An Upside to the Financial Crisis?

by , October 28, 2008

As the election the candidates and media have been presaging for about two years now finally arrives, it might be difficult to find much reason to be thankful except that it is finally over and it may be a week or two before the pundits start speculating on 2012 (oh, wait, that’s already begun). Although they are focused on different theaters and different approaches, both major-party candidates seem to accept without hesitation that the United States must remain an imperial power with legitimate interests all over the world that it must act forcefully to protect.

Whoever is elected will face the problem of winding down (or not) the war in Iraq and figuring out what to do about Afghanistan. Although his comment has been called a gaffe, which in politics means speaking a bit of truth the conventional wisdom doesn’t wish to acknowledge, Joe Biden was right – Barack Obama (or John McCain) will face some kind of major challenge fairly soon after taking office. That’s what happens to imperial powers others consider vulnerable. And there’s resurgent Russia and a global financial crisis to think about.

As is typical of American political campaigns, few if any of these problems have figured prominently in the candidates’ speeches, TV ads, or media discussions. Why should they, when there are such fascinating topics as the price of Sarah Palin’s clothes or the closeness of Barack Obama’s relationship with Bill Ayers to occupy all that time on cable news channels?

Is there anything that isn’t utterly gloomy in this picture? Perhaps. Take the current financial crisis. It is certainly going to destabilize governments, upset economic relationships, and destroy a lot of paper wealth. However, as I and others have argued before, it also probably guarantees that the United States will simply have to be much less adventurous overseas in the near future – perhaps long enough for us to reconsider adventurism. And it is also possible that the economic crisis may reduce the possible justifications for being adventurous by reducing the capacity of certain mischief-making countries to make mischief.

For example, Russia has recently sold military hardware to Venezuela, whose socialist leader Hugo Chavez has been Yanqui-baiting for years. Russian ships are scheduled to engage in joint maneuvers with the Venezuelan navy in the Caribbean. This would not be all that serious a problem for a sensible United States, which would view such developments as akin to having a gnat buzzing one’s head. For those who think it’s important for the U.S. to exercise hegemony in the Western hemisphere, however, or for those who welcome a return to those thrilling Cold War days of yesteryear, it just might hold the potential to develop into a major confrontation.

But wait. One consequence of the financial/economic crisis is that the worldwide price of oil has fallen to below $70 a barrel, about half what it was some three months ago, and gasoline prices, which always lag behind oil prices, have begun to drop as well. This is not only a boon to motorists – and to those living in colder climates, who are going to need heating oil this winter – it has strong potential to make the world at large a slightly less dangerous place.

Besides Venezuela and Russia, Iran has used a good deal of the money acquired when oil prices were much higher to bolster its ability to make mischief. If international oil prices stay (relatively) low, all these countries are likely to be less troublesome than their leaders had hoped they could be.

It has been especially gratifying to see Venezuela have to trim its international sails. Chavez has been crowing that the financial crisis marks the death of capitalism in the U.S., apparently forgetting for a few moments that his own country’s relative wealth in recent years has been financed almost entirely by petroleum exports to the sinister capitalist running dogs in the country he was berating and has facilitated widespread corruption.

President Chavez’s efforts to jump-start what he sees as socialism – a wide array of social programs, beefing up security forces to squelch opposition, increasing employment at the nationalized oil company – have been possible mainly because of the oil boom. He has also used the windfall to subsidize allies such as President Evo Morales of Bolivia, provide subsidized oil to Caribbean countries, and buy weapons from Russia. Now he will have to pay closer attention to the gross inefficiencies nationalization has introduced into Venezuela’s oil industry and scale back his international ambitions.

Iran has used petrodollars to spread its influence in Iraq and the rest of the Middle East, to subsidize Hezbollah and Hamas, to buy off domestic critics appalled at the government’s mismanagement of the economy, and to establish commercial relations with European countries, thus dampening opposition to its nuclear plans. If oil prices stay low, it may have to cut back its foreign meddling and reach some kind of compromise on its nuclear ambitions. President Mahmoud Ahmadinejad, who has been steadily losing popularity anyway, could well be defeated in next June’s elections.

The consequences in the rest of the Middle East could be interesting. Already tentative negotiations are taking place between Israel and Syria, with the likely implicit deal being to let Syria run Lebanon in exchange for eliminating Syrian support for Hezbollah. If Iran has diminished capacity to subsidize such groups, and if the U.S. has the minimal intelligence needed to start meeting with Iran and figuring out how the various interests in the region can be reconciled , given diminished capacity for both the U.S. and Iran, is there a chance that peace – or at least a period of the absence of open conflict – might start to break out?

Russia’s invasion of Georgia this summer (following Georgia’s attacks in South Ossetia) was met with widespread criticism but no effective action. In part this was because too much of the U.S. military is tied down in Iraq, and in part it was attributed to the growing dependence of Western Europe on Russian natural gas. With petroleum and gas prices tumbling and a domestic financial crisis spreading (in part as a reaction to the Georgian adventure), however, Russia has had to dip into "rainy day" funds to prop up its banking industry and stock market. Its overall economy is less vulnerable than Venezuela’s or Iran’s, but its ability to intimidate its neighbors will definitely decline.

Most of the Gulf states are reasonably well positioned to ride out a period of lower oil prices, though they might have to scale back some of their more ambitious building and development plans, and the United Arab Emirates has dipped into its hoards to rescue domestic financial institutions. But Kazakhstan has had to rescue some banks, and Mexico has spent billions defending the peso.

Far be it from me to revel in the pain of others. And on balance I would far prefer to have all countries rolling in wealth – although wealth widely dispersed in private hands rather than concentrated in the government and its favored hangers-on – than facing recession or depression. But the prosperity of recent years has largely been phony, nourished by funny money issued by central banks rather than genuine productivity. Corrections – more likely to be delayed than encouraged by what most of the countries are doing, which is doubling down on the policies that brought on the troubles – will be necessary.

So one might wish that this financial crisis had never happened. But it is hardly cause for lamentation when countries that have ambitions to stir up trouble in the rest of the world and/or harm the United States find they don’t have quite the resources available that they had expected.

Read more by Alan Bock