International Political
Economy
Pricing for Oil
Consumers: China, USA, Europe, India, Japan
Producers: Middle-east, Caspian region, USA,
Venezuela, South China sea
What is IPE?
Any political initiative that has economic
implications or those economic steps which have
political impacts are known as IPE.
Hard to ignore consequences of one on the other.
Embargo’s of 1973
War between Egypt, Syria and Israel saw
American President support Israel.
Never saw the political actions would be
responded by economic response. The thought
economic repercussions would huge for middle
eastern countries. So they wont respond in
embargo
But M.E did
Economic derailment US and Europe
War ended in 1967
OIC formation
Embargo was there till 1974.
Crippled their economy.
Impacts of Embargo
1. Political actions can have economic
retaliations
2. Economic tools were to play important roles
in the foreign policy from this incident.
3. Economics can be used to better the relation
with countries
4. Sanctions can be used to narrow down options
for other countries
5. Break-down of Bretton woods system
6. West realized importance of having strong
relation with Saudi Arabia and other GCC
countries
7. Security can be achieved through economics
Petro-dollar agreement
Once KSA and America adopted the petro-
dolloar agreement. Rest were to follow them
GCC followed them soon
OPEC followed them too
That is how international trade was dollarized.
How was international trade dollarized?
War of 1973 in M.E led America to realize
importance of M.E
They made pact with them. This pact made M.E
to control influence of Palestine-Israel conflict
and the Saudi Arabia also got the assurance of
military support in return.
The Iranian revolution saw a common enemy at
the helm of M.E, thus the cooperation b/w USA
and KSA increased greatly
Current Affairs
1. Oil Supply is based on supply and demand
policy
2. KSA is the super-power of oil market
3. 2008-2013, price of barrel reached 156$
4. KSA decided to increase production to lower
the prices.
5. Many countries of OPAC were against
6. But the monopoly of KSA and GCC made it
possible for the to go through with it
7. This was done in partly to hurt Russia and
Iran. Iran and Russia are supporting govt in
Syria. Giving them supplies. While KSA is
supporting the Free Syria liberation army.
8. Both Iran and Russia are dependant heavily
on oil, this move led to derailment of their
economy
9. KSA could afford to lessen the price as their
production costs are 12$ a barrel, while that of
Iran is 30$ a barrel. It costs the for
Incident 2
Dependency of US on OPAC
Reduction of prices
2010, USA started covering requirements with
indigenous resources up to 75%
Threat to GCC
Their security is dependant on relation with US
which is based on US dependency of oil
Incident 3
Inclusion of China in WTO
Preferential treatment to make join WTO
Incident 4
P 5+1 deal
Gave economic concessions to Iran in response
for their culmination of nuclear bomb policies
Iran 4th largest oil and 2nd largest gas producer
China started taking oil from Iran
USA in 2016 left JCPOA it pressurized
multinational companies and allies not buy oil
from Iran
Incident 5
KSA and Russia conflict in the midst of
pandemic
Russia and KSA were working together to
increases oil prices in the past three years
However, the Pandemic hit hurt the economies
badly.
 The demand of oil was decreased due to lock-
downs
Saudi Arabia invited OPAC members to lower
the productions
Russia rejected
Saudi Arabia retaliated and increased Production
Price of one barrel was down to 1$
US companies were hurt as their shale
production cost is almost 40$ a barrel
US came in the scene, threatened Saudi and
Russian government to cut down production
WTI went negative because of the lower demand

Incident 6
Trade war between the China and US