In Cheap Oil Economy, Stability Pays the Price
February 5, 2016
Two years ago, Brent crude oil sold for approximately $100 per barrel. On Wednesday, after an uncharacteristic 7.1 percent rise interrupted the decline of oil prices since May 2015, Brent crude prices reached $35.04.
Driven by certain OPEC members’—particularly Saudi Arabia—unwillingness to limit overproduction and the increase in North American output, gas currently averages $1.82 per gallon in the U.S. Undeniably, this drastic price decrease helps U.S. consumers save money. But for citizens in countries with less diversified economies, the plummeting oil prices accompanied with the devaluation of local currency forecast harsh economic conditions and social disorder.
Despite global impact from dropping oil prices, the continued loss of money in Iraq creates a situation particularly damaging to regional stability. With oil revenue comprising over 90 percent of the national budget, Iraqi civil services continue to crumble; insufficient before the rise of the Islamic State, the impacts of terrorism, sectarian violence and civil unrest have further eroded vital infrastructure, such as medical care facilities.
With public resources diminishing and an impending pay cut to government employees, more Iraqis—even if a small subsection—may turn to terrorist groups out of necessity. Although ISIS recently slashed funding for its militants, the group still pays them.
But Kurdish pesh merga fighters, who have proved uniquely effective in countering the influence of ISIS in Northern Iraq, have not received pay in months. While the United States and other Western powers continue to assist rebels combatting ISIS with airstrikes and supply drops, the inability of rebel organizations to fund workers minimizes their appeal, and thus power.
Preventing the degradation of civil infrastructure and social order in Iraq by addressing its causes, however, represents a necessity to hinder the continuation of extremist and sectarian violence; a lack of social services benefits jihadist groups such as ISIS, who utilize internal tensions and the absence of state protections to lure potential recruits.
While other OPEC members push for oil production restrictions, Saudi Arabia refuses to capitulate, fearing a loss in market value. And although Western intervention is an undesirable solution, the Saudis will not independently alter their stance.
Until the U.S. pressures Saudi Arabia to stop urging the maintenance of normal production levels, Iraq’s increased oil productivity will fail to generate economic benefits, instead actually exacerbating Iraqi financial woes.
ISIS will likely benefit from any rise in oil value. But, with increased international involvement in both Syria and Iraq in recent months—and the U.S. government ramping up airstrikes—the group’s temporary gains should be overlooked in consideration of more long-term regional stability. Slowing the plummeting oil prices not only serves to enable essential ground troops to continue financing fighters, it remains a necessity for future peace as the breakdown of already-fragile economic infrastructure inevitably causes more internal violence.
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