Cheap Gas: Good for Americans, Bad for Putin

oilLow 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.

 

Further reading:

Forbes: OPEC’s Trillion-Dollar Miscalculation

McKinsey: Moving Saudi Arabia’s Economy Beyond Oil

Reuters: How the oil collapse stole Russia’s Christmas

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jay

Jay is Editor In Chief of The Agonist, veteran and technologist.

15 CommentsLeave a comment

  • Cheap oil has had a devastating effect on the local economy where I live. We had dodged a lot of the misery the rest of the country experienced due to high oil prices and the boom in the Eagle Ford shale play just south and also east of us.

    Slowly but surely, all that activity is grinding to a halt.

    Russia has been working feverishly to establish trade for oil in Rubles with countries like India and China.

    I don’t know if they’ll be able to get what they need from these countries, but I think it’s a bit early to call the Russian bear dead.

  • Rumors of Russia’s impending death are greatly exaggerated…

    “Why Russian Central Bank’s chief Elvira Nabiullina deserves title of the best central banker she got in 2015? Why, because she sticks to her stated objectives and goes on even in challenging conditions.”

    http://russia-insider.com/en/business/why-russias-nabiullina-still-best-central-banker-out-there/ri12156

    Nabiullina saved the Ruble in 2015 by raising interest rates to 17%; to great criticism at the time; but it worked.

  • Yes, you didn’t say death of Russia. I just find it amusing how the western media is so negative re: Russia and Putin.
    Russia’s Putin is the foremost leader of the planet. His diplomatic skills alone are second to none.
    As to Russia’s financial health? Russia has effectively eliminated the oil dollar and along with China created an alternative to the SWIFT currency exchange.
    Russia has shocked the west recently with a demonstration of its technologically advanced weaponry and it now has the export market for its fighter jets, and AA missile systems, not to mention advanced tanks. That along with a very low debt to GDP ratio and more than $400 billion in reserves puts it in better fiscal shape than most western countries, most especially the U.S.
    The U.S. is in serious decline on all fronts and is desperate to hold its last vestiges of empire. The world is not blind to this rot and little by little will realign into regional economic zones excluding the U.S., as much as they dare.
    All the U.S. has left is its ability to wage forever war and even that will ultimately fail.
    Interestingly, the world is looking more and more like Orwell’s Oceania, Eurasia, and Eastasia. Orwell’s future vision is frighteningly forming before our very eyes; perpetual war and the breaking and making of alliances, all based on domination and greed.
    The U.S. cannot, will not, accept a multi-polar world; this will be its undoing. The U.S. is bankrupt morally, financially, and ethically. Its citizens disenfranchised completely.
    Governments are inherently bad, IMO, but, with an informed, educated, and active citizenry can be made to function in a beneficial way for its citizens.

    • You are swinging too far to the other side. Both, the US as well as the Russian demise is exaggerated.

      Short term Russia has the bigger problem as it is far more resource dependant. US firms on the other hand still dominated the ever growing IT sector, the US is now oil self reliant and has huge green energy potential. And while the US manufacturing is a shadow of its it former self the US auto industry seems to be finally getting into the 21st century with start-ups like Tesla leading the way. I am now much more optimistic for the US than I was ten or just five years ago.

      In fact ten years ago I was so fed up with the US that I moved to Canada.

      • Well, I don’t agree with you, obviously. By the way, I left over 12 years ago. Iraq did it for me.
        I do not understand your statement about Russia being resource dependent. What does that mean? The U.S. isn’t?
        I stand by my statement the U.S. is in serious decline. I can’t imagine what your source material consists of. I read two news sources based in the U.S.; Democracy Now and TRNN.
        The Saker, Fort Russ, Sputnik, Russia Insider, The Guardian, The Independent, and RT; all located outside of the U.S.. Oops, except for The Saker; he’s a Russian living in Florida.
        Obama, Clinton, and Trump are bald faced liars supporting the largest propaganda machine on the planet. I should think living in Canada would give you a more informed view of things than what I’m reading from you here.
        If torture, Guantanamo, drone strikes, extra-judicial killings of American citizens, rendition, and the destruction of 5 countries and counting isn’t a sign of rot, then I don’y know what is…

          • I would say unquestionably, yes. But, that’s not the point.
            The point is the behavior of the U.S. government and its flagrant violation of its own constitution and bill of rights. And, that’s not to mention international law; specifically the Geneva Convention on Human Rights. The Nuremberg trials were driven by the U.S. and people were executed for lesser crimes than those committed by the U.S.
            The entire Bush administration should be behind bars, as well as Obama and his ilk.
            My criticism of the U.S. doesn’t need Russia as a comparative example, but stands on evidence and facts available for over 15 years.
            Further, there has been a disinformation war waged against Russia as embodied by President Putin. He speaks truth to power on the international stage and as international news reports is far more respected than Obama and his pathological lying ilk.

        • “being resource dependent” was not very well put. I meant depending on resource extraction revenue.

          Trump is of course a very sorry spectacle. But I doubt he will have a chance in the general election. Hillary is business as usual, as is the US having the largest propaganda machine on the planet. BTW while RT is often a good source, it is also financed as a propaganda outlet, and the Russians played it very successfully at the height of the Ukraine crisis (there are no good guys in that war).

          “If torture, Guantanamo, drone strikes, extra-judicial killings of American citizens, rendition, and the destruction of 5 countries and counting isn’t a sign of rot, …”

          Well, it’s rotten but it’s not particularly novel. In many respects Vietnam was worse than Iraq, it just didn’t create this kind of ripple effect.

          To me the truly disturbing trend was the eroding of civil liberties within the US, but with movements like BLM it seems to me that there is finally some counter-mobilization happening.

          As to my sources, they are mostly German: Spiegel, Welt etc. (taking the biases into account) I also follow Juan Cole’s blog on the Mideast. Other than that various science and financial news sources.

          Not that there is anything wrong with The Guardian and The Independent. Best periodicals the UK has to offer.

          Have you read Howard Zinn’s take on the US history? It seems to me you have an idealized view of America’s past. Bottom line is, the picture was never pretty.

          • Yes, I have read Zinn, he was my first of many eye openers for genuine U.S. history. That was many, many years ago. As to my idealised view of the U.S.? No longer; it would satisfy me if the U.S. would obey its own laws. It’s why I left; there was no longer any reason to stay and many reasons to leave. Oh, and stop murdering blacks with impunity.
            Re RT: I have heard many Americans praise RT’s staff for not managing their views presented on many of their shows. Jessie Ventura is a huge fan boy for RT. Have you ever heard Gayane Chichakyan questioning the sycophants at the White House press meetings? She’s brilliant and her questions really rattle those stooges.
            Yes, Vietnam was worse, agreed. But comparative dialogue regarding mass slaughter seems a fools errand.

            • “But comparative dialogue regarding mass slaughter seems a fools errand.”

              Agreed, but you argued for a serious decline, my stance on the other hand, twas ever thus and goes in waves.

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