Softening oil prices over the past few months have spurred hope in Washington that less revenue for oil-rich states could weaken the hand of governments the U.S. considers worrisome -- particularly those in Iran, Venezuela and Russia.
The three nations are potentially vulnerable: Oil-and-gas revenue accounts for between two-thirds and three-quarters of government income in both Venezuela and Iran, and only slightly less in Russia.
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But it is far too early to expect the changing economics of oil to have big political effects. For one thing, although the price of oil has fallen 28% since hitting an all-time high of $77.03 in July, it is still high by historical standards. The three nations, having weathered crises before, have all built up substantial currency reserves to cushion against a further fall in prices.
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Unlike Russia, and to a lesser extent Iran, Venezuela has been much more reckless in spending its oil windfall. Last year alone, public spending grew 43%, widening the gap between total government income and outlays to about 1.5% of the total economy, according to estimates by Morgan Stanley.
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While economists agree that Mr. Chavez's free-spending policies may eventually shipwreck the Venezuelan economy, they say that won't happen -- if it happens at all -- for at least another year. The main reason: Venezuela has accumulated more than $36 billion of reserves.
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A further drop in oil prices . . . might leave Mr. Chavez with some tough choices about where to trim the fat. High on the list would be his foreign aid. By far the chief beneficiary of Mr. Chavez's largesse is Cuba, which receives 103,000 barrels a day of refined petroleum products in exchange for the services of Cuban doctors and other specialists. Analysts believe aid to Cuba totals about $3 billion a year.
. . . [A] recent study by Claudio Loser, a former International Monetary Fund official, showed that Venezuela's real per-capita income has grown a cumulative 1% since 1998, the year Mr. Chavez took power.
Mr. Chavez also might be forced to cut back on the domestic front. Last year, Venezuela had Latin America's highest inflation rate, about 17% -- and it is expected to climb sharply this year.
"I think it will be a difficult year for the Venezuelan economy," says Francisco Rodriguez, who teaches Latin American economics at Wesleyan University in Middletown, Conn.
Russia is much less vulnerable to oil prices. Under Mr. Putin, the country has built up $300 billion of foreign-exchange reserves, an $89 billion rainy-day oil fund and runs big yearly budget surpluses. Mr. Putin is loosening the purse strings this year in the run-up to presidential elections in early 2008, with a 26% increase in spending from 2006. But the budget would still break even with oil as low as $38 to $40 per barrel. However, lower oil prices could hurt earnings at energy companies that form the backbone of Russia's economy.
Iran is more exposed to the vagaries of the oil market. As revenue has soared with oil prices, Iran's public-sector spending has expanded almost as fast. To pay for massive subsidies for most daily goods -- including gasoline, bread and heating fuel -- the government has borrowed in each of the past two years from a special rainy-day fund set up to retain some oil revenue for when prices fall again. But that spending has ignited inflation, now running around 15%.
Iranian President Mahmoud Ahmadinejad introduced a budget early last week that included a 20% increase in spending for the Iranian fiscal year that begins in March. He said the government, whose ultimate authority is held by a council of Islamic mullahs, would be able to add to its rainy-day fund if oil prices remain above $33 per barrel, the level the budget assumes for Iranian oil.
But some private economists doubt the budget calculations and predict Tehran would again fall back on those surplus funds to finance spending.
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Jose de Cordoba in Mexico City contributed to this article.
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