Notes from the front – of the week 2/12/2014

US and Saudi Arabia collude to use oil price fall against Russia

The dramatic fall in world oil prices – down to around $70 a barrel from $95 earlier this year – is already having a profound economic effect, particularly on countries that are reliant on oil and gas exports. Venezuela’s budget deficit is accelerating, Iran is under increased pressure, but the most dramatic impact so far has been in Russia.

Russia is the world’s second largest oil exporter with oil and gas accounting for 70 per cent of all exports and half of government revenues. The combined impact of the oil price fall and Western sanctions in response to developments in Ukraine have led to a huge tumble in the value of the rouble, which has fallen by 36 per cent so far, falling 6 per cent in one day on Monday 1st December.

While the context for the fall in oil prices is the general sluggishness of the world economy, reflected in a generalised fall in all commodity prices, it has been exacerbated by OPEC’s decision not to cut production in line with falling demand.

It was Saudi Arabia’s intervention in the OPEC meeting last week that ensured it did not agree to reduce production levels. Why? It has been widely – and accurately – reported that the US reached a behind closed doors agreement with close ally Saudi Arabia to keep oil prices down with the explicit aim of stepping up the pressure on and destabilising Russia.

The US’s confrontation with Russia over the Ukraine, coming on top of Putin’s support for Iran, Assad in Syria and its increasingly close relations with China, mean Russia is increasingly seen as the number one obstacle to the US’s global foreign policy objectives.

The dramatic devaluation of the rouble is bound to have a political impact in Russia. In the short term it will inevitably lead to a rise in prices for imported goods, negatively affecting living standards and this may sap Putin’s popularity. But given the unity of the population in support of eastern Ukraine, this is unlikely to lead to a rise in support for pro-Western parties. In the last election it was the Russian Communist Party that picked up support from disaffection with Putin.

Putin could take steps to defend the rouble against the huge outflow of capital currently taking place, but that would require the introduction of capital controls, a step Putin is unwilling to take because his base – the oligarchs – want the freedom to move their cash abroad.

Britain’s EU withdrawal fakery

With the rising support for UKIP and Cameron’s concession of an ‘in-out’ referendum on Europe, media pundits of all hues have become obsessed with an entirely fake threat that Britain may withdraw from Europe.

The reason this is entirely fake is that big capital in Britain, Europe and the US are all united in their determination that Britain should remain within the EU.

In Britain capital fully understands that the British economy only has a future as part of Europe or more closely integrated with the US. The latter is not an option as the US has no interest in a pitifully small island economy standing isolated off the coast of Europe. Its alliance with Britain is valuable as it delivers a pro-US Trojan horse within the EU. And from the point of view of European capital, while Britain outside the EU is small and weak by comparison with continental-size global heavyweights like the US, the EU and China it is nonetheless sufficiently strong to make a sizeable difference to the international weight of Europe itself. Therefore European capital as a whole wants Britain inside the EU.

With that alignment of forces there is no chance that Britain will be outside the EU in the foreseeable future.

Cameron’s attempt to woo UKIP supporters with the promise of a referendum is a high risk strategy, as everyone Eurosceptic understands Cameron’s aim is to hold the referendum, but ensure that vote goes to stay in Europe.

That is why, while British capital would rather the Tories were re-elected next May, they can live with Miliband’s Labour as long as it is firmly committed to Europe. Hence it is no surprise that for once Miliband has been prepared to stand up to the threats and blandishments of the Daily Mail and commit Labour to staying in the EU.

Left continues to win elections in Latin America

In the Uruguay Presidential run-off election on 30 November the left candidate decisively won. Tabare Vazquez, the former president standing for the Broad Front coalition, secured 56.6 per cent against the right’s Luis Lacalle Pou on 43.4 per cent.

The Uruguayan elections came fast on the heels of Dilma Rousseff’s victory over the right in Brazil. With the left in control in the key countries of Venezuela and Brazil, and holding on or advancing in a number of other smaller countries, like Bolivia, Ecuador and Uruguay, the scope for any offensive by the US to reassert its role in the continent is extremely limited.

However, while Latin America’s left has continued to win elections, it faces new challenges as a result of the global economic slowdown and falling commodity prices. Previously the left was able to carry out redistributive social programs based on the heady growth in raw materials prices and the knock-on effects in rising revenues. This allowed governments to avoid taking measures that would be unpopular with capital. With the less favourable global economic outlook this ‘reformist’ room for manoeuvre is becoming much more limited and greater state intervention in investment is needed to revive economic growth and protect social programs.

The alternative means a continuing squeeze on social programs and reducing redistributive measures, which risk alienating popular support, and allowing space for the right.

Some of the consequences of this squeeze in Brazil were reflected in the narrowing margin of victory for the PT’s Dilma Rousseff in the Brazilian presidential elections on 28 October. She won with 51.6 per cent as against 48.4 per cent for the right wing candidate in the final run-off (compared to her 56 per cent to 44 per cent in 2010 and Lula’s 61 per cent to 39 per cent in 2006).

The left in Latin America has not been driven back but the next period will see it facing greater challenges than were presented by previous decade of growth.

The climate change talks in Lima

The current UN climate conference in Peru is discussing a framework for an agreement on reducing global levels of carbon emissions and other pollutants to face the challenge presented by global warming and climate change.

The talks have been given renewed momentum following November’s announcement by China and the US of a bilateral agreement to reduce greenhouse gas emissions. Under this deal China will cap its carbon output by 2030 and the US will reduce its emissions by between 26 per cent and 28 per cent (of 2005 levels) by 2025. This deal constitutes a major concession by China, because it is essentially agreeing to cap its carbon emissions at less than half the US’s per capita level.

This agreement has increased the likelihood that a deal will be put in place so that next year’s Paris climate summit will make some definite, global and legally binding agreements on reducing emissions. If it does it will be the first time any concrete agreement has been reached at this level since the Rio Earth Summit in 1992.

This is a welcome advance, however it remains the case that the targets set, and the flexibility built in for high-emitters like the US to put off reductions through trade-offs, mean the threat of global warming remains urgent.

For the type of agreement that is necessary to be put in place it really falls upon the most advanced countries – the G7 –which bear the historical responsibility for the bulk of current pollutant levels, to commit to substantial reductions in emissions and to provide the finances for investment in alternative energy in developing countries.