President Vladimir Putin has challenged the US in Europe and the Middle East. Russia has emerged as a new power player in the European Union, and has supported the Syrian government against the Saudi and American backed onslaughts.
Most Americans and some Europeans expect obedience from Russia, as for them the former Soviet Union is a ‘defeated country’. President Putin does not see things that way. His defiance has made him America’s enemy number one, at least for now.
Punishing Russia is a US foreign policy priority, and decreasing oil prices is one way to hurt Moscow. Seemingly, it is working. Every time oil prices drop by a dollar, Russia loses $2 billion in revenue. The Russian economy depends on energy exports. Nearly 70 percent of the Russian revenue comes from oil and gas exports. The economies of other oil exporting countries such as Iran, Venezuela, Kazakhstan, and Nigeria are also under pressure, because they failed to diversify.
Western experts and commentators cite various factors for falling oil prices. They claim that the Chinese economy is slowing down and that has already reduced the oil demand from China. Secondly, they say, the United States has increased its domestic production of oil and is therefore importing less.
Another reason for the continued decline in oil prices was the refusal of the Organization of Petroleum Exporting Countries (OPEC) to cut production until this year.
Oil exporting nations need prices to remain between $90 and $110 per barrel. Russia, for example, needs $105 dollars per barrel to balance its national budget. Saudi Arabia, the largest exporter of oil, is selling its oil for nearly $35 per barrel less than what its economy needs. But being a strong US ally, it is manipulating the market by not cutting production, to pressure Russia and Iran, especially for their support to the Bashar al-Asad government in Syria. Riyadh has very large foreign exchange reserves, more than $700 billion, and can therefore handle the losses for now.
Meanwhile, Washington is concerned about the growing cooperation between Russia and some members of the European Union, particularly Germany. President Putin, who is also a German affairs specialist, has maintained warm relations with the German leadership. Russia is the major energy supplier to the EU. Italy, Germany and other European countries have developed deeper trade and investment relations with Russia. Moscow’s new role has led to internal rifts and pressures in the EU. Great Britain and some eastern European countries are protecting US interests in the region. The US wants the EU to sign a wide-ranging Transatlantic Trade and Investment Partnership (TTIP) agreement. But there are reservations among some EU members about the scope, nature and adverse implication of the TTIP for them.
After the failure of the recent US adventures in the Middle East, the American meddling in Ukraine has also backfired. President Putin, on the other hand, has emerged as a leader with the ability to build bridges with Europe on equal footing, and to the advantage of Russia. This has made Putin the undisputed leader of the majority of Russian people. Opinion surveys indicate that nearly 80 percent of the Russian public supports President Putin and his policies.
There is another dimension of Washington’s hostility towards Moscow. Oil production has increased in the US because of extraction from shale formation by fracking, and it could soon begin exporting energy. The EU would be a lucrative market for American oil products. The cost of such production is still high, between $60 and $70 per barrel. Saudi Arabia produces oil at $6 a barrel. Until there is a dramatic reduction in the domestic oil production costs, the United States needs Middle Eastern oil and Saudi Arabia has the key to that. Ironically, the possibility of American self sufficiency in oil production and the ultimate export of American oil to EU markets is not in Saudi interest. Therefore, by not cutting its oil production and keeping the price low, Saudi Arabia is putting pressure on US shale industry as well, to give up innovations in oil production.
For now, the United States and Saudi Arabia want a regime change in Moscow. They are desperately in search of new Russian horses that could replace President Putin. But perhaps, they are underestimating Putin and Russia, again.
Shiraz Paracha is an analyst and a journalism professor.
Email: shiraz_paracha@hotmail.com
Most Americans and some Europeans expect obedience from Russia, as for them the former Soviet Union is a ‘defeated country’. President Putin does not see things that way. His defiance has made him America’s enemy number one, at least for now.
Punishing Russia is a US foreign policy priority, and decreasing oil prices is one way to hurt Moscow. Seemingly, it is working. Every time oil prices drop by a dollar, Russia loses $2 billion in revenue. The Russian economy depends on energy exports. Nearly 70 percent of the Russian revenue comes from oil and gas exports. The economies of other oil exporting countries such as Iran, Venezuela, Kazakhstan, and Nigeria are also under pressure, because they failed to diversify.
Western experts and commentators cite various factors for falling oil prices. They claim that the Chinese economy is slowing down and that has already reduced the oil demand from China. Secondly, they say, the United States has increased its domestic production of oil and is therefore importing less.
Another reason for the continued decline in oil prices was the refusal of the Organization of Petroleum Exporting Countries (OPEC) to cut production until this year.
Saudi Arabia is selling its oil for nearly $35 per barrel less than what its economy needs, only to pressure Russia and Iran
Oil exporting nations need prices to remain between $90 and $110 per barrel. Russia, for example, needs $105 dollars per barrel to balance its national budget. Saudi Arabia, the largest exporter of oil, is selling its oil for nearly $35 per barrel less than what its economy needs. But being a strong US ally, it is manipulating the market by not cutting production, to pressure Russia and Iran, especially for their support to the Bashar al-Asad government in Syria. Riyadh has very large foreign exchange reserves, more than $700 billion, and can therefore handle the losses for now.
Meanwhile, Washington is concerned about the growing cooperation between Russia and some members of the European Union, particularly Germany. President Putin, who is also a German affairs specialist, has maintained warm relations with the German leadership. Russia is the major energy supplier to the EU. Italy, Germany and other European countries have developed deeper trade and investment relations with Russia. Moscow’s new role has led to internal rifts and pressures in the EU. Great Britain and some eastern European countries are protecting US interests in the region. The US wants the EU to sign a wide-ranging Transatlantic Trade and Investment Partnership (TTIP) agreement. But there are reservations among some EU members about the scope, nature and adverse implication of the TTIP for them.
After the failure of the recent US adventures in the Middle East, the American meddling in Ukraine has also backfired. President Putin, on the other hand, has emerged as a leader with the ability to build bridges with Europe on equal footing, and to the advantage of Russia. This has made Putin the undisputed leader of the majority of Russian people. Opinion surveys indicate that nearly 80 percent of the Russian public supports President Putin and his policies.
There is another dimension of Washington’s hostility towards Moscow. Oil production has increased in the US because of extraction from shale formation by fracking, and it could soon begin exporting energy. The EU would be a lucrative market for American oil products. The cost of such production is still high, between $60 and $70 per barrel. Saudi Arabia produces oil at $6 a barrel. Until there is a dramatic reduction in the domestic oil production costs, the United States needs Middle Eastern oil and Saudi Arabia has the key to that. Ironically, the possibility of American self sufficiency in oil production and the ultimate export of American oil to EU markets is not in Saudi interest. Therefore, by not cutting its oil production and keeping the price low, Saudi Arabia is putting pressure on US shale industry as well, to give up innovations in oil production.
For now, the United States and Saudi Arabia want a regime change in Moscow. They are desperately in search of new Russian horses that could replace President Putin. But perhaps, they are underestimating Putin and Russia, again.
Shiraz Paracha is an analyst and a journalism professor.
Email: shiraz_paracha@hotmail.com