By Thomas Scott
Tensions over global oil prices have reverberated across the Middle East this past week. On Jan. 17, Hossein Amir-Abdollahian, Iran’s Deputy Foreign Minister for Arab and African Affairs stated that his government “expect(s) Saudi Arabia to play its major role in (controlling) crude prices” which have plummeted in recent months.
Disagreements over oil output as well as support for rebel groups opposing Iranian ally Bashar Al-Assad have prompted the two nations to delay high-level talk after Saudi Arabia extended an invitation to Iranian Foreign Minister Mohammad Javad Zarif last May, according to China’s Xinhua News Agency.
On Jan. 13, Iranian President Hassan Rouhani asserted, “Those that have planned to decrease the prices against other countries will regret this decision,” in a speech aired on state TV, according to Reuters.
Over the last month, global oil markets have undergone a spectacular plunge. This drop in price is the result of the Organization of Oil Producing Countries’ decision in December to maintain their output in the face of robust competition from oil production in the North Sea and North American shale, as well as a slump in China’s economic growth.
At an OPEC meeting on Nov. 27, Saudi Arabian Oil Minister Ali al-Naimi convinced other members of the oil cartel to maintain current output. The result of this pivotal decision, or lack thereof, has sent the price of oil extracted from the North Sea from $115 a barrel last June to just $49.30 this past Thursday, according to Reuters. In addition to North Sea oil producers, there are several parties that have a great deal to lose as a result of this move by Saudi Arabia.
One nation in particular that is negatively affected by this development is Russia, whose economy is in the throes of economic crisis as a result of Western sanctions levied after its highly controversial annexation of Crimea last March. A third set of sanctions by the United States in July banned American firms from transacting with Russian oil companies Novatek and Rosneft. Now, with the price of oil plummeting, Russia’s energy sector must grapple with the additional injury caused by the deprivation of foreign capital.
Still another is loser Venezuela, which has experienced a great deal of civil unrest in the past year due in part to record levels of inflation, chronic shortages of basic necessities and opposition to the nation’s strongman, Nicolas Maduro. During the tenure of Maduro’s predecessor Hugo Chavez, the price of oil soared as a result of growing demand from booming Asian economies like China, as well as unrest in Iraq and Libya.
Venezuela provided oil to Caribbean neighbors such as Cuba and Jamaica at a 40 percent discount through the Petrocaribe program.
Chavez also relied on high oil prices to provide social programs for Venezuela’s poor. Such welfare policies constituted the backbone of the so-called Bolivarian Revolution, but have left the government in a precarious position with an estimated budget deficit of 70 percent last year alone.
Another set of losers includes North American oil producers in North Dakota and Texas, whose operations function on a very tight profit margin. As global oil prices rose over the past decade, so did the potential profits from domestic energy extraction. Now that there is a glut of cheap foreign oil, the future of American domestic production remains in doubt.