The Interconnectivity of Oil and Politics

Trying to convince the world otherwise doesn’t come cheap. A recent report by OilPro into figures released by the Russian Ministry of Defence shows in recent weeks its aircraft have flown more than 1,000 missions in Syria, at a cost $12,000/HR to fly strike aircraft and the long-range cruise missiles it fired at the rebels cost around $1.2m each.

It’s no secret that Russia’s economy is struggling. 45% of Russia’s federal budget comes from the oil and gas sector. At the end of last month the state owned news agency Tass reported the country’s international reserves fell by $5.4bn to $369.2bn.  This is partly due to the sanctions from the US and EU following the annexation of the Crimean peninsula and alleged backing of pro-Russia separatists in Ukraine in March last year. But it’s also due to the impact of OPEC’s decision to go all out in its fight against US shale drillers last year, which when combined with the continued slide in global demand for oil has led to a consequential continuance of low prices. The Russian news agency said next year the country could see a shortage in basic food supplies such as meat and cheese.  Last month, Russia’s agricultural watchdog Rospotrebnadzor said 80% of the cheese in its supermarkets was fake as it contains a significant amount of palm oil.

So why is Putin moving to boss it in Syria, when at home things are in need of considerable repair? Several reasons actually. Let’s look back to April 1982 when Margaret Thatcher used the Falklands war to distract the country from the miners’ strike and the fact her government was on the verge of collapse.  As well as acting as a distraction to anxious homefolk, one of the widest held myths in the West is that wars are good for the economy. Whilst many would point to the fallacies of this (in the 2000s for example DOD budgets doubled in America’s longest sustained post-World War 2 defence increase yet at the same time jobs were created at the slowest rate since the Hoover administration), Putin appears to be banking on one hope – that sustained instability in the Middle East will drive up the price of oil.

Russia has not supported any calls for a cut in production, which are being made quite clearly by the likes of Venezuela. The depreciation of the ruble means production costs are low and that enables the country to pump out record highs (already the world’s largest producer, it is poised to break a post-Soviet record for the fourth time this year). But with the economy in trouble Putin must act.

Some commentators believe Russia’s intervention will prop up President Assad’s regime for the short term at least. “For Russia the fall in oil prices represents an immediate threat to national security,” says Pavel Baev a former Soviet academic from the Peace Research Institute in Oslo. “The only thing that can push up the oil price is the development of the Middle East conflicts. That’s why it’s in Russia’s fundamental interest for the region to remain unstable.”

By maintaining the relationship with Assad, Russia shows to the rest of the Middle East that it has loyalties and will protect them, unlike a perception problem the US has to contend with. “Egyptian leaders have not forgotten that the US in 2011 dithered for a few days and then simply betrayed their ally of 30 years, President Mubarak,” said Dmitri Trenin from the Carnegie Moscow Centre. “Russia by contrast keeps supporting its ally Assad. This impresses.” Look too to the growing relationship with Israel which is drifting away from the US administration. Last year Israel broke ranks in the UN by not supporting a resolution to condemn the annexation of Crimea. Moscow in turn took a mild stance over the Gaza war.

It’s also entirely possible that Putin is playing both sides of the fence. Russian officials say their aim is to halt the spread of Islamic State, and that’s something that will be supported by the Americas. Joining that fight could potentially help Russia make its way back from the sanctions, as a State Department official quoted as saying the US would “welcome a constructive role for Russia if it takes the fight to ISIL.” Already the US has resumed high-level military-to-military contacts which were suspended after Crimea.

Earlier this year it was asked “Is Putin a cunning tactician, or mad?” Whatever the answer, don’t underestimate him.