3 Oil-Rich Countries Face a Reckoning

[MiamiForEdwards]

By SIMON ROMERO, MICHAEL SLACKMAN and CLIFFORD J. LEVY
Published: October 20, 2008

CARACAS, Venezuela — As the price of oil roared to ever higher levels in recent years, the leaders of Venezuela, Iran and Russia muscled their way onto the world stage, using checkbook diplomacy and, on occasion, intimidation.

Now, plummeting oil prices are raising questions about whether the countries can sustain their spending — and their bids to challenge United States hegemony.

For all three nations, oil money was a means to an ideological end.

President Hugo Chávez of Venezuela used it to jump-start a socialist-inspired revolution in his country and to back a cadre of like-minded leaders in Latin America who were intent on eroding once-dominant American influence.

Iran extended its influence across the Middle East, promoted itself as the leader of the Islamic world and used its petrodollars to help defy the West’s efforts to block its nuclear program.

Russia, which suffered a humiliating economic collapse in the 1990s after the fall of communism, recaptured some of its former standing in the world. It began rebuilding its military, wrested control of oil and gas pipelines and pushed back against Western encroachment in the former Soviet empire.

But such ambitions are harder to finance when oil is at $74.25 a barrel, its closing price Monday in New York, than when it is at $147, its price as recently as three months ago.

http://www.nytimes.com/2008/10/21/world/21petro.html?_r=2&hp&oref=slogin&oref=slogin

[4edwords08]

With OPEC cutting production, oil will go back up,  where do you see that playing into this new troika model?

[et]

Once the cartel gets a taste of expensive oil, it is hard to give it up:

http://www.nytimes.com/2008/10/25/business/worldbusiness/25oil.html?hp

In school, they taught that this is the sort of pressure that breaks-up cartels: greed and ignoring cartel quotas will combine to enrich the Nigerias and Venezuelas of the world which, of necessity, have to sell product in order to stay afloat no matter what the cartel leaders may say.  This time around, the financial position of Saudi Arabia and Quatar and Bahrain and other Arab states may not be as rosy as times past. For one thing, they have all been on a buying and building binge, so their national economies are (like Americas) highly consumptive.  Unlike America, however, they have a narrower economic footprint having relied too long on oil as the only real revenue producing industry. America may still have narrowed its base too much (to financial products and service industry), but we would not suffer like any of these nations in a crunch. 

Cutting back production is not an option for long.  Now, if Islamic fundamentalism should somehow captivate their populations and impose a regimen of hardship in lieu of high oil prices, it might be a different story.  Taliban economies are dangerous in other ways.

[4edwords08]

I just heard that oil is going to crazy when the market starts to rebound.  Is that just one of those leader stories to get speculators, speculating.  It doesn't hold true with what this article is describing.