Geopolitical Alliances Shift with Rising Oil Prices

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The skyrocketing cost of oil brings pain to Americans every time they gas up their vehicles. But high oil prices are also affecting American foreign policy, eroding U.S. influence and raising new national security concerns.

The soaring price of oil has a profound impact on relationships between nations that have the valuable commodity and those that don't.

"What we're seeing right now is the largest transfer of wealth in the history of the world from the consumer to the producers," says Roger Diwan, a partner at the consultancy company PFC Energy.

Diwan says that redistribution of wealth is creating a new geopolitical dynamic. Countries that are flush with petrodollars are willing to use their wealth to increase their influence. Diwan points to Russia, which one decade ago was bankrupt. Oil helped change that.

"It helped them restore the country and it allowed them to play regional politics, and even as an interlocutor to Europe, to sit down at the table and say, 'This is what we want and this is what we're trying to achieve and let's see how we make a deal,' " he says. "So, it gives them, obviously, a lot of leverage."

Daniel Yergin, the chairman of Cambridge Energy Research Associates, says that when Russia's economy was weak, the country was more willing to collaborate on issues with the United States.

"Today, Russia is an energy superpower," Yergin says. "Russia now is pursuing very much its own foreign policy. It's asserting its influence both in areas of the former Soviet Union [and] also in Europe. And the basic fact is that today Russia doesn't need ... anything from the United States as it did a decade ago."

The United States has also seen a shift in its relations with close allies, such as Saudi Arabia, because of the petroleum windfall.

Saudi Arabia currently makes an astonishing $1.3 billion a day on oil revenues. Greg Priddy, a global oil analyst with the Eurasia Group, says the United States may not like paying high prices for oil, but can't do much about it. American threats to cut back consumption and switch to alternative fuels have little impact on the Saudis.

"American leverage over them on energy policy is definitely a lot weaker than it used to be, and a lot of that is ... the fact that Asian demand is still growing even at triple-digit dollar prices," Priddy says. "And that means that they're no longer quite as worried about U.S. conservation measures."

Priddy says the Saudis may be looking towards China and other Asian nations for new business relations. But, he says, the Saudis understand they still need the United States as a protector.

"The security relationship is really unique," he says. "They're certainly aware that there's no Asian power that is going to be able to take up the role that the U.S. has had in the Gulf, you know, as far as the eye can see."

Still, Saudi Arabia is using its wealth to expand its influence throughout the Middle East, including Iraq, says George Friedman of Stratfor, a global intelligence company. Friedman says a key concern for the Saudis is to keep the region peaceful — and keep the Straits of Hormuz open — so that nothing slows the flow of oil money coming into Saudi Arabia.

"All around the horn, you see the effect of Saudi influence on various Arab players, that they are trying to calm the situation," Friedman says. "One of the most important things they are doing is making very clear to the United States that they really don't want to hear much talk about attacking Iran."

And despite its dilapidated infrastructure and dismal economic planning, Iran, too, is benefiting from the energy price boom, says Cambridge Energy's Yergin.

"Iran is able to use its considerable resources in oil and its immense resources in natural gas to seek to forge bonds with India, China, other countries, in order to counterbalance the efforts of the U.S. and the Europeans to put pressure on it because of its nuclear program," Yergin says.

China, which relies heavily on energy imports to fuel its fast-growing economy, has been on a diplomatic campaign in the Gulf states to secure access to oil projects — especially in areas, such as Iran, where many Western companies are unwilling to sign contracts for fear of sanctions by the U.S. Yergin says U.S. leverage to curb such investment is diminishing. It's part of the new world order — created by the oil price boom.

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