Wednesday, December 3, 2014

Feldstein: Cheap Oil May Mean Regime Change for Foes of the U.S.

My favorite Keynesian economist, Martin Feldsein, writes:
The big losers from falling oil prices include several countries that are not friends of the U.S. and its allies, such as Venezuela, Iran and Russia. These countries are heavily dependent on their oil revenue to support their governments’ spending — especially massive transfer programs. Even at $75 or $80 a barrel, these governments will have a difficult time financing the populist programs that they need to maintain public support.

Although Saudi Arabia and several of the Gulf states are also major oil exporters, they differ from other producers in two important ways. First, their cost of extracting oil is extremely low, which means that they will be able to produce profitably at the current price — or even at a much lower price. Second, their enormous financial reserves allow them to finance their domestic and international activities for an extended period of time, as they seek to transform their economies to reduce their dependence on oil revenue.

A further decline in the price of oil could have major geopolitical repercussions. A price of $60 a barrel would create severe problems for Russia, in particular. President Vladimir Putin would no longer be able to maintain the transfer programs that currently sustain his popular support. There would be similar consequences in Iran and Venezuela.

It is not clear whether these countries’ current regimes could survive a substantial and sustained future decline in oil prices.


  1. Thats true but its also slams a knee to the nuts of bondholders of the North Dokata frackers on Wall Street. Canada, Norway and Britain(North Sea oil)

    1. True, but since when did the PTB give a shit about honest bondholders?
      Methinks this was manipulated.

  2. speaking of which,

    Data provided exclusively to Reuters on Tuesday by industry data firm Drilling Info Inc showed 4,520 new well permits were approved last month, down from 7,227 in October..

  3. The price of resisting the Federal Reserve/USG complex--of course its easier to blame populist socialism as a means of resistance. Amazing how they got the Saudi's in line...

  4. Yeah, we will see. Low oil prices may hurt Putin, but nothing like a fire-sale of Treasuries could hurt the U.S.

    Me, I think Putin and Russia survive just fine, and unintended (or intended: Bill Holter pieced together the rationale for the Chinese and Saudis working together to lower oil prices, at the expense of the U.S.) consequences may very well slam big banks and hedge funds and their derivatives bets and, ultimately, the corrupt U.S. government.