Enab Baladi – January 25, 2015
The global drop of crude oil price to less than $50 per barrel has surprised many observers and experts who expected it to rather rise in light of the global political turmoil.
This decline has triggered a lot of questions and analysis concerning its causes, including economic ones that either depend on rapid growth of supply and slow growth of demand or on using economy to pressure some oil producing countries like Russia and Iran for political ends?
Currently, there is no solution for this predicament, but justifications of both economic and political reasons can be provided. The onset of the “Islamic State” and declaration of “Caliphate State” made some Arab and Western countries feel threatened in general and pushed 40 Arab and Western countries to form an alliance which task is eliminating the Islamic State Group.
Long debates took place publicly and privately concerning the necessity of resolving the Syrian crisis, eliminating the Assad regime in Syria and Al-Maliki regime in Iraq, and eventually ending the Islamic State.
Overthrowing the Iraqi part (Al-Maliki) was easy by the coalition and unanimously agreed upon by the Iraqi public, and by elections held a few months before the emergence of ISIS.
While overthrowing the Syrian part (Assad regime) is somehow complicated due to the interlacement between the Syrian crisis and the Iranian-Russian large support to the Assad regime. Consequently, the coalition decided to intensify its sanctions on the Assad allies, not only for their support, but also for Russia’s involvement in the Ukrainian crisis and for Iran’s nuclear program.
These sanctions coincide with the global drop of oil prices due to economic reasons (increased supply and low demand). Since Russia and Iran are two oil exporting countries, other countries started to exploit oil prices to increase the pressure on Iran and Russia by reducing oil world price even further.
Saudi Arabia started the exploitation. It increased its daily production of oil, hence the prices declined and supply exceeded demand. The Kingdom justified increasing its oil production and referred it to economic reasons; mainly that the basic income resource of the Kingdom’s economy is oil, thus; the declined price reduced the income. Therefore; production must be increased to compensate the shortfall and maintain stability.
KSA’s political purpose behind increasing its oil production was beyond the given justifications. It increased pressure on the Assad allies and caused them significant losses in oil export sector. And that was evident in a report published by the US magazine “The National Interest” early this year; saying that Iran balanced its 2015 budget on the basis that oil price is $100 per barrel, and exportations are 1.5 million barrels daily. Iran was optimistic about the increase of oil global price in early June of last year, when it reached $113.
Russia was affected as well. Last week, it demanded cooperation from Prince Saud Al-Faisal to reduce the market supply in order to re-increase oil prices. Saudi replied that this cooperation should include other fields as well, especially the Syrian crisis, combating terrorism and other regional conditions.
The Assad regime was clearly influenced by the western pressure on its allies. Their oil support – especially the Iranian – regressed, which forced him reconsider his plans in accordance with his oil crisis that generated from Iran’s short support, European sanctions that prevented him from buying jet fuel and loss of his largest oil well in the north.
All these factors might push the Assad to alleviate the actions of his military mechanisms that are consuming huge amounts of oil, shifting him from the attack position to defense position, except on some strategic fronts such as Jobar, Daraya and Eastern Ghouta.
On the other hand, an even harder challenge might be ahead of the Assad due to Iran’s low support; it is the popular movement in areas that support of the regime. People there showed rebellion in the last two months due to the increased fuel prices, the deteriorated life conditions and high prices which indicate a serious interior danger that might significantly disorder the Assad regime.
translated by Syrian economic forum.