How The Oil Crisis Has Impacted Military Spending

Tyler Durden's picture

Submitted by Irina Slav via OilPrice.com,

A report by the Stockholm International Peace Research Institute has revealed that most of the world’s nations hiked their military budgets last year, marking the first increase in spending since the 2008 crisis.

It seems that the only ones not taking part in this military spending hike are some of the world’s biggest oil producers.

While the United States is still the country with the largest military budget at $596 billion spent in 2015, this figure was actually a decline on the previous year. Saudi Arabia, according to Bloomberg, would also have cut its military budget if not for the war in Yemen. Russia, the world’s top oil producer, shrank military outlays in 2015 to $66.4 billion.

Oil is the most abundant commodity in the world. It fuels all economies, even those firmly on the path to a green future. It is a strategic commodity in every single part of the world, and it was only to be expected that a price slump as major as the one that started in the second half of 2014 would affect every industry, not least the military.

If oil prices are falling, this means lower oil revenues for producers, hence less money to spend on defense. Lower oil prices also mean net importers enjoy more spare cash. At the same time, there are heightened geopolitical tensions in different parts of the world. This is most notable in the Middle East, in Asia—where China is laying aggressive claims to several islands in the oil and gas rich South China Sea—and in Europe, following the Crimea annexation by Russia and its participation in the violence in eastern Ukraine.

China’s neighbors and China itself all upped their defense spending substantially last year. So did Russia’s neighbors. Both groups of countries, which, it’s worth noting, are not major oil producers (except China, of course) benefited from the low prices very directly: they spent less on buying oil for their energy needs, so they had more money to spare on defense.

Some observers of the energy market with a cynical bent say producers need a new war for prices to improve. This sentiment is in itself enough to motivate increased military spending. Coupled with ISIS activity in the Middle East, and the migrant crisis in Europe, the anxiety becomes stronger. And yet, this anxiety, and the plumper military budgets, has not yet had a profound effect on oil prices. The glut is just too deep.

A new war, whatever this might entail in terms of location and participants, could indeed improve the price of oil if it is large-scale enough. It could be this hypothetical war that governments in Asia, Europe and the Middle East are preparing for. Let’s just hope the conflict remains hypothetical. The market can rebalance itself without it; it will just take longer. Oil producers will just have to swallow this and wait.

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HedgeAccordingly's picture

Us spending is down. And us army under 1 million standing. Half of which are reserves.
Lt. General MCMASTER: ARMY TO BE OUTNUMBERED AND OUTGUNNED IN NEXT WAR
http://hedgeaccordingly.com/2016/04/mcmaster-army-to-be-outnumbered-and-...

KnuckleDragger-X's picture

Yep, but it will be 'personed' by the right kind of people........

MillionDollarBonus_'s picture

Although it may not be politically correct, economists such as Dr Paul Krugman have long documented the many economic benefits of war. Following the second world war, America experienced an economic boom, after Americans were put back to work with the improved morale and work ethic that you learn during combat. In addition, military contractors are some of our most prized manufacturing companies, so increased military spending helps create those top quality manufacturing jobs that ZHers are constantly lusting over. At the same time, America will accomplish its foreign policy objectives, so it's really a win-win for the country. The only drawback is the casualties of war. However, although it may be controversial, there is an economic consensus that the benefits of war usually outweigh the drawbacks.

https://accredited-times.com/2016/04/12/the-science-of-economics-how-eco...

ArgentDawn's picture

You have twisted sensibilities for a LW talking point blogger. This post literally contradicts all of your previous posts.

LowerSlowerDelaware_LSD's picture
LowerSlowerDelaware_LSD (not verified) ArgentDawn Apr 12, 2016 1:24 PM

There is NO oil "crisis." Cheap material costs are good for economies and production.

MalteseFalcon's picture

The biggest user of oil and the biggest polluter in the world is the US military.

Oil crisis and climate change assholes take note.

rubiconsolutions's picture

+ 1 MDB for your continued lucid diagnosis of the world.

 

/sarc

N0TaREALmerican's picture
N0TaREALmerican (not verified) MillionDollarBonus_ Apr 12, 2016 11:24 AM

I couldn't agree more.    Most of the "cost" of war is borne by the trash-class anyway.   The top 20 - 10% do very well in war and their children seldom do the fighting (unless they happened to be born with Patriot OCD,  which is always debilitating). 

Huh Reeeally's picture

Off you go then, volunteer for the front lines like a good boy and do your bit for the bankers.

SmedleyButlersGhost's picture

"The only drawback is the casualties of war."

Nice of you to give that "drawback" a passing mention. I'm so disgusted with that statement that I can't even muster up the fuk you it so rightly deserves.

DaveyJones's picture

was that meant to be a sarcastic headline?

Spungo's picture

So we can invade Saudi Arabia while their defense is down?

N0TaREALmerican's picture
N0TaREALmerican (not verified) Apr 12, 2016 11:05 AM

We need to double the size of Big-MIC in order to create high-paying jobs and innovation to keep us competitive with China.

This ad brought to you by... The folks at Big-MIC; and it's fine line of politicians, creating jobs, growth, and innovation for over 70 years

KnuckleDragger-X's picture

About one more F-35 project should do it, you know, like a new 'stealth' bomber........

The Saint's picture
The Saint (not verified) KnuckleDragger-X Apr 12, 2016 12:12 PM

The 6th generation fighter is in the works.  I wish they would scrap the F-35 and move right to the next gen.

http://www.popsci.com/northrop-grumman-ad-teases-6th-generation-fighter

 

undercover brother's picture

Why are lower oil prices considered a crisis, especially when the fed will step in and buy junk debt of frackers instead of letting them declare bankruptcy and die?  if these companies can't pay their zero interest rate debt from operations, they deserve to go out of business.     From a personal perspective, I see no crisis, in fact, i'm quite happy paying $1.60 a gallon for my gasoline at the pump. 

N0TaREALmerican's picture
N0TaREALmerican (not verified) undercover brother Apr 12, 2016 11:06 AM

Failure - for the top 10% - is NOT an option!

Never One Roach's picture

"Most transparent administration, eva!"

bada boom's picture

Oil doesn't matter anymore. US military goes green,

 

By Air, Land and Sea, the Military is Going Green to Save Lives and Money

http://www.huffingtonpost.com/michael-brower/by-air-land-and-sea-the-m_b...

 

Wait, don't shoot, I have to wait for the clouds to pass.

A little blast from the past, pun intended.  I wonder if they are still striving to be green?

The Saint's picture
The Saint (not verified) bada boom Apr 12, 2016 12:19 PM

Green but not exactly as cost effective as advertised.

http://www.reuters.com/article/us-usa-defense-greenfleet-idUSKCN0UY09U

 

Tzanchan's picture

Weshould have invaded Detroit intead of Iraq, spend all that infrastructure over here, urban renewal with DU tank shells, pallets of $100 bills given away....much better stiimulus than the Mess O'Potamia and the Korengal Valley; either way save the last bullet 4 urself....

VWAndy's picture

The MIC operates on fiat and debt so spending is not an issue for them.

Bemused Observer's picture

Someone should let governments know that the Boomers are all past military age now. They will have to wage their wars with Gen X and the Millennials...

BWAAA-HAAA-HAAA-HAAA! Be sure to let us know how that works for you...you might want to start by getting those officers trained in how to maintain safe spaces from micro-aggressions on the battlefield. And installing a third bathroom in all barracks and public areas, because some of your new recruits are gonna need it...

Don't ask why, just trust me on that one.

Mr.BlingBling's picture

War, per se, isn't necessary to raise prices.  The US just needs to fly a couple of 767's into the Ghawar infrastructure.  It's long past time to teach those fucks that karma's a bitch.