How Collapsing Oil Prices Could Unravel Global Security
From Russia to Saudi Arabia to Latin America, the costs of the energy industry reckoning are proving enormous.
As the coronavirus wears on, global fossil fuel demand is collapsing. We’ve come a long way since the commodities boom of the post-9/11 years, which saw the industry reach historic highs by the summer of 2008. The financial crisis that year, combined with the rise of the United States and other countries as serious energy players, created a glut on the market.
Now the COVID-19 pandemic and the recent price war between Russia and Saudi Arabia has brought a reckoning to the worldwide energy industry. In the United States, these trends have created domestic uncertainty for energy-producing states like Texas, which is a must-win for President Trump in November. Green advocates are cheering the financial problems facing fossil fuels, hoping it will boost alternatives ones, even though those sources are facing the same issues.
Yet the disruptions go beyond economics. The oil crash has the potential to shift geopolitics, and not in a more stable direction.
Many frontier states in Africa and the Middle East are now facing regional interstate tensions, higher domestic unemployment rates, and higher financial burdens, all exacerbated by low fossil fuel prices. Meanwhile, Vladimir Putin’s Russia is facing serious domestic and geopolitical challenges that have the potential to incite more conflict on Europe’s peripheries.
Oil-dependent, fragile South Sudan has seen internal tensions rise amid low prices and fear of COVID. Nigeria, plagued by inter-regional tensions and an Islamic State-inspired insurgency, is looking at a 3.4 percent economic contraction over the course of this year. In North Africa, the news is not much better. Egypt, facing staggering youth unemployment and enormous public debt, is likely to see any prospect of 2020 economic gains erased.
The same goes for the Arab Spring’s only success story, Tunisia, which is now facing a negative financial outlook caused by the ongoing crisis facing hydrocarbons, an increasingly important export for the North African nation. These developments are ominous news in a region where economies are already fragile, dependent on commodity products to provide for their growing populations, and frequently roiled by conflict.
Saudi Arabia has announced it will be implementing austerity measures to curb social spending due to declining energy revenues. There are growing questions about the sustainability of the Kingdom’s political economy, given its fast-growing population, which is heavily dependent on government subsidies. Iran, the arch-rival of the House of Saud, is facing a similar situation. And historically low oil prices are threatening Iraq with a total economic collapse and renewed ISIS activity.
Professor Alex De Waal, executive director of the World Peace Foundation at the Fletcher School of Law and Diplomacy, provides insight into this trend:
As it happens, I am just initiating a project which is a comparative political economy analysis of what we call “traumatic decarbonization” in fragile oil producers (Iraq, Nigeria, South Sudan, Sudan). The basic hypothesis is drawn from my political marketplace model, which is that the structure of political financing (rent re-allocation to pay for political support) determines regime structure and stability, and when that political budget shrinks, but the market price of loyalty doesn’t shrink, instability follows. It fits the cases pretty well. And the current oil price collapse is a real-time test of the hypothesis, with the fast-developing seizing up of the Iraqi political system as exhibit A.
The result of this collapse is the exact opposite of what American energy independence advocates envisioned. They’d hoped domestic fracking would create a more peaceful global security situation that would make us less at risk of getting dragged into costly foreign conflicts to ensure supply chains. Yet now we see that low petroleum prices can incite turmoil across the Middle East and Africa, disrupting the access of major economies to fossil fuel producers in the global south.
Further to the north, in Eastern Europe, frozen conflicts could unfreeze. Low energy prices have previously damaged the Russian economy, already stymied by sanctions due to the Ukrainian intervention and threatened by emerging American energy independence. Russia now has the third-highest number of COVID-19 cases worldwide, while Vladimir Putin is using the pandemic to consolidate more power by “resetting” presidential term limits. The damage to Russia’s commodity-dependent economy might inspire him to go even further, breaking the Ukrainian ceasefire or pursuing military action elsewhere.
What would stop him from doing that? The United States is distracted by COVID and economic problems, not to mention hyperpolarization, which is spilling over into the foreign policy establishment. Washington’s NATO allies are also dealing with the pandemic, amid bitter infighting among European states resulting from self-preservation and inaction. Richard Weitz, a senior fellow at the Hudson Institute, comments:
It is very had to predict, especially when you add in second-order effects and confounding variables. On the one hand, it could make Russia less assertive due to the reduced funds available for defense spending. On the other hand, if the reduced government funding on social programs leads to unrest, the government may choose to provoke a foreign crisis to distract popular attention and mobilize nationalist support.
The collapse in energy commodities is a trend that could inflame instability from the former Soviet Union to Africa. We might also see an increase in problems in Latin America, where producers like Brazil, Mexico, and Venezuela are threatened by the coronavirus. The same applies to North Korea, where the regime profits from coal exports to China outside of sales of military hardware and illicit goods.
Far from ushering in a more secure world, declining energy prices will create a more dangerous globe through declining state revenues, lower social subsidies, and leaders seeking to distract their own impoverished citizenries. A sense of stability within hydrocarbon markets is urgently needed to prevent unforeseen risk. If not, the aftershocks might last years after the coronavirus has subsided.
Kevin Brown holds an MSc. in International History from the London School of Economics and Political Science (LSE) and will matriculate for global energy in the fall at Tufts University’s Fletcher School of Law and Diplomacy. His work has been featured in Real Clear Defense and The National Interest.