Low Oil Prices – Strategic Significance

Low Oil Prices – Strategic Significance

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Low Oil Prices - Strategic Significance

Global oil prices have fallen dramatically over the past six months, following an excess of supply over demand. The drop in prices is another blow to Iran and to Russia, which are both under economic sanctions. Iran is accusing Saudi Arabia of conducting an oil war, and is threatening to respond to it. These threats highlight the danger of the Iranian nuclear process to the stability of the Persian Gulf in particular, and to the global energy market in general. The economic pressure on Iran, however, is likely to constitute an opportunity for the West to improve the terms of an agreement on the nuclear question.

Strategic Significance

Insofar as the low oil prices continue, the major oil producers will have to adapt their spending to the new situation. This process is liable to affect the internal stability of producers suffering from economic difficulties. The other side of the coin is that Iran will have fewer economic resources available for aid to terrorist organizations and subversion in the Middle East. At the same time, this activity will likely not cease, and may even become more extreme in order to obtain more influence for less money.

The decline of oil prices has heightened the tension between Iran and Saudi Arabia. Accusing Riyadh of waging an oil war against it, Iran has threatened to attack the kingdom. On December 10, 2014, Iranian President Hassan Rouhani, hinting at Saudi Arabia, said, “The Iranian people will not forget this treason, and will respond to it.” A website associated with the Revolutionary Guards explained that Saudi Arabia was trying to compel Iran to accept a bad nuclear deal, pressure Russia and Iran to abandon their positions on Syria, and keep the global oil market under its control.

The tension between Saudi Arabia and Iran may develop into a violent conflict, even though it is currently in Iran’s interest to avoid incidents that cast it in a bad light, at least until an agreement satisfactory to it on the nuclear issue is reached. It therefore appears that Iran’s main tool against Saudi Arabia is subversion, including from Yemen, Saudi Arabia’s back door. Iranian subversion is likewise liable be discovered as targeting other oil producers in the Persian Gulf.

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Developments in the oil market are relevant to the decision point in the nuclear crisis with Iran. Iran’s threats against Saudi Arabia and its involvement in subversion in the Persian Gulf underscore the risk posed by Iran to stability in the region, which is the world’s key energy area. Nuclear weapons capability, if achieved, will give Iran deterrence that will enable it to dictate global oil prices, as Iraqi ruler Saddam Hussein tried to do before he attained such capability. Through control of oil, Iran can misuse its influence on many countries in both the East and West that are dependent on imported oil from the Persian Gulf.

A hint of how Iran operates through a combination of oil, terrorism, and foreign policy emerges in the Argentinian affair. Prosecutor Alberto Nisman, who was found dead in his apartment in mysterious circumstances, asserted that Iran had made a secret deal with the President of Argentina, giving senior Iranian officials immunity from any investigation of their involvement in the 1994 terrorist attack on the Jewish community center, in exchange for cheap oil prices. Eighty-five people were killed in the attack, and hundreds were injured.

In order to prevent Iranian hegemony, and in view of threats from Iran pertaining to oil, which is the source of Saudi Arabia’s power, the kingdom is likely to seek to attain its own nuclear weapons capability, so that there will be “nuclear umbrellas” above the Persian Gulf, where the world’s largest oil reserves are located. The US is moving toward energy independence, but this development, if it occurs, will have a negative effect on its status as a superpower, because it will detract from its influence on those who import oil from the Persian Gulf.

At the same time, the severe economic crisis in Iran is heightening the internal pressure in the country, which should help the powers negotiating with Iran to pressure Tehran to agree to terms that will greatly increase its distance from the bomb.

Written by: Shmuel Even