Why Low Gas Prices Are Bad For The World
Oil recently dropped below 70 dollars a barrel for the first time since 2010 and many Americans are rejoicing.
Having cheaper gas is a good thing, right? Well, maybe not.
A lot of countries and micro economies may stop functioning if oil prices dip too low. One of the biggest examples is Russia. Since the most recent drop in oil prices, Russia’s currency, the ruble, saw the biggest one-day decline since 1998.
This is because oil and natural gas make up about 70% of the country’s exports, the second highest in the world, and Russia gets more than half of its budget from oil revenues.
This drop ensures more financial hardships and less economic growth in a country already dealing with numerous international sanctions. Some argue that the combination of the economic loss plus the estimated 40 billion Russia is losing from sanctions might put enough pressure on Vladimir Putin to end his conflict with Ukraine. But it’s not likely. Putin has been quoted being optimistic about his country’s oil problems, citing the upcoming winter which will bring cold weather and with it, a higher demand for oil.
But this is strictly speculation and history may have a way of repeating itself. Many blame the fall of the Soviet Union in the 1980’s partly on a decline in oil prices. Other major oil producing nations, like Iran, Nigeria and Venezuela have their own struggles.
In fact, Venezuela’s economic woes have already led to countrywide violent rioting.
The country is suffering from high levels of inflation, which has led to a scarcity of simple products like toilet paper and toothpaste. One analyst was quoted saying that for Venezuela to be able to balance its budget, oil prices would need to hit $200 a barrel.
The money lost from the new drops in oil prices has forced the government to make major cuts and increase taxes, something that will not help ease the unrest. So, lower oil prices could cause entire countries to fail, but they aren’t the only people affected. Lower oil prices could also hurt the fracking industry and put thousands of Americans out of work. Fracking is an expensive process and in order for those companies to make a profit, they have to sell their oil at a high price.
If the price dips low enough, they’ll have to stop drilling. This would be a major blow to states like North Dakota, Oklahoma and Texas where fracking has been likened to the dot com bubble.
To find out more about that, check out our article on the current US oil boom and how much oil the US is actually producing.