Tags: cheap | crude | oil

Cheap Oil Could Alter International Landscape

Friday, 17 Oct 2008 05:17 PM

By Tim Collie

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Algeria’s oil minister, Chakib Khelil, told The New York Times on Thursday that the “ideal” price for crude oil for his country was $70 to $90 a barrel.

Iran and Venezuela, however, both need oil prices at $95 a barrel to balance their national budgets, which are heavy on subsidies for food and other commodities that pacify restless populations. Russia, on the other hand, needs oil at $70 a barrel, and Saudi Arabia needs the price no lower than $55, according to estimates compiled by Deutsche Bank.

But some analysts expect oil prices to keep declining, perhaps to as low as $50 a barrel in coming months. On Friday, oil prices rebounded Friday above $71 a barrel on speculation the OPEC crude producers' cartel could cut production at an emergency meeting next week

For the next president, this could create a set of problems wholly different from the ones he was expecting. In recent years, high oil prices have emboldened Venezuela and Russia to expand their respective spheres of influence in Latin America and Europe. Now, both countries may face problems at home, which could lead to even greater instability, some experts say.

In Iraq, falling oil will mean a shrinking budget to ease the way for U.S. troops to leave. There will be less money to share among Iraq’s fractious ethnic groups — the majority Shia, the Sunnis, Kurds, and Turkmen — and that could cause problems.

In neighboring Iran, however, the falling oil price could prompt a retreat from international adventurism to more focus inside that country’s borders. Improbably, Iranians already pay high domestic prices because of inefficient markets, and dilapidated infrastructure.

On Friday, Israeli President Shimon Peres said that, “We see only our troubles, but we must note that there is finally a drop in oil prices, and this is a severe blow to Iran.”

“If the price of oil continues to drop, Iran will not be able maintain its military spending [levels],” Peres said. That would mean less money to supply its proxies, Hamas, which controls the Gaza Strip, and Hezbollah, which has essentially built a state-within-a-state inside Lebanon.

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