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Economy could test America’s world role

March 8, 2009 by Haviland Smith

[Originally published in the Barre Times-Argus and Rutland Herald.]

Americans are currently looking at their disastrous economy with a mixture of fear and concern. Given what’s happening in Washington, Wall Street and Main Street, those are understandable concerns. After all, what is our country going to look like in one year? Five years? Ten years?

But then, how many of us think about the impact on the rest of the world of identical problems to those that are now vexing us here at home? In this interconnected world, those foreign impacts could be even greater on us than those that seem to apply only to our economy.

The issue here is a loss of international political stability and its effect on American national interests around the world.

Perhaps the greatest single impact of the global downturn lies in the plummeting price of crude oil.

Most oil producing countries have economies that are wholly or largely dependent on oil and about half of the 15 largest oil producers are heavily dependent on the actual price being paid for it. Many of the countries that are heavily dependent on oil for their well-being have marginal economies. When they are in any way threatened, those marginal economies can become a source of real national unrest. Iran is such a country. During the past few years, there have been increasing internal complaints about the Iranian economy. A drop in the price of oil will simply increase pressure on the government, as the economy is not sufficiently diverse to permit some other sector to take up the slack. Unchecked, this will lead to instability in Iran

The potential for instability lies not just in Iran, it is there all over the oil-producing world in countries we have long supported and thought of as our friends. Think about Saudi Arabia, Kuwait, the UAE, Nigeria and Algeria. This has been true in just about all those countries simply because none of them are democratic, all of them have significant domestic dissent and all are vulnerable to radicalism. Toss in Russia, Mexico, and Brazil and ask whether or not it is in our interest for there to be unrest in those countries.

In the days of $140 per barrel crude, such countries set their priorities on the basis of that price. In some cases, the budgets that evolved to meet the demands of the populations of those countries were understood to be unworkable if the price of crude slipped below a specific price per barrel.

With the price of crude now substantially below the minimum required by many oil exporters to meet their internal budgetary requirements and thus the basic requirements for national stability, the potential for trouble is very real.

China’s situation is very complicated. The one thing that motivates the regime in China is maintaining stability. In order to maintain stability, they feel they must have an annual GDP growth rate of around 10 percent. That means that China requires that 8 million to 9 million new jobs be created a year, all in the name of maintaining stability.

Yet, in 2009’s economic downturn, China will see between 15 million to 20 million new, jobless, migrant workers. Even in a rising economy, it would take over two years to create jobs for them. Take no pleasure in Chinese instability. An unstable nation of 1.3 billion souls is the last thing in the world we want.

Russia is no better off. The recent resurgence of a Russia looking to reestablish the old Soviet position of eminence and influence on the world scene was enabled by the riches brought by their recently established oil wealth. Russia’s ability to fulfill those international aspirations, as well as their ability to satisfy the needs of their own population, will be directly and negatively impacted by the recent drop in crude prices. Today’s bothersome and pushy Russia is far preferable to an unstable Russia.

The international economic downturn is a threat to the United States because it creates political instability. Instability is dangerous to us regardless of whether the country involved is a friend or foe. It is dangerous because there is no way to predict the ultimate outcome of political instability.

In the Muslim world with oil producers and non-producers, it could easily consist of the radicalization of the countries involved. Our old, undemocratic allies, faced with major economic shortfalls and lacking any real internal political support, could see Muslim fundamentalism emerge as a major threat to their stability. The same could easily become true in any country that does not enjoy the support of its people. That could involve our Allies as well as our enemies.

Thanks largely to the excesses of Western greed that lead to the global economic collapse, the world is about to enter a period of what could easily turn into economic chaos. At the very least, we are heading for international economic instability and a time when political instability already grips the Middle East and parts of Africa and Asia.

Instability has always fostered revolution. We could be heading now toward the onset of a world-wide revolutionary period that will test American leadership.

Haviland Smith writes about foreign policy.

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