I'm not so much worry about the ME as much as I am about Russia. They are the biggest loser in this. Coupled that with the trade sanctions and overall dismal economy of 2014 I see Russia being a very hurt mamma bear.. and you know what they say about a cornered and injured bear.
I'm no economist but I forsee terrible recession for the Russian people in the next few years much worst that we've seen so far. Russians for the most part support Putin but when it hits them directly in their pocket books for significant lengths that adoration may change quickly and that is not good from a world stability standpoint.
Who would've though cheap oil would bring so much pain and suffering to large portions of the world huh?
Actually, the West may well find out to its cost that the 'unwashed masses' can distinguish between economic recession brought about by sabotage as opposed to incompetence, so far from weakening Putin and bringing about regime change in Russia, the west's clumsy market manipulation in oil prices and sanctions may actually strengthen Putin and hurt the west in the long run.
It sounds counter-intuitive, but the falling Ruble will most directly hurt the pro-western factions in Russia either directly by eroding their wealth, which is still overwhelmingly in Rubles, even if they live in Chelsea or New York. Or indirectly by making them look like collaborators and traitors to their countrymen.
The west's market manipulation and sanctions will also hurt independent Russian firms the most, with the Russian State almost certain to step in to provide jobs and social security safety nets to help private sector works put out of work or out of pocket.
That is because the Russian State will have plenty of cash to spare as a result of the recent natural resources mega deals it has struck with Beijing. Depending on the terms of the contract, the collapsing Ruble could actually enhance the value of the deal to Moscow if the price was a fixed dollar or RMB rate per cubic meter.
So, if the price was set at $100 per unit (I'm just using numbers to make the maths easy btw), the Ruble falls to 50% of its value at the time the deal was struck and inflation rises to 25%, Moscow still makes a whopping 50% profit in terms of the domestic purchasing power of the per unit price compared to when the deal was made.
It could use that windfall to fund social welfare programmes domestically to gain popular support, and/or it can use the foreign capital the deal provides to import goods and services at roughly the same cost as before the collapse of the Ruble without having to take the hit of buying dollars with the now devalued Rubles as the West wants.
If the deal was in RMB instead of dollars, the same principles apply, only instead of just carrying on as normal, you are likely to see a substitution effect going on, as the Russian State buys more things from China using RMB rather than dollars from the US and Western Europe.
This is just a very limited example, but it illustrates just how important and timely the Chinese deal has been to Putin and Russia, and China is likely to have gained a great deal of personal goodwill from Putin if the Chinese negotiators played their cards right by only sticking to their original negotiation position rather than trying to hold Russia over a barrow to get a slightly better deal because of the sanctions.
Those are all only short-term effects, but it provides Russia with a cushion that Saudi Arabia does not enjoy, so it makes it far more likely that Russia will be able to outlast SA, and once SA is unwilling and/or unable to keep haemorrhaging money for the West, OPEC will reduce production and raise the oil and gas prices back to its natural equilibrium levels.
But in the medium to long term, the Russians are not going to forget how America and the West used their financial and economic powers as a weapon, so you can pretty much lock Russia down as in favour of the RMB replacing the dollar as the standard petroleum trading currency.
But Beijing is unlikely to make such a move until well into the 2030s, 40s or later, at a time when the Chinese economy is firmly ahead of America's and when the Chinese military is at least on par with that of America's. That is because to usurpe the dollar as the global petroleum trading currency would be to obliterate one of the fundamental key pillars of American global homogeny, so America is unlikely to give up that advantage easily.
