Oil price plunge provides crude benefits amid Middle East unrest
Happy new year? As we sign off for this one, 2015 is not looking the brightest prospect. From Africa’s Sahel to Pakistan, the Islamic world is in turmoil, with some former good-guy friends of the West turning nasty.
Plunging prices for oil and other commodities are shattering the economic outlook for resource-exporting countries, including Russia, Indonesia and, to some extent, Australia.
A toxic mix, it would seem, but the new oil shock might actually help knock heads together on some of the most deep-seated conflicts in the Middle East.
Remember when Israel, Egypt and Turkey were the regional nations that most thought like us? Benjamin Netanyahu’s ever-increasing dependence on allies to the right of his own right-wing Likud party has seen him sanction more expansion of Jewish settlements, tolerate provocative prayer excursions on the Temple Mount in Jerusalem, and launch legislation that to some puts Israel’s Jewishness ahead of its democracy. In the absence of an attractive centre-left alternative, he
will probably retain power after the March 17 early elections. But Israel’s foreign support is wavering. The Europeans are moving to recognise a Palestinian state in the occupied territories and apply sanctions on the settlements. On Palestinian recognition, opinion polls show the American public leaning more to abstention or support in a United Nations vote. Netanyahu will be hoping for a Republican, backed by the evangelicals who most strongly back Israel, in the White House two years from now.
Meanwhile, the former pillar of Egypt is turning ever more into a caricature of military rule, with compliant judges sentencing regime critics to death by the score, and writing panegyric references to the army and police seen as the blameless victims of political violence. The security authorities scored another own goal last weekend when they detained and expelled a well-known Washington analyst on Middle Eastern affairs, Michele Dunne. In Turkey, President Tayyip Erdoğan is turning on former friends. Last Sunday, police arrested media executives including Ekrem Dumanli, editor-in-chief of the best-selling newspaper, Zaman, and Hidayet Karaca, managing director of the Samanyolu television network. It’s part of Erdoğan’s ongoing battle with the moderate Islamic preacher Fethullah Gülen, a former ally now exiled in the United States, who pointed out corruption in Erdoğan’s ruling Justice and Development Party. Among the 27 arrested were also some police officers. On Monday, the trial began of 35 football fans involved in protests last year over planned redevelopment of Istanbul’s Taksim Gezi Park. They’re charged with attempting a coup. An ominous spiral.
Back to the oil price. Unlike Australia, where the Reserve Bank is cheering on the fall in the dollar to cushion the resource price blow, the Central Bank of Russia this week raised its interest rate by 6.5 percentage points to 17 per cent, although that didn’t halt the rouble’s collapse this week.
It is now looking at a 4.5 per cent contraction for the Russian economy next year. This will put a damper on Putin’s foreign adventurism in Ukraine and Syria.
Iran is another important layer squeezed by the low oil price, which is less than half what either country needs to balance their books. As talks on curbing Iran’s nuclear weapons program resumed in Geneva this week, the Iranian president, Hassan Rouhani, belittled the hardliners in Tehran intent on defying economic sanctions and pressing ahead with nuclear arms, saying: “Their numbers are few, and they want to muddy the waters.” With Iran’s elderly Phantoms joining Australia’s F/A-18s and others in the air campaign against the Islamic State in Iraq, the lines between friend and foe in the region are blurring. The Europeans are now going to sit down with Russia and Iran to talk about a political solution to the three-sided conflict in Syria.
Indonesia’s rupiah slid down this week to its level of 1998 when the economy was in freefall after the Asian financial crisis and collapse of the Suharto presidency.
But apart from minor stabilising moves, its central bank is not throwing its foreign reserves into the fire. Instead, might there not be a bit of glee at the pain being suffered in some corporate circles?
The country’s big business conglomerates tended to be heavily indebted to foreign lenders and will be hard-hit by a large adverse currency move. Among them must be Aburizal Bakrie, the failed presidential candidate of the former Suharto political vehicle, Golkar, which has rebadged as a pragmatic secular party for the democratic era. Bakrie is grimly hanging on as chairman of Golkar, engineering a re-endorsement at a well-controlled party convention in Bali recently. One of the two biggest parties in the parliament, Golkar will be pivotal if the question of corporate bailouts arises.
However, Bakrie has a new problem, in that former minister Agung Laksono has emerged from a rival party congress as claimant to the Golkar leadership and proposes to bring the party out of the “Red and White” alliance of former special forces general Prabowo Subianto and over to the side of President Joko Widodo. The commodity price fall and rupiah plunge will crimp Bakrie’s funding for political manoeuvres somewhat.
Japan’s Shinzō Abe won re-election last Sunday in his snap poll, but the result is less than the ringing endorsement it seems.
With an addition of one seat for his coalition, his 326-seat majority is above the 317-seat level that is two-thirds of the Diet’s lower house, retaining control of all committees and allowing it to override upper-house setbacks. But voter turnout was, at 53 per cent, the lowest since World War II, and within the coalition New Komeito gained several seats at the cost of Abe’s Liberal Democratic Party. With the low turnout, the rural gerrymander in favour of the LDP was more pronounced.
Abe faces a truculent, bewildered public, who opinion polls show to be against two of his main policies, re-activation of nuclear power stations shut down after the 2011 Fukushima disaster and re-interpretation of article nine in the post-1945 constitution to allow collective defence operations with allies. New Komeito, a party that grew out of the Soka Gakkai sect of Buddhism, is less keen on the defence changes, too. The likely sale of Japanese submarines to the Australian Navy could get caught up in the crossfire when the policies come into the Diet for legislative approval next year. Abe’s main opposition on his biggest promise, to launch the “third arrow” of structural reforms to revitalise the economy, will also lie within. It will require a systematic dismantling of the protection around Japanese agriculture and service sectors that all have strong lobbies within the LDP. The biggest political fight over “Abenomics” still lies ahead.
While we await the coronial inquest into the Martin Place siege to find what lessons might be drawn, Rupert Murdoch’s Fox TV empire found one.
Its program The Real Story featured one Nick Adams, who came on the political stage as deputy mayor of Ashfield in suburban Sydney in 2006, arguing that multiculturalism was setting Australia on a “downward spiral”.
Nick now runs a blog extolling the American way, on which he’s described as the “de Tocqueville of our generation”. Adams stood in Martin Place arguing that US-style gun laws were now on the agenda. Australians were waking up and thinking “what could have been if someone did have a gun on them to stop this”. Adams also assured his credulous interviewer that anyone who defied Canberra’s ban on travel to Syria’s al-Raqqa province would not be allowed back into Australia, an effective removal of citizenship that even the Abbott government has not yet applied.
This article was first published in the print edition of The Saturday Paper on Dec 20, 2014 as "Crude benefits amid Middle East unrest". Subscribe here.