RIch Miller writes;\u00a0\u00a0 Cheap oil is a geopolitical gift to the US.\u00a0 A new age of abundant and cheap energy supplies is redrawing the world\u2019s geopolitical landscape, weakening and potentially threatening the legitimacy of some governments while enhancing the power of others.<\/p>\n
Some changes already are evident.\u00a0 Surging US oil production enabled America and its allies to impose tough sanctions on Iran without having to worry much about the loss of imports from the Middle Eastern nation. Russia, meanwhile, faces what President Putin called a possibly \u201ccatastrophic\u201d slump in prices for its oil as its economy is battered by U.S. and European sanctions over its role in Ukraine.<\/p>\n
Oil is \u201cthe most geopolitically important commodity,\u201d said Reva Bhalla, vice president of global analysis at Stratfor, an advisory company in Austin, Texas. \u201cIt drives economies around the world\u201d and is located in some \u201cusually very volatile places.\u201d<\/p>\n
Benchmark oil prices in New York have dropped more than 30 percent during the last five months to around $75 a barrel as U.S. crude production reached the highest in more than three decades, driven by shale fields in North Dakota and Texas. Output was 9.06 million barrels a day in the first week of November, the most since at least January 1983, when the weekly data series from the Energy Information Administration began.<\/p>\n
“For 10 years, the defining factor in the oil market was the growth of China and Chinese oil demand,\u201d said Daniel Yerginvice chairman of Englewood, Colorado-based consultant IHS Inc. and author of a Pulitzer Prize-winning history of the commodity. \u201cNow the defining factor is the astonishing growth of U.S. oil production.\u201d<\/p>\n
The most probable case is a four- or five-year cycle with prices in a general range of $65 to $80 a barrel, he said. That compares with an average of about $88 from 2008 to 2013 and a high of more than $140 at one point during that period.<\/p>\n
The big question is whether oil-producing nations will react with accommodation or confrontation, said James Burkhard, vice president and head of oil-market research for IHS.<\/p>\n
\u201cThat\u2019s where the water gets a little muddy,\u201d he said. \u201cThat story will be unfolding in the months and year ahead. It does add greater uncertainty and volatility that can often lead to negative surprises.\u201d<\/p>\n
Russia is the biggest loser.\u00a0 Russia\u2019s economy will contract by 1.7 percent next year after stalling out in 2014, IHS forecasts. It projects inflation will rise to 8.4 percent from 7.6 percent, boosted by a depreciating currency.<\/p>\n
Iran has seen its revenue from oil exports fall by some 30 percent, President Hassan Rouhani said in remarks to parliament published Oct. 29 on Shana, the Oil Ministry\u2019s news website. The nation needs to achieve a break-even sales price of $143 a barrel this year to keep its budget in balance, according to data compiled by Bloomberg.<\/p>\n
Like Russia, Iran\u2019s economy has been weakened by economic sanctions — in its case over its nuclear program. The steps by the U.S. and its allies have almost closed Iran\u2019s oil and gas fields to investment in the last decade, limiting the country\u2019s access to technology to boost output.<\/p>\n
Venezuela lost 30 percent of its foreign-exchange revenue in the last month because of a \u201ctremendous\u201d drop in oil prices, Maduro said Nov. 13 in a televised national address from Caracas. He said he sent the country\u2019s foreign minister to five oil producers, including Mexico and Russia, to drum up support ahead of the Nov. 27 OPEC meeting.<\/p>\n
The U.S. is emerging as a big winner, according to the Nov. 11-12 poll of investors, analysts and traders who are Bloomberg subscribers.<\/p>\n
Increasing energy independence means the U.S. is less vulnerable to supply disruptions overseas.\u00a0 The boom in U.S. energy output also enhances U.S. prestige, which had been dented by the global financial crisis that originated in America\u2019s housing market.<\/p>\n
China is another big winner, as it imports almost 60 percent of its crude.<\/p>\n
The world\u2019s second-biggest economy probably will take advantage of the savings to build up its strategic reserves rather than dedicating the funds to increased spending on defense or the environment, according to Lin.<\/p>\n
The plunge in oil prices also gives the nation leverage in its dealings with Russia. The two countries signed a $400 billion, 30-year gas-supply accord in May during a summit in China, then deepened their energy ties earlier this month by signing a preliminary agreement for a second Russia-China pipeline.<\/p>\n
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