The Wizards of Oil

DECEMBER 30, 2008

The Wizards of Oil
As prices fall, so do the ambitions of Vladimir, Hugo and Mahmoud.
WSJ


Spare a moment for a rogue trio of economic victims -- Hugo, Vladimir and Mahmoud. Their dreams of world domination and tight grips on power are eroding as the price of oil falls. If there is a silver lining to global recession . . . The downturn is pulling back the curtain on these oil-drunk, self-styled wizards of Venezuela, Russia and Iran. At $140-plus a barrel, Messrs. Chávez, Putin and Ahmadinejad could bully their neighbors and their people. With crude now hovering around $40, they are smaller autocrats sitting atop wobbly regimes and distorted economies.

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Pegged to a per-barrel oil price of $60, Iran's and Venezuela's budgets are feeling the strain. Mr. Chávez planned to increase spending 23% next year and now will have trouble meeting those obligations. Inflation is already 36%, a punishing tax on the masses Señor Chávez claims to champion. Iran relies on oil for 60% of its budget, half of which is spent on welfare. Starved for money, Mr. Ahmadinejad proposes to free some consumer prices and cut spending. Corruption, mismanagement (inflation at 25%) and unmet populist promises already made Mr. Ahmadinejad unpopular at home. Now the austerity talk is raising the domestic temperature. In October, a strike by bazaar merchants forced the government to delay a sales tax. The universities are restive again and the government wants to push through a hated gasoline rationing plan.

As the biggest of the three, Russia may have the most problems. Mr. Putin's destruction of the rule of law, and subsequent global credit woes, drove Russian stocks down 70% in six months. Then came the collapse in the price of energy, which funds half the budget and accounts for two-thirds of exports. Growth, at 8% last year, skidded into negative territory this autumn. Accustomed to full employment and a stable currency in this century, Russians are unhappy with the spike in joblessness and inflation. The ruble is at a three-year low, in spite of the $150 billion spent to prop it up, and Standard & Poor's has downgraded Russia's debt for the first time since the 1998 ruble crisis.

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Lest anyone forget, Russians are prone to bolshiness. As the state is unable to tolerate or channel public anger into democratic debate, hostility can erupt in unpredictable ways. Earlier this month, some 30 Russian cities held demonstrations against a high new tariff on imported second-hand cars. Ordinary Russians love their Toyotas as much as Americans do, and they know that only the Russian tycoons who own the decrepit domestic car plants stand to benefit. Riot police were sent from Moscow 3,750 miles east to Vladivostok, the epicenter of the movement. So far, the antitariff demonstrations aren't overtly political, but the Kremlin seems to believe that can change and isn't taking chances.

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How nice it would be if oil stayed low long enough for a democratic Iran, Venezuela or Russia to emerge from this crisis. Odds are that won't happen. But American policy makers can ensure these rogues won't be inflated in another crude bender. How? It won't be with wind farms or tougher emissions standards. The main culprit in this decade's oil boom has been the Federal Reserve's excessively easy monetary policy and the decline in the dollar. Oil prices rose as fast as the greenback fell. It's a mistake American interests can't afford for Fed Chairman Ben Bernanke, or his successor, to repeat.

http://online.wsj.com/article/SB123059924483041283.html

Mahmoud Ahmadinejad is a democratically elected leader. The last time Iran was a dictatorship WE sponsored it until Iranians revolted. See: http://en.wikipedia.org/wiki/Iranian_revolution">Iranian Revolution

Ahmadinejad most likely won't win re-election because ultimately the fall in oil prices and the cut backs needed from the subsequent loss of revenue.

besides dismissing the source?

Sad.