It is one of those weeks, and it is not over yet. Yes, the oil and gas rich Middle East is rocked by financial crises because there is no movement in oil and gold prices. So, Shia Iran has snubbed the Doha proposals and won’t freeze oil output. Also, Sunni Islamic State is cash-strapped and has cut fighters salaries by half.
Meanwhile in Israel, the gas fields are yet to deliver and Eilat is flailing, resulting in the Prime Minister setting up a panel to bring casinos to the Red Sea VAT haven. What is the significance and ramifications of such events that typify a new world
First and foremost the significance is an indication of changing times in the role of world financial markets in international politics. No longer is oil a barometer indicator and influenced daily by changing world events. This was also seen over the last few weeks with the spat between Iran and Saudi Arabia over the hanging of a Shia cleric in Saudi Arabia.
Despite the regional political crises that ensued and despite 25% of world resources resting in these states the price of oil was not affected and remained below the $35 per barrel price (Brent Crude Oil). So Iran needs to maintain its oil output and has snubbed OPEC. Similarly the Islamic State whose revenue is also oil has become cash-strapped.
One could accuse Saudi Arabia of forcing this through the OPEC cartel. Saudi Arabia doesn’t see eye to eye with either Iran or the Islamic State. Traditionally the price of oil has been linked to other commodities and currencies. Any Saudi influence in such a manner would have seen impact on gold and/or international currencies such as the US dollar. However these have also not been influenced by world events and no longer influence them. For example, the price of gold has not fluctuated more than 1.52% over the last year (Troy Ounce). This is compared with a 299.31% change over the last 16 years influenced by 9/11, and the wars in Iraq and Afghanistan.
The understanding is that oil and gold once intricately linked in a triangle with the US dollar are no longer influenced by world events and no longer influence them on the micro level of events in individual states. This is confirmed by analyzing fluctuations in the trading of the US dollar in the world market which over the last year has been influenced by US domestic circumstances and not world affairs. Of course, any major event on the macro level would impact.
Secondly, the ramification of this highlights the increasing role of commodities and finance as a means of diplomacy against those that have while a diminishing role against those that don’t have. The intrinsic difference between Iran, the Islamic State and Iran is that Hamas is not getting poorer and is not influenced by oil, gold and dollars while Iran, the Islamic State are suffering a setback because they rely on oil as a revenue.
Israel has realized that the blockade of Gaza since 2007 has not brought down the Hamas rule nor prevented rockets attacks and escalation to armed conflicts. Israel realizes that you cannot influence those that don’t have.
Israel sits on the fence of those that have and those that don’t have. Israel has gas reserves, but the gas is still in the water. So long that it is there Washington is blissfully content to assist Israel with $3 billion aid each year in the belief that it can influence Israel. No-one could ever claim that the American-Israel relationship is anything but asymmetrical. But Israel’s expected revenue from gas once it’s out of the water will be $3 billion each year. For fear of changing this relationship it is probably better to keep the gas in the water and to plan casinos in Eilat!