Tags: Ottaway | oil | US | Russia

Panel Takes Upbeat View of Low Oil Prices — Part II

By    |   Wednesday, 12 Nov 2014 07:48 AM

The discussion of developments in the global oil market by a panel of experts continued at the Wilson Center in Washington as OPEC is scheduled to meet to decide how to respond to the recent severe drop in benchmark prices.

With oil representing 96 percent of Venezuela's exports, the falling oil price is leading to a scarcity of imports and a fall in the popularity of President Nicolas Maduro to 32 percent, according to Risa Grais Targow of the Eurasia Group. Therefore, Venezuela has continued to delay economic adjustments necessitated by the excesses of the Chavez regime. The economy is contracting at 4 percent, and inflation is in the 60 percent range. This could eventually lead the Chavista base to demand political reforms and eventually lead to regime change in Venezuela.

Will Pomeranz of the Wilson Center described the situation in Russia as similar to those in Nigeria and Venezuela. In Russia the percentage of the budget supported by oil is 50 percent. This will affect military and social spending and the ability to support the incursion into Crimea, and it results in a drain on Russia's reserves, causing a 20 percent fall in the ruble this year. The Finance Ministry is considering a 10 percent budget cut because next year's budget was based on $100 oil. Russian President Vladimir Putin has not responded to these assorted pressures, so the legendary patience of the Russian people may eventually be tested.

Veteran journalist and author David Ottaway considered the influence of the Saudis on the upcoming OPEC meeting scheduled for Nov. 27. The prevailing theory is that the Saudis will press for lower prices in order to discourage shale production in the U.S. and protect their market share. They have both the production and financial capacity to play this role, he noted. China has been buying cut-rate oil from countries like Iraq and Columbia willing to discount it, and Iran is feeling the pressure of U.S. sanctions on its domestic budget, because oil revenues are down 30 percent.

Ottaway concluded that the potential for the budget squeeze to affect negotiations over Iran's nuclear program is the most interesting issue of all. This writer doubts this proposition, given the ambivalence on the part of U.S. allies to pressure Iraq and the shaky diplomatic standing of the Obama administration. One wonders how this outlook will be affected by what pundits view as the temporary Republican control of the Senate.

The default strategy would be for the Democrats to run out the clock until they can secure the White House again in 2016 and retake the Senate. The contrary view is that a president who refused to engage with Senate Democrats will suddenly establish a working partnership with Republicans. An early test may occur if Republicans follow through on ideas that they should test Obama by sending the White House a bill authorizing construction of the Keystone XL Pipeline.

The Democrats seem to have the votes to sustain any Obama vetoes, but then their candidates will have to run on this record again in 2016. Such a risk may seem worth taking as they rely on the larger turnout of a presidential year.

(Archived video can be found here.)

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Robert-Feinberg
The discussion of developments in the global oil market by a panel of experts continued at the Wilson Center in Washington as OPEC is scheduled to meet to decide how to respond to the recent severe drop in benchmark prices.
Ottaway, oil, US, Russia
536
2014-48-12
Wednesday, 12 Nov 2014 07:48 AM
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