Limits of High Oil Prices as a Political Tool

As crude petroleum prices climbed up over the last three years, this did not only make exporting nations richer but it also made some of them more politically aggressive. What with Iran being defiant about inspections to its uranium processing facilities, Venezuela flexing its political muscles in South America and Russia using petroleum and gas supplies as a weapon in foreign policy. Together with the use of petroleum as an instrument of foreign policy were populist measures that expanded public expenditures through subvention and direct cash transfers.

There's no doubt that this is a risky strategy predicated on a high oil price and therefore vulnerable to any downward price shocks. Since petroleum prices curves flattened and went downwards, these countries are not only compelled to review expenditure plans but may see their voices in international affairs substantially moderated.

As the IHT reports here, these countries have had to go back to the drawing board regarding their expansionist ambitions. To my mind, there is still scope for petroleum prices to rise but the important fact is the illustration that non-democracies waste resources in symbolic displays of defiance and ambition.The state of affairs for these economies will probably be worse when oil prices tank again. And for sure, those prices will come down.