Falling prices reduce the influence of oil-rich countries

The sudden drop in oil prices has begun to have an impact on countries that limit its use and production only to state-owned companies.

Analysts say many countries use the profits to achieve their ideological goals and spread their influence, so falling prices could affect such policies.

Oil prices have fallen dramatically, from a record high of $147 a barrel in July to less than $55 in recent days.

Analysts say this is affecting oil-producing countries that use oil revenues to realize their ideological ambitions.

Russia's military revival is thought to have been fueled by oil dollars. Iran has used oil revenues to expand influence in the Middle East and to ignore sanctions aimed at thwarting its nuclear ambitions. Venezuelan President Hugo Chavez has regained the power and influence to oppose US policy in the Western Hemisphere because of the huge flow of oil money.

But falling prices can weaken a government's power, says energy analyst Kenneth Medlock at Rice University in Houston.

"It makes it difficult for governments to continue to be solvent, and to continue the kinds of programs that they had when oil prices were higher. This obviously puts the politicians in power in a very difficult position."

In Iran, concerns are growing that the country may face an economic crisis due to dwindling oil revenues.

This happens while President Mahmoud Ahmadinejad will seek re-election next year.

In Venezuela, spending on social programs and other initiatives to build President Chavez's socialist state could be affected, although he has recently downplayed the effects of falling oil prices.

"We are not celebrating victories, no. But we have the ability to resist the crisis. And not only to resist but to continue investing".

Venezuela's oil, like that of many countries, is controlled by the state-owned company PDVSA.

Many of these countries have not allowed the entry of Western oil companies, through the policy known as "resource nationalism".

Oil giant ExxonMobile now controls much less oil, says Conoco-Philips CEO James Mulva.

"State-owned oil companies make up the top ten holders of international reserves. The largest Western oil companies control less than 10 percent of global resources."

One reason for this is the belief that some countries that have state-owned companies can better protect the country's oil assets. But energy analyst Jerry Taylor of the Cato Institute says there's another reason.

"When there are large private corporations making profits it creates potential pockets of resistance in society to the political regime. And as many of these countries have discovered that oil exploitation is the main source of income for their economies, the ownership of these industries in fact helps governments avoid the possibility of opposition".

Taylor says that Saudi Arabia's ARAMCO is an example of an efficient and productive state-owned company, but many others such as Mexico's PEMEX are inefficient and unproductive.

"They have demonstrated in many cases the inability to develop resources effectively. The major international companies have the opportunity to do this. They have enough commercial initiatives to be productive."

The increase in oil extraction and income from it can be attractive to governments, creating opportunities for major Western companies, which would simultaneously erode nationalist policies./WOA/