“If oil falls to $20 a barrel, Russia will look to get out of Syria. We won’t be able to afford it.” One Russian government adviser on the conflict took a gloomy view of his country’s financial resilience—but one that might seem to suggest that cheaper oil will raise the chance of a ceasefire.
If only. The apparently endless slide in the oil price is just one nagging thought—and far from the most important—in the minds of ministers in Russia, Saudi Arabia and Iran, the main countries in what has become a proxy war fought out through roaming bands of jihadists whose identity and allegiances constantly shift and reform. Their actions are shaped far more by old, deep rivalries and modern calculations of power.
But to the extent that oil does play a part, it’s hard to see that it will be on the side of peace. Alright, there is the reminder embedded in that remark from the Russia adviser that the war is expensive and the oil price has left them strapped for cash. But if all three of those big players want the price higher, and the most likely reason it will rise is outright conflict between them—for which they have endless opportunities—then it’s hard to see that cheap oil leads to peace.
It’s hard to remember that oil (taking the price of Brent crude, one of the benchmarks) reached $145 a barrel in July 2008, and was around $112 in mid-2014. Since then it has lurched down, to around $32 now. Goldman Sachs and Morgan Stanley are both reckoning it could reach $20, driven by China’s weakness and the dollar’s strength.
As Anatole Kaletsky describes above (p16), cheap oil has been an unalloyed blessing for the countries which import it, a positive shock, in economic jargon, tempered only by the disruption it may have brought to their plans for renewables or fracking which suddenly look less appealing. For the big oil producing countries most entangled in Syria, it has been an unexpected economic blow which has followed other causes of real social and political strain.
Iran, following the summer’s deal on its contested nuclear programme, has been liberated from some (but by no means all) international sanctions, and is scrambling for every penny of sales that it can get. It has been pleading with other members of Opec to “make way” for its growing sales, so far to little avail. Russia needs, according to officials, at least around $55 a barrel a day to “break even” on the government budget; some estimates put the real figure far higher.
Saudi Arabia, in some ways, has shown the most dramatic response even though the immediate threat is small. It has stuck to its policy of pumping whatever it takes to keep up its market share, regardless of price. Even though it is being forced to draw down the foreign reserves it has built up over a decade, it still has more than $600bn, although the International Monetary Fund warned in October that it could run out of financial assets within five years if it maintained its spending.
That is why its response is so interesting. On the one hand, it has maintained the assertive policy against Iran in Yemen conflict that is dangerously close to being a direct military clash between the two nations. The funding that emanates from Saudi Arabia—if not always from the government—also flows to anti-regime rebels in Syria who, whatever their allegiances, are on the opposite side from the forces of President Bashar al-Assad, who is backed by Iran. These are the twin stages on which the old Sunni (Saudi) and Shia (Iran) rivalries of the region are now being acted out. Many see in the willingness to become involved in armed conflict outside Saudi Arabia’s borders the hand of Mohammed bin Salman, the Saudi prince in his early thirties who is Defence Minister, second in line to the throne, and running much of the country’s policy.
At the same time, the country has embarked on a shakeup of its economy which is striking for its modernity; it could have come out of the pages of IMF recommendations. Subsidies on fuel products in the kingdom—a clinical phrase for the national view that Saudis shouldn’t have to pay more than a token for anything made from the “black gold”—are being cut. National oil companies may be privatised, with outside investors invited in. Most ambitious, perhaps, there are signs that the regime recognises the urgent need to create an economy based on something other than oil, not least to give jobs. Two thirds of the 29 million people are under 30, youth unemployment is between 25 and 30 per cent, and many even if educated lack useful skills for 21st century work.
Given the demographic pressures, it may be too little, too late. The kingdom used to boast that it achieved “progress without change,” one of my favourite ever promotional phrases. The danger now—as it has long feared—is that it will achieve change, even upheaval, without progress.
And so back to Syria: yes, from one view, the low oil price might encourage three countries which have better things to do to withdraw. But from another, they see in each other’s vulnerability a chance to grab power; none wants to be the first to withdraw. And each knows that any direct conflict, particularly between Iran and Saudi Arabia, pushes the price higher, if only by a few dollars.
Where the Russian adviser’s musings might have more force, however, is in Ukraine. The best effect of oil heading for $20 would be if it quelled any further ambitions President Vladimir Putin might have in that country.
