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By John Feffer
The U.S. and Israeli attack on Iran has sent shudders through the global economy. One-fifth of the world’s oil passes through the Strait of Hormuz, which has been effectively shut down as a result of the war. That has pushed gas prices higher, forced countries to release more of their oil into global markets, and put pressure even on countries that are relatively self-sufficient in energy, like the United States, because they too are dependent on global supplies and prices.
The Iran war is also generating certain economic “winners.” Russia, for instance, has built its economy around the production and export of fossil fuels. With the flow of energy curtailed from the Middle East, Russia is well placed to make more money from its oil and gas sales, despite international sanctions and price caps.
Canada, too, can take advantage of the war, pointed out ecologist Ole Hendrickson at the first meeting of the Global Economy study group of Project Save the World. “Right now, with the spike in oil prices caused by the war, the oil sands companies in Alberta are probably enjoying increased profits,” he said. “But of course, high prices will affect demand and potentially encourage a transition away from oil.” He went on to ask, “How much of the demand for oil is driven by fighter jets and aircraft carriers? I think it’s fair to say that oil is both the means to wage war and an end of war. How is oil a driver for, for example, what happened recently in Venezuela?”
War lurks behind many conversations about the economy Participants quickly narrowed their focus to the economic consequences of war – in Iran, Ukraine, and elsewhere. As Russian analyst Konstantin Samoilov pointed out, “There’s an elephant in the room that no one is talking about and that’s military conflicts. We can talk about economy and economics all we want, but then, when someone comes with a gun or with a stick and tells us what to do, this is not economics anymore.” Russia tried to use its oil and gas exports as just such a stick in the immediate aftermath of its invasion of Ukraine in 2022. Russian President Vladimir Putin “made the decision to shut off Russian gas in August of 2022 to force Europe to abandon its support for Ukraine,” Samoilov continued. “And I’m pretty sure Putin was bluffing. He thought Europeans were so afraid of not receiving Russian gas that they would agree to ease off their support of Ukraine. But they didn’t. They stood firm. And an incredible thing happened. Russia lost its best customer because Americans, Norwegians, and the Middle East stepped in to supply their gas.”
Russia’s dependency on fossil fuels—proceeds from those exports make up nearly half of the government’s revenues—and its expenditures on its military campaign in Ukraine have resulted in certain “opportunity costs.” In other words, war and an addiction to fossil fuels have meant that Russia has failed to develop other sectors of its economy that could generate higher value-added exports.
The Trump administration has a similar addiction. The current U.S. government has made no secret of its ambition to pump every last drop of oil out of the ground. This focus has only deepened the U.S. economy’s dependency on oil. “America’s economy is more than 40 percent more oil-intensive than China’s,” writes Rosemary Kelanic in The New York Times. “The European Union’s economy is half as oil-intensive as America’s. Even Russia, a petrostate, is about 20 percent less reliant on oil per unit of economic output than the United States is.”
China, meanwhile, has put considerable resources into a clean energy transition, pouring funds into the production of electrical cars and buses along with the buildout of the electricity grid to support this investment. Even though it requires a lot of imported energy from the Middle East in particular to maintain economic growth, China is in a better economic position than its chief competitors. Russia is at war; the United States is at war; and China is preparing for the economy of the future.
John Feffer is director of Foreign Policy in Focus, the online publication of the Institute for Policy Studies, a major progressive “think tank” in Washington, D.C.