Dirt-Cheap Gas in 2009: Be Careful What You Wish For

By Michael T. Klare, Tomdispatch.com. Posted January 14, 2009.

In the past, the Russians have used gas shut-offs to neighboring states to extend their political clout. Given the steep drop in gas prices, however, Gazprom's January 1 decision to sever gas supplies to Ukraine (for failure to pay for $1.5 billion in past deliveries) is, at least in part, finance-based. Though the decision has triggered energy shortages in Europe -- 25 percent of its natural gas arrives via Gazprom-fueled pipelines that traverse Ukraine -- Moscow shows no sign of backing down in the price dispute. "They do need the money," observed Chris Weafer of UralSib Bank in Moscow. "That is the bottom line."

Plunging oil prices are also expected to place severe strains on the governments of Iran, Saudi Arabia and Venezuela, all of which benefited from the record prices of the past few years to finance public works, subsidize basic necessities and generate employment. Like Russia, these countries adopted expansive budgets on the assumption that a world of $70 or more per barrel gas prices would continue indefinitely. Now, like other affected producers, they must dip into accumulated reserves, borrow at a premium, and cut back on social spending -- all of which risk a rise in political opposition and unrest at home.

The government of Iran, for example, has announced plans to eliminate subsidies on energy (gasoline now costs 36 cents per gallon) -- a move expected to spark widespread protests in a country where unemployment rates and living costs are rising precipitously. The Saudi government has promised to avoid budget cuts for the time being by drawing on accumulated reserves, but unemployment is growing there as well.

Diminished spending in oil-producing states like Kuwait, Saudi Arabia and the United Arab Emirates will also affect non-producing countries like Egypt, Jordan and Yemen because young men from these countries migrate to the oil kingdoms when times are flush in search of higher-paying jobs. When times are rough, however, they are the first to be laid off and are often sent back to their homelands where few jobs await them.

All this is occurring against the backdrop of an upsurge in the popularity of Islam, including its more militant forms that reject the "collaborationist" politics of pro-US regimes like those of Hosni Mubarak of Egypt and King Abdullah II of Jordan. Combine this with the recent devastating Israeli air attacks on, and ground invasion of, Gaza as well as the seemingly lukewarm response of moderate Arab regimes to the plight of the 1.5 million Palestinians trapped in that tiny strip of land, and the stage may be set for a major upsurge in anti-government unrest and violence. If so, no one will see this as oil-related, and yet that, in part, is what it will be.

In the context of a planet caught in the grip of a fierce economic downturn, other stormy energy scenarios involving key oil-producing countries are easy enough to imagine. When and where they will arise cannot be foreseen, but such eruptions are only likely to make any future era of rising energy prices all that much more difficult. And, indeed, prices will eventually rise again, perhaps some year soon, swiftly and to new record heights. At that point, we will be confronted with the sort of problems we faced in the spring and summer of 2008, when raging demand and inadequate supply drove petroleum costs ever skyward. In the meantime, it's important to remember that, even with prices as low as they are, we cannot escape the consequences of our addiction to oil.

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