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Business News/ Opinion / Is the geopolitical vacation over?
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Is the geopolitical vacation over?

Years between 2008 and late 2013 were a rather benign period of geopolitics allowing major powers to focus almost exclusively on economic rehabilitation

Photo: BloombergPremium
Photo: Bloomberg

More than we may realize, the world has been riding a lucky streak since the global financial meltdown in 2008. How so? The years between 2008 and late 2013 were—relatively speaking—a rather benign period of big power politics and geopolitics. This allowed the major economic powers—US, European Union, China, India, Russia, Brazil and Japan—to focus almost exclusively on economic rehabilitation. But now there are strong indications that our vacation from geo-instability is over.

The last time the world witnessed such a steep and sustained drop in oil prices—from 1986 to 1999—it had some profound political consequences for oil-dependent states and those who depended on their largesse. The Soviet empire collapsed; Iran elected a reformist president; Iraq invaded Kuwait; and Yasser Arafat, having lost his Soviet backer and Arab bankers, recognized Israel—to name but a few. Admittedly, other factors were involved in all these events. But, in each case, steep drops in direct or indirect oil revenues played a big role.

If today’s falloff in oil prices is sustained, we’ll also be in for a lot of surprises. Some will have happy endings. Cuba’s decision to bury the hatchet with America had to have been spurred in part by Havana’s fears of losing subsidized oil from the now cash-strapped Venezuela. Others could be very destabilizing. Today’s world is much more tightly interconnected and interdependent than in the last oil price drop-off. And today’s world has so many more actors—superpowers and superempowered individuals and hackers who can destabilize companies and countries with cyberweapons.

When I hear President Vladimir Putin of Russia bragging that lower oil revenues won’t affect the Russian people because they are stoic—look what they tolerated in World War II—my reaction is: “Mr. Putin, that was before there was a significant urban middle class in Russia, one you helped to build with trickle-down oil and gas revenues."

The Western sanctions on Putin’s banks, combined with the sudden sharp drop in oil prices and capital flight also triggered by the sanctions, mean that Russia has a dangerous gap between the funds flowing into its economy and what it needs to send out to pay its debts and finance its imports. Putin can’t relieve the pressure without a lifting of Western sanctions. That would require him to reverse his seizure of Crimea and intervention in Ukraine.

If Putin admits his Ukraine adventure was a mistake, he will look incredibly foolish and the long knives will be out for him in the Kremlin. If he doesn’t back down, Russians will pay a huge price. Either way, that system will be stressed with unpredictable spillovers on the global economy.

A prolonged drop in oil prices will impact Algeria, Iran and Arab Gulf states, where aging regimes have used high oil prices to increase government salaries to buy quiet from their people during the Arab Spring. Also, what happens to the developing Arab states and Iran, who have used oil money to mask their deficits in knowledge, education and women’s empowerment?

Meanwhile, Turkey’s increasingly tyrannical president, Recep Tayyip Erdogan, who has been arresting domestic opponents, is looking like “Vladimir Putin Jr." Erdogan is a tragic figure because he did much to build Turkey’s economy into a powerhouse. But, today, according to The Financial Times, Turkey now “needs more than $200 billion of foreign financing a year, more than a quarter of gross domestic product, to maintain its current level of growth."

High oil prices covered many sins and fostered many sins. If they stay low again for long, a lot of leaders will have to pay retail for their crazy politics, not wholesale. The political and geopolitical fallouts will be varied—good and bad—but fallout aplenty there will be.

Thomas L. Friedman is a New York Times columnist.

©2014/The New York Times

Edited excerpts. Comments are welcome at otherviews@livemint.com

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Published: 28 Dec 2014, 09:38 PM IST
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