All the countries that depend heavily on oil exports are suffering, and this is a worldwide phenomenon that is going to continue for some time to come, says natural resources expert Michael Klare.
The Russian and Saudi economies, which are heavily reliant on oil prices, are bearing the brunt of the situation. The Russian ruble has dropped to its ‘Black Monday’ level of August, while Saudi Arabia is at risk of depleting its financial assets within five years.
RT: Both the Russians and the Saudis are suffering from plunging oil prices. Who's bearing the bigger brunt?
Michael Klare: It is not just Saudi Arabia and Russia that are suffering. All of the countries that depend heavily on oil exports are suffering. Venezuela had an election last week in which the Chavista leader, Mr. [Nicolas] Maduro – his party lost terribly. That is partly due to the fact that oil prices were so low. We see suffering in Nigeria and Algeria. So that is a worldwide phenomenon, and I think it is going to continue for some time to come.
READ MORE: Crude falls below $35 a barrel for first time since 2009
RT: Many are going as far as describing the rivalry between Russian and Saudi oil companies as an 'oil war.' Is that how you would describe it? Is it going too far calling it like that?
MK: I think it is certainly a struggle or war for markets. Let’s put it that way. The demand for oil has not risen as high as many people expected in the past. That is due to an economic slowdown in China, in particular. And nowhere in the world is there particularly robust economic growth. So the demand for oil hasn’t risen very much, and all of the producers are fighting for market share.
RT: Why don’t OPEC members just cut production then? Why do they keep producing, as they are?
MK: Well, I think the Saudis’ reason is that if they were to cut back – and they are one of the bigger producers – Russia, the US, also a major producer, and other countries, like Iran and Iraq, would take advantage of them. So they don’t want to be the one to suffer the brunt of any production cutbacks. Everybody is afraid to be the first one to take the initiative to cut back. So we are in a kind of a game of chicken: who will cave in first?
RT: If we look at how the ruble is reacting to falling oil prices. It's getting weaker, while the US dollar is strengthening. Does this mean only doom and gloom for Russia?
MK: Russia has a long-term problem of being so heavily dependent on oil and natural gas exports. As long as that continues it is going to be more vulnerable. The US has a wider economy, so it is less vulnerable to the slide in prices.
RT: What about Saudi Arabia? We are hearing that if it carries on like the way it is, its reserves are going to be depleted in about five or six years?
MK: Yes, the Saudis are playing a very risky game. They have managed to keep political stability, social stability in the country by using their oil revenues to buy off a large portion of the population with all kinds of public spending, public welfare. If they have to cut back on that they risk social unrest. So they are playing a very, very risky game. They can’t go on that much longer.
READ MORE: Saudi Arabia could be bankrupt by 2020 – IMF
RT: What's your forecast for the oil price? Any chance there'll be significant growth in the near future?
MK: I do not see any sign of large growth anywhere. The big possibility might be India – India seems to be on the verge of major economic growth. And you have a huge middle class in India. If that middle class starts buying cars and driving everywhere that would be a surge in demand. And there are a few other places like that. But China doesn’t seem to be on the verge of any new growth. So until that happens, it is hard to predict a huge surge in demand.
The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of RT.