Thursday

21st Feb 2019

Column / Crude World

Petropolitics 2.0

  • Putin: Fearful of unrest, some leaders are reading the writing on the wall (Photo: kremlin.ru)

Down to $36 from its peak of $115 a barrel in June 2014, the oil price decline has rattled petrostates around the world.

Russia, which already had a horrendous 2015, saw the rouble reach a record low against the dollar and may witness a budget deficit of 6 percent in 2016.

Read and decide

Join EUobserver today

Support quality EU news

Get instant access to all articles — and 18 year's of archives. 30 days free trial.

... or join as a group

Azerbaijan’s manat lost a third of its value in December last year and the country is currently in talks with the International Monetary Fund and World Bank about a possible $4 billion emergency loan. Kazakhstan’s tenge depreciated a whopping 100 percent against the dollar in January alone.

According to the International Energy Agency oil markets risk “drowning in oversupply.”

So, what does a prolonged period of low oil prices mean for petrodictatorships in Europe’s eastern neighbourhood, their domestic stability and that of the wider region? Cheap oil may be great at the pump, but be careful what you wish for.

Putin your (lack of) money where your mouth is

So far, Russia’s leadership is slow to wake up to the new economic reality. When the rouble collapsed, president Vladimir Putin plainly denied there’s a problem.

The rouble’s decline badly affects the purchasing power of average Russians. There is already a growing number of angry homeowners, who bought property on a mortgage denominated in dollars, who demand answers from the government. Since late last year, a group of truck drivers has also been protesting over the instalment of a new road tax system which they feel would badly erode their earnings.

The truckers are particularly incensed that the company awarded the contract to collect the fees is co-owned by the son of one of Putin’s cronies. The protest matters as it is a rare sign of strain on Putin’s working-class support base. Next to eroding people’s savings, low oil prices wreak havoc on Russia’s government finances. In response, the finance ministry has called for cuts of 10 percent.

These measures however are unlikely to suffice. Russia can rely on its financial reserves for a while, but at the current rate - and if oil prices do not recover - the rainy day fund will be depleted by the end of 2016.

A worrying development is that the dire state of Russia’s public finances risks upsetting the contract Putin has with Chechen strongman Ramzan Kadyrov. Kadyrov receives money from Moscow to keep Chechnya stable, and in return is allowed to run it as his personal fiefdom.

In recent weeks, Kadyrov has been issuing unusually vocal threats against the Russian opposition which many view as an attempt to demonstrate his loyalty to Putin, worried as he is that his money may run out.

In another possible sign of how the Kremlin fears the domestic situation may get out of hand, the government adopted a law in December last year allowing the FSB, the Russian intelligence service, to fire into crowds, including at women, children and the disabled, ostensibly to combat terrorism. However, I doubt you would give your security forces such a broad mandate unless you somehow fear your own people.

Flashpoint Central Asia

Regionally, Russia’s economic decline has caused a currency crash throughout Central Asia and prompted migrant remittances to dry up. For Tajikistan, Kyrgyzstan and Uzbekistan - the most remittance-dependent countries worldwide - this represents a serious economic shock. Worse, in time unemployed migrant workers will probably make their way back, only to arrive home where unemployment is already rife.

One does not need a PhD to see how unemployed young males are vulnerable to radicalisation and recruitment by jihadist organisations.

Fearful of unrest, some leaders are already reading the writing on the wall. This month Kazakhstan’s strongman Nursultan Nazarbayev dissolved the lower house of parliament and called snap elections in an attempt to cling to power amid rising discontent. There is no doubt who will win the elections, but Nazarbayev and his colleague from Uzbekistan, Islam Karimov, have a more pressing issue: their age.

Without an adequate successor, the combination of economic decline and growing unemployment may only need a catalyst, say a leader’s death, to spark social unrest.

Further south, in Azerbaijan, president Ilham Aliyev is forced to brace himself for the first period of economic decline under his leadership. Protests over rising prices and unemployment have already broken out in various regions.

So far unrest has remained local. But Aliyev is on high alert. If unable to turn things around, he could resort to another trusted tactic: stir up trouble abroad in a bid to rally people around the flag.

The break-away republic of Nagorno-Karabakh, subject of an unresolved dispute between Armenia and Azerbaijan, saw a flare-up in fighting in 2015. If the pressure on Aliyev mounts and protests become more frequent, one should not be surprised if he decides to up the ante.

Living with cheaper oil

The World Bank predicts that crude prices are to average $37 this year, and with Iran returning to global oil markets, oil prices are unlikely to bounce back soon. What is more, the advent of the American shale revolution has radically altered the fundamentals of the international market.

US shale producers, rather than Saudi Arabia, could become the world’s swing producers, narrowing the oil price bandwidth. Add a rise in renewable energy, and petro-dictatorships have little choice but to live with cheaper oil for longer. However, there are few signs that leaders are prepared to deal structurally with the factors that cause (economic) decline.

Europe and Nato countries, for their part, would be wise to invest more in strategic early warning capabilities. For if oil prices remain depressed for long enough, the eastern neighbourhood can quickly become an even more contentious place than it already is.

The new Crude World monthly column on Eurasian (energy) security and power politics in Europe’s eastern neighbourhood is written by Sijbren de Jong, a strategic analyst with The Hague Centre for Strategic Studies (HCSS), specialised in Eurasian (energy) security and the EU’s relations with Russia and the former Soviet Union

Column / Crude World

Why Europe should fight Nord Stream II

While the European Commission is still assessing how to react to the plans for a new Russia-Germany gas pipeline, the threats to EU energy supplies and Baltic Sea security are becoming clearer.

EU's chance to step up on Hungary and Poland

Viktor Orban of Hungary and Poland's Jaroslaw Kaczynski seem to share the idea that the rights of some may come at the expense of the rights of others, and public institutions should serve the majority, and not all citizens.

Could Finnish presidency fix labour-chain abuse?

There can be no more excuses for business. They will be held for responsible for their failure to take action to prevent the risk of human and labour rights through their supply chains.

What does Poland want from the EU?

We propose several changes to the EU, derived from the political philosophy behind the current Polish government, and what Poles expect from the EU - this could be seen as a manifesto Poland wants the next European Commission to tackle.

Migration and May elections - time to get facts right

If misinformation in the field of migration can bring a government down, as in the recent case of Belgium following the country's adoption of the UN migration pact, then it can doubtless produce a populist majority in the European parliament.

Stakeholders' Highlights

  1. Nordic Council of MinistersMilestone for Nordic-Baltic e-ID
  2. Counter BalanceEU bank urged to free itself from fossil fuels and take climate leadership
  3. Intercultural Dialogue PlatformRoundtable: Muslim Heresy and the Politics of Human Rights, Dr. Matthew J. Nelson
  4. Platform for Peace and JusticeTurkey suffering from the lack of the rule of law
  5. UNESDASoft Drinks Europe welcomes Tim Brett as its new president
  6. Nordic Council of MinistersNordic ministers take the lead in combatting climate change
  7. Counter BalanceEuropean Parliament takes incoherent steps on climate in future EU investments
  8. International Partnership For Human RightsKyrgyz authorities have to immediately release human rights defender Azimjon Askarov
  9. Nordic Council of MinistersSeminar on disability and user involvement
  10. Nordic Council of MinistersInternational appetite for Nordic food policies
  11. Nordic Council of MinistersNew Nordic Innovation House in Hong Kong
  12. Nordic Council of MinistersNordic Region has chance to become world leader when it comes to start-ups

Latest News

  1. EU commission appeals Dieselgate ruling
  2. 'No burning crisis' on migrant arrivals, EU agency says
  3. 'No evidence' ECB bond-buying helped euro economy
  4. Juncker: Orban should leave Europe's centre-right
  5. College of Europe alumni ask rector to cut Saudi ties
  6. EU says Hungary's anti-Juncker campaign is fake news
  7. Trump right for once: Europe should take back foreign fighters
  8. EU should clarify rules for plant burgers and lab meat

Stakeholders' Highlights

  1. Nordic Council of MinistersTheresa May: “We will not be turning our backs on the Nordic region”
  2. International Partnership for Human RightsOpen letter to Emmanuel Macron ahead of Uzbek president's visit
  3. International Partnership for Human RightsRaising key human rights concerns during visit of Turkmenistan's foreign minister
  4. Nordic Council of MinistersState of the Nordic Region presented in Brussels
  5. Nordic Council of MinistersThe vital bioeconomy. New issue of “Sustainable Growth the Nordic Way” out now
  6. Nordic Council of MinistersThe Nordic gender effect goes international
  7. Nordic Council of MinistersPaula Lehtomaki from Finland elected as the Council's first female Secretary General
  8. Nordic Council of MinistersNordic design sets the stage at COP24, running a competition for sustainable chairs
  9. Counter BalanceIn Kenya, a motorway funded by the European Investment Bank runs over roadside dwellers
  10. ACCACompany Law Package: Making the Best of Digital and Cross Border Mobility,
  11. International Partnership for Human RightsCivil Society Worried About Shortcomings in EU-Kyrgyzstan Human Rights Dialogue
  12. UNESDAThe European Soft Drinks Industry Supports over 1.7 Million Jobs

Stakeholders' Highlights

  1. Mission of China to the EUJointly Building Belt and Road Initiative Leads to a Better Future for All
  2. International Partnership for Human RightsCivil society asks PACE to appoint Rapporteur to probe issue of political prisoners in Azerbaijan
  3. ACCASocial Mobility – How Can We Increase Opportunities Through Training and Education?
  4. Nordic Council of MinistersEnergy Solutions for a Greener Tomorrow
  5. UNICEFWhat Kind of Europe Do Children Want? Unicef & Eurochild Launch Survey on the Europe Kids Want
  6. Nordic Council of MinistersNordic Countries Take a Stand for Climate-Smart Energy Solutions
  7. Mission of China to the EUChina: Work Together for a Better Globalisation
  8. Nordic Council of MinistersNordics Could Be First Carbon-Negative Region in World
  9. European Federation of Allergy and AirwaysLife Is Possible for Patients with Severe Asthma
  10. PKEE - Polish Energy AssociationCommon-Sense Approach Needed for EU Energy Reform
  11. Nordic Council of MinistersNordic Region to Lead in Developing and Rolling Out 5G Network
  12. Mission of China to the EUChina-EU Economic and Trade Relations Enjoy a Bright Future

Join EUobserver

Support quality EU news

Join us