Three major countries that have been a thorn in the side of the United States are going to see diminishing influence over the coming years because of declining oil prices.
That's the verdict of Bank of America economists who looked into the international political effects of the price slump. Here's what they had to say (emphasis ours).
Here's Francisco Rodriguez, BAML's Andean economist, on Venezuela:
High oil prices in recent years allowed Venezuela to expand its influence in the region. The cost of this was very large for the country. We estimate the stock of loans to regional allies currently outstanding totals $25bn.
The restoration of full diplomatic relations between the United States and Cuba is an important byproduct of this decline in Venezuela’s influence. From Cuba’s vantage point, the need to change its sources of external income is evident.
In our view, the implications of this important announcement reach beyond Cuba’s borders, as it can help reshape the relationships between the US and Latin America, a region where a large fraction of governments is headed by leftist parties.
Russia won't only be hit in terms of the amount it can spend on its military: There are other ways it will lose influence in Eurasia because of the oil price slump, according to BAML Russia economist Vladimir Osakovskiy:
Obviously, more abundant capital gave the government a greater ability to increase spending on such a political item as defence, which gave it more tools for an independent foreign policy on the international agenda. Russia's defense spending reached peaks in the mid-1980s and in 2014...
Abundant and expansive energy resources also provide a lot of “soft power” that can be converted easily into political benefits through discounted gas shipments, direct financial support to loyal governments, etc. Over the past 5-10 years Russia has been quite active in supporting loyal governments in Belarus, Armenia and Ukraine. However, the capacity for such soft power is declining with lower oil prices.
Iran is a slightly different case. Here's Jean-Michel Saliba, a middle east, Europe and Africa economist at BAML:
Over a longer time frame, we would expect lower financial support to regional proxy armed groups to weaken some of the geopolitical dynamics on the ground. However, this can be moderated by various factors...
The resurgent Houthi military gains in Yemen, continued engagement in the Syrian conflict and recent Hezbollah-Israeli hostilities suggest Iranian regional ideological involvement is unlikely to alter course materially in the near term given the elevated stakes.
So while the oil price drop is bad for Iran's influence, a bunch of other factors are going to keep it high for some time yet.
The basic take-away is that while the US shale sector may the be target of the energy-rich gulf states that are driving oil prices down, the US is also going to be a major beneficiary as some international headaches get less painful.
Business Insider
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