The global price of oil is on track to reach $80 a barrel soon. The Organization of Petroleum Exporting Countries (OPEC) voted several weeks ago to curb production, which had already led to global oil prices inching upward. Meanwhile, political instability in oil-producing states such as Venezuela and Libya have caused dislocations in the global energy market, raising the price of oil worldwide. The global energy market has been further strained thanks to the White House’s recent and unexpected decision to deny all exemptions for countries seeking to trade Iranian-produced oil and natural gas sources on the world market.
The decision is part of the Trump Administration’s larger strategy to get tough on Iran. While that overall strategy is necessary for U.S. national security, the tactic of closing all sanctions exemptions without giving the world market advance warning has created severe uncertainty in the global energy market. And, the more volatility that exists in the world energy markets, the higher the price of oil becomes.
This will not only have ramifications for your summer vacation plans, it will also disproportionately benefit the massive petrostate of Russia. Therefore, going after Iran’s oil and natural gas supplies with sanctions might strengthen Russia, which has been weakened from years of chronically low global oil prices.
Russia Loves American Tension with Iran
Considering that Russia is little more than a giant gas station, a consistently higher price of oil makes Russia stronger. When the price of oil drops on the global market—and remains relatively low—Russia suffers.
The last time the political system in Russia seemed stable was during a period of record-high global prices for oil and natural gas. This increase in the price of oil allowed Moscow to engage in a massive military modernization program. Russia was able to get tougher with their neighbors than at any other time in the post-Cold War era.
Between 2007 and 2013, the global price of oil reached historic highs. So long as the global price of oil remained at or above $80 per barrel, Russia benefited. Moscow longs for high global energy prices to fuel its geostrategic return to greatness.
It was during this period that Russian President Vladimir Putin took to the podium at the infamous Munich Security Conference and gave an hourlong tirade against U.S. foreign policy. This moment essentially was Putin’s declaration of a new cold war. If not for the higher-than-usual oil prices, it is unlikely Putin would have had the gumption to act as he did.
Russia’s 2008 National Security Strategy Document
Following this speech, in 2008, Putin ordered his forces to invade neighboring Georgia, in order to prevent what he feared would be Georgia’s accession into the North Atlantic Treaty Organization (NATO). That same year, Russia released its national security strategy memo explicitly outlining how Russia planned to dominate the mineral resources of the Arctic.
According to Jamestown Foundation’s Roger McDermott:
Much attention [in the national security strategy document] was devoted to the potential risk of future energy wars, in regions including the Arctic, where Russia will defend its access to hydrocarbon resources [emphasis added].
Russian leaders recognized the benefits that Russia’s dominant position as a global producer of oil and natural gas had afforded them. What’s more, Russia had become a primary energy provider to neighboring Europe and China. This gave Moscow immense strategic leverage over their otherwise hostile neighbors.
For Russia to remain a dominant and prosperous state, Russian strategists believed they had to claim and develop as many of these energy resources as possible. Becoming a leading producer of oil and natural gas would be the priority for Russia in the decades ahead, as this position would ensure Russia could make itself as a true equal to the United States as major world power.
As Oil Prices Decline, So Does Russia
What appeared to be an implacable, resurgent Russia in 2014, soon found itself deprived of economic security. It was shortly after Russia successfully annexed Crimea from Ukraine in 2014 that the global price of oil dropped precipitously. As the price plummeted, Russian finances collapsed with it.
The West then added to Russia’s woes by smothering it with sanctions and effectively isolating it from much of the rest of the world (aside from the second-largest economy in the world, China). And, while Russia’s economic situation grew bleaker, Putin ultimately was forced to increase his control at home, becoming a supervillain in the eyes of many people around the world.
Talk of Russian military modernization today is laughable. As soon as those petro-funds dried up in 2014, Moscow’s delusions of geopolitical grandeur were put on hold—indefinitely. Russia will remain a spent force unless the world price of oil increases as it did in from 2007-2013. Given that five years of relatively low oil prices persisted, Russia was unlikely to have the means to realize its neo-imperial dreams any time soon. But the Trump Administration’s decision to reimpose sanctions on Iran means the Russian bear might be getting a much-needed shot of adrenaline at an opportune time.
Countering Russia’s Advantages as a Petrostate
It’s not going to be easy for Moscow, though. The world oil market has changed since the days when Russia benefited disproportionately from chronically high oil prices. Today, oil costs $66.15 per barrel—not quite where Russia needs it to be in order to benefit. Also, unlike a decade ago, America can saturate the world market with oil and natural gas to keep the price relatively low, if need be.
What’s more, the primary driver of OPEC—Saudi Arabia—needs the global price of oil to remain between $70-$80 per barrel to balance its budget. If the price goes beyond that range, it might risk a worldwide recession, thereby harming the Saudi economy.
Plus, Riyadh’s rivalry with Iran means that there is incentive for Saudi Arabia to prevent the price of oil from rising too high: the Saudis need the United States to back them and they will therefore acquiesce to Washington’s demands to keep global oil prices in check. Although Russia and Saudi Arabia, as two of the world’s leading oil producers, have formed a close bond in recent years, theirs is not a partnership as valuable to Riyadh as the Saudi alliance with the United States is. Thus, it is likely that Riyadh will attempt to coordinate an increase in oil production with both the United States and OPEC, in order to offset any price shocks from Washington’s recent moves against Iran, effectively damaging Russian dreams of complete, geopolitical restoration.
Yet the Trump Administration should take nothing for granted. In today’s age of durable disorder, things have a way spiraling out-of-control—especially in the complex international energy market. The pessimistic analysts might be right and the price of oil may approach $100 a barrel by year’s end simply because of unintended circumstances from well-meaning actions.
Such an outcome would be welcome news in Moscow.
Self-Restraint with Iran Keeps Russia Down
Iran is a regional threat that must be contained by a U.S.-backed alliance consisting of the Sunni Arab states and Israel. But, inching toward full military intervention against Iran, as U.S. Senator Rand Paul (R-Ky.) and several other congressional leaders fear the Trump Administration is doing, just might inadvertently allow for Russia to threaten U.S. interests across Eurasia.
The key here is for President Trump to strike a strategic balance in the Middle East: the United States cannot ignore Iran’s threat to the region. Balancing with regional powers, like Israel and Saudi Arabia, against Iran in order to contain its threat is good. But, unilaterally (and unexpectedly) slapping all oil sanctions back on Iran in a push for greater levels of hostility, as the White House did recently, creates uncertainty and instability in world energy markets. The more instability that the United States creates in the world energy market through its aggressive actions against Iran, the more likely it is that Russia will benefit.
If that happens, expect Russia to resume the wanton aggression against its Eastern European neighbors that it halted in 2014 when oil prices tanked. Hitting Iran too hard and suddenly would be akin to feeding the Russian bear—and we don’t want that.
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