Cheap oil will win new Cold War with Putin – just ask Reagan
The son of President Ronald Reagan says the world should learn from his father’s secret deal with Saudi Arabia to drive down oil to end the Cold War and stop Vladimir Putin in his tracks
Mikhail Gorbachev believes the world is on the brink of a new Cold War. If so, this new clash between East and West will be settled in the same way as the last one, which ended with the collapse of the Berlin Wall 25 years ago.
However, it wasn’t political ideology, the failure of Mr Gorbachev’s so called “Perestroika” reforms, or the desire of most people behind the iron curtain to own a pair of Levi’s jeans and listen to pop music that saw the Kremlin’s power crumble.
It was the collapse in oil prices engineered by Saudi Arabia, which literally bankrupted the old Soviet Union and ripped up the post-war map of Eastern Europe that had been brutally created in the aftermath of Adolf Hitler’s downfall by the equally ruthless Joseph Stalin.
Michael Reagan, the son of the late US President Ronald Reagan, writing recently on the US conservative political online magazine Townhall.comhad this say to say on the matter based on his knowledge of his father’s role in ending the Cold War:
“I suggest that President Obama might want to study how Ronald Reagan defeated the Soviet Union. He did it without firing a shot, as we know, but he had a super weapon – oil.
“Oil was the only thing the Soviets had in the 1980s that anyone in the rest of the world wanted to buy, besides ICBMs and H-bombs, and they weren’t for sale.
“Since selling oil was the source of the Kremlin’s wealth, my father got the Saudis to flood the market with cheap oil.
“Lower oil prices devalued the ruble, causing the USSR to go bankrupt, which led to perestroika and Mikhail Gorbachev and the collapse of the Soviet Empire.”
In 1985, Saudi Arabia during the last throws of the Soviet Union opened its spigots under the excuse of defending its global market share. The result was to shatter the economies of many other major oil producers including its partners in the Organisation of Petroleum Exporting Countries (Opec).
The Soviet Union suffered the biggest economic blow when virtually its sole source of foreign currency earnings was obliterated overnight. Within five years Moscow was bankrupt and unable to prop up the decrepit Eastern Bloc of client states it had co-opted since the fall of Berlin at the end of the Second World War.
Although 25 years have passed since the Berlin Wall signalled the end of the last Cold War it appears that the US and its allies are fighting Russia’s belligerent President Vladimir Putin with the same economic weapon that defeated his masters when he served in the KGB.
Saudi Arabia’s unwillingness to respond to a global glut of crude oil and weakening demand from Asia has already seen 28pc wiped off the value of Brent since it reached its year high of $115 per barrel in June. Russia, which produces about 10.6m barrels per day (bpd) of crude, depends on it as its main source of foreign currency earnings and petroleum industries including gas account for about half of the country’s budget revenues.
Such is the precarious economic situation Mr Putin has placed Russia in by pitting the country in an ideological battle with the US and Europe that Deutsche Bank expects its economy to slip into recession next year.
Of course Saudi Arabia – as the world’s only true swing oil producer – is taking advantage of the situation to reinforce its strategic importance to Washington, which appears to be moving closer to Iran. Mr Putin has also handed Riyadh and the rest of Opec the opportunity to fire a warning shot across the bows of shale oil drillers in North America, which depend of prices above $70 per barrel to remain profitable.
Saudi Arabia’s resolve to persist with this strategy, which also hurts its own economy, will be tested when Opec gathers on November 27. Pressure is mounting for the cartel to cut up to 1m bpd from its 30.5m bpd production ceiling.
Given the determination of Mr Putin to extend Russia’s influence in the Ukraine and the ability of the Kremlin to absorb economic pain, oil will have to fall further for the West to win this Cold War game of power politics.