encourage opponents of the Saudi ruling family.
These destabilizing influences are gathering at just the same time that long-term budget cuts have forced U.S. and Western military power to a low ebb. This is happening also at the same time that the U.S. military is trying to make a pivot to the Pacific to face a militarily resurgent China. There's only a token U.S. military force left in the Middle East.
Perhaps none of these potentially disastrous things will come to pass. Maybe the resulting problems won't be as bad as we think. Still, while you're enjoying bargain prices at the gas pump this winter, think about global political fallout where these low prices might lead.