Trouble ahead for autocracies that bank on oil reserves
TOKYO -- There could be big trouble ahead for oil-producing autocracies. The sharp decline in international oil prices that has already battered their economies could weaken these governments' power bases.
Flush with foreign currency earnings from oil exports, these rulers used to be able to stifle dissent and strengthen their grip by essentially handing out cash to the masses.
In a message sent to financiers on Wall Street in September, Venezuelan President Nicolas Maduro vowed to pay the country's foreign debt "down to the last dollar."
The comment came as a surprise to market participants. It also underscored the South American country's predicament. Venezuela has the world's largest oil reserves. But concerns about its debt-paying ability have grown as oil prices plummet and as its loose fiscal policy comes under the microscope.
Ricardo Hausmann, a Harvard University professor and former planning minister in the country, recently wrote about the possibility of a Venezuela default. Yields on Venezuelan government bonds surged.
Oil revenue accounts for half of Venezuela's government revenue and more than 90% of the country's export earnings. Venezuela's foreign currency reserves stood at $21.5 billion at the end of 2013, half the peak reached in 2008.
The deteriorating fiscal conditions have left increasingly less for Maduro to spend on the country's social security net. Maduro's approval rating has fallen to around 30%, with his disapproval rating continuing to exceed his approval rating.
According to U.K.-based banking group Barclays, Maduro's popularity is likely to keep declining as runaway inflation, shortages of goods and other hardships deepen ahead of a general election next year.
The Iranian people are also facing despair. Economic sanctions imposed by Western powers because of the Persian Gulf nation's nuclear program already had them hurting. Now the sharp decline in global oil prices has them doubled over.
Oil Minister Bijan Zanganeh made it clear Nov. 15 that the country will cope by drawing on its sovereign wealth fund.
Former Iranian President Mahmoud Ahmadinejad, who in 2005 began his first of two four-year terms, gained popularity by handing out cash to the people, expanding credit for housing construction and by taking other populist measures.
But the current administration of President Hassan Rouhani doesn't have any money to throw around.
Rouhani won last year's presidential election on a pledge to rebuild the Iranian economy. He will likely be forced to try and balance the national budget. The requisite social security and other cuts will be painful.
With the effects of lower oil prices spreading, public calls for real democratization could grow. In addition, market pressure could mount for the normalization of the country's economic structure.
Some pundits also hope Iran will make some concessions in the difficult talks on the country's nuclear program. The talks involve six world powers, including the U.S., the U.K. and Russia.
It should be noted, however, that if autocratic regimes are rattled, unexpected turmoil could erupt, as exemplified by Iran's 1979 Islamic Revolution. That started with demonstrations against the corrupt Shah Mohammad Reza Pahlavi; it ended with the creation of an anti-West, undemocratic Islamic regime.
Russian President Vladimir Putin said earlier this month that "a political component is always present in oil prices." He appeared to be suggesting that the U.S. is masterminding an international plot to lower oil prices and weaken Russia. The commodity accounts for 70% of Russia's exports.
But lower oil prices are not the only component of the Russian people's sorrow. They too are being hit by Western-imposed sanctions, these as a result of Russia's role in the strife-ridden Ukraine.
There is concern that Putin could graduate from the blame game and become even more confrontational with the West.