The economic ramifications of Iranian intervention and the potential for wider conflict in the Middle East will likely focus on the use of oil as a weapon because other major producers like Saudi Arabia may be forced to do so in order to exert pressure on Iran and gain more influence in the region. Therefore, one of the economic implications entails the possibility of lower oil prices geared towards putting political pressure on Iran as well as affecting the position of Russia on Syria. Iran’s economy is heavily dependent on oil exports meaning that lowering prices equates to less revenue coming into the country. Secondly, as the Iranian oil comes back in the market, the oil supplies in the U.S. where production cost is very high above the selling price will be combined with the increased demand, thereby causing increased oil prices. The lowered prices by other oil suppliers to pressure Iran will not last for long before they shoot again due to reduced oil production and increased demand. Another implication is a flooding of the global oil market. This is going to be possible because Iran and other oil producing countries in the Middle East may take sides to fuel the conflict.
Economic Issues of Iran’s Intervention
One of the key issues is the low prices on oil market. Iran’s intervention in Syria creates rivalry between the oil nation and other significant oil producers such as Saudi Arabia, which opposes Assad’s regime. The past Middle East conflicts impacted oil financial markets. For the oil prices dropped in January, 1991 following the U.S. launch of an air campaign in Iraq a day before making the prices Plunge 33%. Russia’s involvement in the war is interpreted as a move to strengthen Iran’s position, which forces Saudi Arabia to employ the strategy of using oil as a weapon by lowering the price of oil per barrel to affect the economy of Russia and Iran.
Difficulty in Maintaining the Strategy of Flooding the Market
Secondly, the difficulty in maintaining the strategy of flooding the market and lowering oil price per barrel is projected to result in a cutting back of production, which will in the long-run raise the price of oil. Before Iraq war began in March, 2003, oil prices raised steadily by about 40%, but plunged 24% following President Bush’s issuance of his final ultimatum. The prospect of conflict in the wider Middle Eastern region may force major oil producers to challenge the market, thereby instigating a higher market price of oil. Additionally, the prospect of war in the region means that resources will be directed towards military activity. In 2011, before the intervention by the U.S. in the Libyan civil war, the oil prices had climbed 12%.
Disruption in Global Supply
Lastly, there will be a disruption in global supply. Analysis of the effect of regional wars in the Middle East concerning the trends of the oil market depicts that the prospect of war in the wider region and the continuation of the Iranian intervention will have notable impacts on the future global supply of oil. There will be flooding of the global oil market, which will reduce the oil prices as Iran and other oil producing countries in the Middle East partner to fuel the conflict.
Conclusion
Of the three scenarios, flooding of oil in the global market is most likely, which in turn will lead to the reduced oil prices with an aim of damaging the Russian and Iranian economies. Lastly, financing the conflict requires higher revenue, which will be attained by limiting supply in the market and driving the prices of oil back up. The analysis measuring the effect of price and investment return variables as related to production establishes a critical cutoff in oil market trends. In essence, the current situation inevitably has negative long-term implications for the oil market.
Bibliography
Aguilera, Roberto F., and Marian Radetzki. The price of oil. Cambridge University Press, 2015.
Anderson, Richard. "Are low oil prices here to stay?." Bbc. com (2015).
Ashford, Emma. "Not-So-Smart Sanctions: The Failure of Western Restrictions against Russia." Foreign Aff. 95 (2016): 114.
Baumeister, Christiane, and Lutz Kilian. "Real-time analysis of oil price risks using forecast scenarios." IMF Economic Review 62, no. 1 (2014): 119-145.
Bichler, Shimshon, and Jonathan Nitzan. "Still about oil?." Real-world economics review 70, February (2015): 49-79.
Chubin, Shahram, and Charles Tripp. Iran-Saudi Arabia Relations and Regional Order. No. 304. Routledge, 2014.
Esen, Vedat, and Bulent Oral. "Natural gas reserve/production ratio in Russia, Iran, Qatar and Turkmenistan: A political and economic perspective." Energy Policy 93 (2016): 101-109.
Hendrix, Cullen S. "Oil prices and interstate conflict." Conflict Management and Peace Science (2015): 0738894215606067.
Ianchovichina, Elena, Shantayanan Devarajan, and Csilla Lakatos. "Lifting economic sanctions on Iran: global effects and strategic responses." (2016).
Jaffe, Amy Myers, and Jareer Elass. "War and the Oil Price Cycle." Journal of International Affairs 69, no. 1 (2015): 121.
Noguera-Santaella, José. "Geopolitics and the oil price." Economic Modelling 52 (2016): 301-309.
Wirl, Franz, and Sebastian Caban. "A rationalization of ups and downs of oil prices by sluggish demand, uncertainty, and nonconcavity." Natural Resource Modeling 27, no. 2 (2014): 178-196.
