The Iran Nuclear Agreement and the Economic Crisis

The current economic crisis is a threat on the global economy, reminiscient of the American financial crisis of 2008. The economic problems that resulted during that period, some of which resulting from the American real estate bubble bursting, threatened the stability of the global economic system. However, these problems were also the result of the activities of Hugo Chavez, the President of Venezuela, who created an anti-American coalition which raised the prices of oil around the world in order to damage American economic hegemony. Chavez proposed to Russia to join Venezuela’s efforts in this strategy. Chavez proposed to Russia a way to restore its power as global superpower, following the fall of the Soviet Union. In the eyes of the United States, Russia of the 21st century no longer had a central role in shaping the global geo-political situation.

However, Chavez was able to convince Russia that raising oil prices would aggravate the American financial crises, bringing the superpower to its knees. Such a move would cause the United States to accept that Russia was still a significant global actor. Russia was afraid that raising oil prices would face much opposition from American allies in the Middle East such as the Gulf States and Saudi Arabia. However, Chavez clarified that the Gulf States could concentrate great sums of liquid cash which together would dictate the global economy, not necessarily due to the price of oil, but the amount of funds that would be at their disposal.
Thus, following the encouragement of Chavez and the agreement of the OPEC states, the price of oil was raised from $15 per barrel to $150 per barrel. This crisis impacted various economies and resulted in new thinking and new coalitions.

In addition, the increasingly tight sanctions on Iran removed an important actor from the oil economy and encouraged great trade between various states which created significant cash flow between Russia and the Gulf States. The funds that flowed to Russia and the Gulf States allowed these states to invest in signficant initiatives. Specifically, tourism in various states grew, providing signficant influxes of cash into the service industry, and giving a sense of prosperity among the local populations.

Following the rise of oil prices, several states invested in alternative energy sources. The United States developed the shale oil industry as well as clean energy sources and became energy independent. Other states developed other energy sources. Naturally, the prices of oil fell. In addition, the sanctions that were imposed on Russia following its military action against the Ukraine resulted in devastating results on the Russian economy. The cash that previously flowed was no longer available, and Russia found itself with less economic and political influence.

Today, following the signing of the nuclear agreement between the P5+1 and Iran, and the anticipated removal of sanctions, we can expect a further lowering of oil prices, as a significant actor returns to the market. Despite the fact that the lowering of oil prices is often a positive development, a quick lowering of prices could cause disastrous results on states which are dependent on cash flow. Unstable economic conditions in oil states could result in political instability. Therefore, although many states will reap great economic benefits from trade with Iran, there will also be negative consequences on the global economy. When the world faces economic unknowns, the current unstable political situation and a lack of common interests and denominators between various states is only amplified.

About the Author
Dr David Altman is senior vice-president at the Netanya Academic College and vice-chair of the college's Strategic Dialogue Center
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