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Lower Gas And Oil Prices:
Oil State Instability
By Don White
In this time of financial meltdown, it is important to remember that job creation has a direct relationship to oil prices, as well as to capital availability. Now that the price of oil has dropped below $70 when it was almost $150 just three months ago, there is reason for Americans to again be optimistic. It takes oil prices like we have today to sustain many industries, two of which are the airline and auto industries. But it also applies to farming and virtually everything made in factories fueled by fosil fuel. And, don’t forget, 40 percent of our fuel consumption in America is taken up in homes and businesses. Job creation is directly related to the price of a gallon of gasoline in the US.
The price of oil is at $74.25 a barrel, its closing price Monday in New York, It was at $147 as recently as three months ago.
Oil prices also affect what oil producing nations can afford to spend. Russia, China, Venezuela, and Iran have stepped up their spending, and job creation, based on faulty assumptions that oil may always stay at or around $147 per barrel. We are not saying now that the prices have dropped that any of the countries is facing immediate economic disaster or will abandon long-held political goals. And the price of oil, still double what was considered high just a few years ago, could always shoot back up.
Still, Russia, Iran and Venezuela have all based their spending on oil prices they thought were conservative but are now close to the market level. Significant further drops could tip the three countries into deficit spending or at least force them to choose among priorities. A worldwide recession, which many economists say is likely, would worsen matters, dampening energy demand and holding down prices.
It is not clear whether the new pressures could create opportunities for the United States to ease tensions, or whether the three countries’ leaders will rely more on angry words even if they cannot afford provocative actions. Mr. Chávez has continued his overtures to Russia. He, Prime Minister Vladimir V. Putin of Russia and President Mahmoud Ahmadinejad of Iran may now see the United States, hobbled by financial crisis, as even more vulnerable.
Daniel Yergin, chairman of Cambridge Energy Research Associates, a consulting firm in Cambridge, Mass., said oil states were facing something of a reckoning. Originally, he said, they saw the economic crisis as a problem mainly for the United States — but then oil prices went into free fall.
“Now, the producers are experiencing a reverse oil shock,” Mr. Yergin said. “As revenue went up, government spending went up and expectations of a continuing windfall led to greater and greater ambitions. Now they are finding how integrated they are into this globalized world.”
Chávez was almost euphoric last month when he announced that Venezuela would engage in naval exercises with the Russian Navy in the Caribbean. He could see some semblance of Venezuela’s long-hoped for hegemony over the US. “Go ahead and squeal, Yanquis,” he said. “Russia’s naval fleet is welcome here.”
The moment, made possible in part by a flood of petrodollars used to buy Russian weaponry, must have been sweet for a man who has spent his presidency wagging his finger at the United States and railing against its capitalist model. Cozying up to Russia, whose leaders have been increasingly at odds with the United States, evoked cold war rivalries in the hemisphere.
Mr. Chávez has also used his oil money — in direct payments and through subsidized oil shipments — to win friends in the hemisphere and elsewhere, including President Evo Morales of Bolivia, who expelled the United States ambassador in La Paz last month, saying the envoy was involved in plotting a coup. There was actual fighting in Bolivia among government and opposition forces. So much so that the conservative Church of Jesus Christ of Latter-day Saints, which had more than 100 missionaries in Bolivia, quickly moved them from harms way into Chile and Peru.
If you ever want a bell weather of how politically stable a country is, look to see if it has Mormon missionaries. If not, beware.
Domestic spending in Venezuela has also surged, through the creation of a wide array of social welfare programs that furthered Mr. Chávez’s goal of building a socialist-inspired state — and suppressed opposition. The 2009 budget, based on $60-a-barrel oil, includes a 23 percent increase in government spending, to $78.9 billion. Some of that amount accounted for new job creation and hopes for a better economy.
At $140 a barrel for oil, that was conservative. With prices now uncomfortably close to $60 a barrel, economists in Venezuela are expressing alarm over the government’s ability to pay its bills, including those for arms purchases.
Venezuelans are already struggling with an inflation rate of 36 percent, one of the highest in the world. Thanks to Bush’s conservative agenda, inflation has been held to 2.36%–something we don’t hear Democrats talk about but with which Republicans should take comfort. That’s something Democrats and Republicans alike should be happy about along with the security we enjoy in America. For that, thank the Bush administration and its aggressive anti-terrorist campaign and the wars in the Middle East. With the Democrats in power, expect an errosion of that feeling of security, especially if Obama continues to court people like Louis Farrakhan, William Ayers, Jeramiah Wright, and his commie buddies that he says he would feel comfortable calling to the White House for talks without preconditions. So far we have not had another 9/11, but Joe Biden predicts if Obama is elected within six months he will be confronted with a challenge of leadership, something Bush has mastered. A similar challenge of leadership is not predicted for John McCain because of his vast foreign policy experience. Foreign nations will be less apt to “test” the tough McCain than an inexperienced Obama.
Because of this, if Obama is elected look for unstable times, both foreign and domestic, and aggressive behavior by our adversaries that did not occur with Bush but are likely with Obama. Employment worldwide thrives in times other than those predicted for Obama.