Low gas prices from OPEC’s overproduction are helping Americans get to work and vacation spots cheaper, but countries like Russia and Venezuela that have relied on oil revenues to fund their governments are scurrying to keep the lights on. Conditions are unlikely to change through 2016.
The current era of cheap oil began when OPEC, collective producer of 80% of the world’s supply, dropped their normal production limits. In the short term, individual member countries are free to extract and sell what they’re able. Besides differing revenue needs, the bloc dropped the production ceiling (and price floor) partly to discourage new exploration and development in non-OPEC countries like the United States. The move has indeed slowed US domestic production from its “get out of the Middle East” drive to depend less on energy from unpredictable — and sometimes hostile — sources.
Certain American companies have taken a financial hit from cheap oil, but overall, ecologic concerns aside, low prices have been a boon to consumers and business alike. Countries on the sales end of the equation aren’t doing as well. With Iran’s return to the market on the horizon these trends will likely deepen.
Producer Saudi Arabia itself is feeling pressure to find new revenues. Like Venezuela, a huge portion of government and social spending has been budgeted around selling their oil to the world market at older, higher prices. With no end in sight, countries without other revenue streams have been left without a chair when the music stopped. They have little experience in nurturing other profitable industries, nor have their cultures encouraged entrepreneurship.
But perhaps the most watched decline is Putin’s Russia. Sanctioned for aggressive international actions, its economy would slowly buckle even if oil wasn’t the historical source of half of the state budget. Despite pumping billions into emergency measures, the ruble continues to decline, sitting now at just over one American penny. Russia has perhaps a year of buffer money left, at which point only draconian measures will prevent a collapse of the market and flight of the remaining capital, leaving the country nothing with which to rebuild.
Neighbor and trading partner China has its own set of woes as its overvalued market slowly resets in the form of massive drops and daily stock market emergency pauses. American stocks suffered resultant shocks on New Years Day, but no one claimed the NYSE was “tanking”. The ongoing saga of Russia’s poor choices in strategic partners inspired editors to use that exact word about the ruble.
So far none of these oil-rich countries have surfaced a viable plan to move their economies into the 21st century. Increased social aid is always welcome (even Saddam Hussein’s food baskets), but in these cases it only serves as a populist stopgap to placate a citizenry under pressure, without addressing the gross structural flaws of each country’s poor economic planning.
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