The price for a barrel of oil plunged below $100 a barrel recently, hitting a more than two year low on weak demand forecasts from the IEA. This price decline is coming despite rising tensions in oil-producing parts of the world, and the U.S. shale boom surely deserves some credit for warding off price spikes in the wake of ISIS incursions in Iraq and a deteriorating situation in Libya. But America isn’t just partly responsible for these depressed prices—it is also a beneficiary of a strategic advantage these low prices bring. Reuters reports:
Russia and Iran are heavily reliant on oil sales and face budget shortages at current price levels, analysts say, weakening their position when negotiating over Ukrainian sovereignty or the Iranian nuclear deal. […]“The increase in production is definitely benefiting the United States,” said Professor Paul Stevens at the Chatham House think tank in London.“The Russians are very exposed to lower oil prices. We don’t know to what extent it will influence their behavior in Ukraine, but they’re certainly going to feel pressure on their budget.”
Petro-states need high oil prices to balance their budgets, but a flood of fracked American crude is threatening these countries’ ability to stay solvent. Analysts believe Russia needs an oil price of around $105 to $110 to break even, but other regimes require even higher prices. The shale boom has decreased American reliance on foreign sources of oil and gas, but by keeping oil prices low, it’s also undermined the security of regimes abroad.Fracking brings with it plenty of economic benefits—cheap energy is essential for economic growth—but it’s done much more than that. Booming American oil production is giving us more options abroad while simultaneously constraining those of countries like Russia, and that’s certainly worth celebrating.