The Implications of Cheap Oil

Over at the Washington Note, Brian Till wonders what impact softening oil prices will have on producing states:

The most pedestrian conclusion is to believe that struggling domestic spheres will lead to more reckless acts in the international sphere. That Iran and Russia, attempting to turn inner angst against an outer foe, will become all the more boisterous and rogue. But it's difficult to imagine these states taking more aggressive tacks then those that which they're already on. I wonder if we might, ironically, see the opposite: domestic aggression combined with a softening toward the international society.

This is a quibble, I know, but isn't the latter the conventional wisdom, not the former? Isn't the entire "energy independence" push animated by the principle that if we collapse the price of oil, the world's sundry petrol producing dictators will be undercut? Thomas Friedman's "First Law of Petropolitics" spells out this thinking pretty clearly.

The truly ironic and counter-intuitive development would see petrol tyrannies becoming more aggressive on the world stage as the source of their economic power eroded under their feet.

UPDATE: Moscow Times is reporting that Standard & Poors became the first ratings agency to downgrade Russia in a decade:

The ratings decision "is linked to the fall in the oil price and the likely appearance of current account and trade deficits next year. The weakening of the ruble and the situation with the exchange rate could have also played a part," said Yaroslav Lissovolik, chief strategist at Deutsche Bank.

It's difficult to see how Russia can sustain any long-term power projection in, say, Latin America, while its economy implodes.