Illuminating the Arts-Policy Nexus 

As we stagger into 2009, the financial and economic world of the past 30 years is crumbling and in chaos. Where is the bottom of this mess? How much more pain? No one knows and all dread the answer. It is not just the United States; it is a global shift. Whatever the world comes to think about the United States and its debunked Washington Consensus, last year was, if anything, the Year of Oil Power. The radical plunge in prices we’re witnessing now may change the global balance of power even more in the other direction this year. Whether due to speculation or wishful thinking, in 2008, geopolitics seemed to hinge on commodities in a positively unnatural way, especially among those who knew better. Anyone familiar with the boom-and-bust cycle of oil (and gas) so memorably captured in Daniel Yergin’s The Prize knows that for every delirious rise, the oil busts, such as those of the 1930s and the 1980-90s, have been long, painful, and hard for the producers to end.

In my World Policy Journal article on the "geopolitics of oil" over the next 25 years, I wrote about the many political pressures that will add upward pressure on crude oil prices over the next several years. But we're now in the middle of a global financial crisis that has helped drop prices from a high of $147 per barrel in July to under $60 today. Does the steep price drop remove politics from oil markets? Not at all. Look to recent headlines from three of the countries that have profited mightily from the windfall oil profits of the past few years. In Iran, President Mahmoud Ahmadinejad and the theocrats who hold real power in the country know that lower crude prices give them plenty to worry about. The International Monetary Fund has warned that when oil prices fall below $90 per barrel, Iran starts to run a budget deficit. When oil falls below $75 per barrel, it can’t afford its import bill. We got a glimpse of the jitters in Tehran in early October, when Iran's oil minister announced that a price below $100 per barrel was "unacceptable." For a government that has ordered gasoline rationing and continues to fight a losing battle against 30 percent inflation, this is a serious problem. Iran's government has increased spending by nearly 90 percent over the past three years. If that politically popular spending is to continue, where's the money going to come from if not from energy exports?