In this post, I suggested the drop in oil prices is the result of an American war on Russia, hitting them where they hurt the worst. I was a little surprised, though, when I received a promotional mail from The Motley Fool quoting Ronald Reagan’s son, Michael:
“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… 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 […] the collapse of the Soviet Empire.”
The Motley Fool goes on to promote one of their services, but only signing on to this thesis. A little poking around found Jon Greenberg not quite agreeing:
We can see what happened with oil markets during Reagan’s time in office by looking at volume — how much was pumped out of the ground — and price. The U.S. Energy Information Administration provides the production numbers, and what we see partly backs up Reagan’s point and partly does not.
Total Oil Supply (Thousand Barrels Per Day)
For the first five years of Reagan’s administration, Saudi production fell steeply. Then in 1986 it popped up, followed by a dip the next year, and ending with another rise.
The Energy Information Administration also provides pricing data and it too both supports and undercuts Reagan’s statement. Prices fall in 1986, then recover in 1987 followed by a decline in 1988. Prices remained below what they had been in 1985. …
By several estimates, the drop in prices cost the USSR $20 billion a year. If the plan was to hurt the Soviet Union, it succeeded.
What is unclear is whether the Saudis ramped up production at Reagan’s request. We look at what the record shows on that front.
Jon is mainly concerned with history, not current events. But Andrew Critchlow at The Telegraph connects the two and mixes in some Middle East politics as well:
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….
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.
