Oil prices could 'crater' in 2014, Bremmer says: But 'dream' scenario could become a nightmare

It what sounds like a dream scenario for U.S. consumers, Ian Bremmer, president of Eurasia Group, says oil prices could "crater" in 2014 and OPEC could "fall apart."

But a serious decline in energy prices could lead to a nightmare for U.S. policymakers as "expanding unrest" in the Middle East is one of Bremmer's 'top risks' of 2014.

First, the good news: If a comprehensive deal over Iran's nuclear program is reached -- and Bremmer sees a-better-than 50% chance it will -- "then oil prices are cratering through $80" (the presumptive floor currently set by the Saudis), he says. "OPEC falls apart in that environment."

Again, this sounds like great news for American businesses and consumers, as well as emerging marketeconomies. 

Related: “A Real American Story”: Why the Fracking Revolution Happened Here

But despite increased domestic production America is not "energy independent" -- nor likely to get there anytime soon. The U.S. cannot ignore developments in the Middle East, even if we want to. And that's the bad news.

"The Middle East as a whole becomes more fragmented [and] more violent" if the scenario described above comes to pass, Bremmer predicts. The region "becomes less of an investment destination and starts to affect even those countries we thought of as relatively stable, like Saudi Arabia."

A 'more fragmented, more violent' Middle East is not a future forecast but current reality based on recent developments, including the expansion of Syria's civil war into neighboring Lebanon and the resurgence of anti-U.S. forces in Iraq's Anbar province.

Related: Decline of U.S. foreign policy biggest risk of 2014, not economics: Ian Bremmer

"If current trends of regime reconsolidation in Syria continue, which looks increasingly likely, the Islamic State in Iraq and al Sham (ISIS), Al Qaeda’s fast-growing franchise operating in Syria and neighboring countries, will shift its resources this spring toward weakening the Shia-dominated government in Baghdad," Bremmer writes. "ISIS will reinforce the myriad local Sunni groups marginalized by Iraqi Prime Minister Nouri al Maliki’s authoritarian policies, who are more willing to join forces and take up arms against the central government in Baghdad."

The situation in Iraq is so dire, in fact, that U.S. Secretary of State John Kerry felt compelled to affirm U.S. support for Baghdad on Monday -- with a major caveat.

"We’re going to help them in their fight,” Kerry said. But “we are not, obviously, contemplating returning. We are not contemplating putting boots on the ground."

Advances by ISIS are effectively reversing the gains made during the U.S. "surge" in 2007. "It's not 'Mission Accomplished'," Bremmer quips, suggesting the overall trend of increased Middle East violence and fragmentation "creates more risk of terrorism."

For the time being, Bremmer sees this terrorism as more of a local, regional story with the greatest pressure on Middle East "petrostates" and their patrons in Egypt and Tunisia, as well as on energy producers like Venezuela, Nigeria and Russia.  

It's "not clear how it's bad for the average American," he says.

But recent history paints a frightening picture of what happens when radical Islamists have opportunities to recruit and plot terrorist acts. For America to ignore these developments or disengage from the region would truly represent the failure of foreign policy Bremmer cited in part one of this interview.

by : Yahoo Finance