Accessibility links

Falling Oil Prices May Not Pressure Iran, Russia

  • Al Pessin

FILE - A consumer purchases gas at a filling station.

FILE - A consumer purchases gas at a filling station.

The global price of oil fell sharply in recent months, providing some benefits to consumers and putting economic pressure on exporting countries, including two that are involved in disputes with the West.

But analysts say the impact on those two countries - Iran and Russia - may not be as great as some might expect.

Since late June, the price of Brent Crude Oil -- a major benchmark for global oil trading -- has dropped from nearly $115 per barrel to about $77 -- a fall of more than one third.

The price has fallen because of increased production in the United States and elsewhere, and reduced demand caused by lingering economic problems in Europe and in developing countries.

“At face value, it looks like a disaster for a number of exporting countries,” said Pierre Noel, who follows energy issues from the Singapore office of the International Institute for Strategic Studies. “Those countries when they face a significant drop in the price of oil, they do a combination of two things. They slash government expenditure on, one hand, and they run budget deficits, on the other hand.”

And they may also try to ease the economic pressure by convincing other countries to end sanctions against them, analysts say.

That could be the case for Russia in its dispute with the West over its occupation of Crimea and involvement in eastern Ukraine, said Alastair McCaig, a market analyst at the IG investment firm in London.

“This adds to the pressure that they’re currently feeling, potentially meaning that they might feel the need to act…possibly needing to de-escalate the situation as far as the embargoes are concerned,” he said.

But the impact may not be decisive, according to Noel.

“I think that the oil market situation is not going to change the Russian strategic objective in Ukraine, which is that Ukraine should not join NATO,” Noel said. “But the collapse in the price of oil should, in all logical thinking, should lead Russia to a more accommodative stance.”

Similarly, the drop in the global price of oil is hurting Iran as it is already enduring significant economic hardship due to global sanctions over its nuclear program.

But analyst McCaig said Iranian leaders are probably not too worried.

“It’s certainly a pressure, but it’s a pressure that arguably might well be a short-term one,” he said. “Certainly if there’s any sort of signs of recovery in the Eurozone, for instance, the U.S. maintains its recovery, the UK maintains its recovery as well, we might see the demand side of the equation pick up, then a nation such as Iran being able to ride this out a little bit more easily.”

XS
SM
MD
LG