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As well recorded in the world economic history book, by the early 1970s, American oil consumption was rising even as domestic oil production was declining, leading to an increasing dependence on oil imported from abroad. Despite this, Americans worried little about a dwindling supply or a spike in prices, and were encouraged in this attitude by policy makers in Washington, who believed that Arab oil exporters couldn’t afford to lose the revenue from the American market. These assumptions were demolished in 1973, following the Yom Kippur War between Israel and Arab countries, when an oil embargo imposed by members of the Organization of Arab Petroleum Exporting Countries (OAPEC) led to fuel shortages and sky-high prices throughout much of the decade.
Ever since OPEC’s oil embargo in 1973 and the resulting oil price shock, Western nations have had to deal with the vagaries of oil price induced inflationary pressures and/or significant GDP growth dampeners.
Conversely, a range of other nations, primarily the likes of Saudi Arabia, Russia and Iran, were put into the position of coasting along nicely, irrespective of their domestic failings and shortcomings. Putin’s ride in Russia, for example, is best explained by the fact that, unlike Boris Yeltsin before him, he never had to deal with cataclysmic declines in the oil price. And Saudi Arabia’s preferred “game” which is buying off its young men with cushy state-sector do-nothing jobs so as to stave off any revolutionary instincts, very much depends on a high oil price.
In fact, given the costly welfare state the Saudi Princes are running to numb their undereducated, unproductive masses, they have great reason to worry about their physical safety in their princely estates if the oil price goes down too much. And that decline is precisely what may be in the offing now. For the moment, it still seems as if the oil market like the stock market can’t quite decide whether or not it should go into a sustained downward spin. But according to noted market analysts, the writing is certainly on the wall and it makes such global entities as the Kremlin and Riyadh very nervous.
As well it should. The cynical strategy of these “leaders” to rule by mass bribing of their people, while not reforming their countries in any useful manner to make them productive citizens in the 21st century, may well come to haunt them very soon. It is said, for example, that the Saudi welfare state gets into budgetary troubles once the oil price goes below $97 a barrel. To be sure, the Saudis have plenty of money stashed away somewhere that they can infuse now in their “let’s-prevent-a-revolution” games. But some oil prices are now as low as $85. That’s going to hurt for real in a short amount of time.
At a time of great geopolitical upheaval as now, there is a temptation for Western minds to lift their collective hopes that these pariahs are becoming more malleable, reasonable and reform-oriented. Compared to the Saudis, the Russians have a clear advantage: Their population is so despondent and aging that it has next to none of the young Saudi males’ sense of dissatisfaction.
According to recent studies, the Russian people are conditioned by a long history of being treated like mules by their leaders, irrespective of the latter’s ideological stripes. After a while, that has a real impact on a deep-seated sense of passivity and hopelessness. The Saudis are at the opposite end of the demographic curve. The average age of their population is 25.3 years, compared to Russia’s 38 years. And the Saudi princes’ efforts to rely on their oppressive domestic intelligence services to keep their people in line will only work for so long.
Once young men become truly restive, there is little state power to hold them back. It stands to reason that the Saudi Princes have an ominous sense of their present fragility, which already hits at all their border regions. At this point, the most important question is this. Can the Russian and Saudi leaderships wise up now and realistically pursue sensible reforms at home? According to recent studies, the big white hope is that, on the global stage, low oil prices are a Weapon of Mass Obedience. Of course, those same low oil prices are already driving up U.S. consumers to buy gas-guzzling SUVs once again.
According to analysts, the problem as regards the Saudis and the Russians is that both nations are poorly prepared – no, unprepared – for an internal “regime change,” even if that term only refers to structural economic reforms and better education policies. The past addiction to, and presence of, a high oil price had the effect of these mis-leaderships believing they were inoculated against the need to do the inevitable. In other words, they hope to avoid what everybody else has to do which is pursue sensible economic reforms and advance the home population’s human resource potential.
As things stand, the low oil price may well have the opposite effect of what Westerners are currently hoping for. Rather than creating more obedience, not toward “the West” itself, but the principles of modern civilization, including the rule of law, despair and obstinacy may reign supreme. When faced with desperate circumstances, desperate leaders in certain cultures rather have a tendency to circle their wagons that much harder than in the “good” times. The Saudi and Russian leaders are cut from a fundamentally different cloth than China’s.
The latter certainly have their drawbacks and challenges too. But China under Deng Xiaoping at first, and then under the leaders that followed him made a fundamental, top-to-bottom bet that it had to reinvent itself. Perhaps that stark departure from its very ideologized past was facilitated by China not being able to rely on raw material riches. But for Russia and Saudi Arabia, having those riches only meant that dealing with pressing human realities was postponed, not superfluous.
However, it is precisely because of the devastating tendency of both leaderships to believe that their oil riches could lull them into safety that they can now be counted upon to become that much more desperate. The odds are that lower oil prices, rather than anything we may wish for at this juncture, will turn into a weapon of mass irrationality when it comes to Russia and Saudi Arabia.