The Fall Of Oil Prices: Very Few “Winners” Essay Samples

In a recent article in The Economist, “Cheaper Oil: Winners and Losers”, the rapid fall of the price of oil is predicted to help the enormous economies of the U.S. and China, but hurt oil-exporting countries like Russia and Venezuela, and have very little benefit for most of the world who live in poverty (“Winners and Losers”, 2014). In the last six months, oil prices have plummeted, sending shockwaves throughout petroleum producing countries (EIA, 2015). The U.S. has seen the price of a gallon of gas cut in half and the countries that rely primarily on oil exports are being “pushed to the brink of financial crisis” (Higgins). The “winners” are the United States and China, who should see increased GDP. According to Tom Helbing, of the IMF, a “10% change in the oil price is associated with around a 0.2% increase in global GDP” (“Winners and Losers”) However, cheap oil is not benefiting most of the world in any meaningful way (Allen, 2015). The IMF has released new figures that show the global decrease in the price of oil has not resulted in increased economic growth. Estimated global growth is expecting to be 3.5% and not the 3.8% originally forecasted before the drop in oil prices (“Winners and Losers”, 2015). The IMF have reduced global growth forecasts due to an economic slowdown in China, the Ruble crisis in Russia and continuing stagnation in the EU. Any positive effects from cheap oil has been overshadowed by other economic factors that are depressing the global economy (Higgins, 2014). However, as The Economist predicts, the IMF does believe the U.S. will benefit from cheaper oil. Their growth forecast has jumped from 3.1% in October to 3.6%. The drop in crude oil prices will not benefit Europe, Japan or most developing countries. Saudi Arabia, the largest oil-exporting country on Earth and a major ally of the U.S., is sitting on $900 billion in reserves, and their cost of extracting oil is only $5 a barrel (“Winners and Losers”).
There are many theories about why oil prices have plummeted: Demand is low due to economic malaise, Russia’s President Putin is being punished, Saudi Arabia wants to discourage alternative methods of oil extraction like fracking, the political instability in Libya and Syria have not diminished output and there is increasing reliance on alternative forms of energy (L.E., 2014). Whatever the reasons the benefits of cheap oil is not universal and many countries are seeing severe economic disturbances.
Countries like Nigeria, Angola and Venezuela rely primarily on oil for their economic output and GDP. They are developing countries where a large percentage of the population live in poverty (Higgins, 2014) Cheaper global oil prices should mean cheaper food, but this is not necessarily the case according to Thierry Kesteloot, an agricultural consultant for the aid group OXFAM. He believes that oil will not increase food security in impoverished countries (Higgins, 2014). Smaller developing countries are not integrated into formal world food markets, instead relying on local agriculture for food. The cost of importing food aid may be cheaper, but Kesteloot is "not sure that 2015 will see a shift in terms of improving poverty and food security."(Higgins, 2014).
Oil exporting countries are hurting economically. Like Saudi Arabia, Russia has huge cash reserves, $454 billion, which will allow them to survive a oil price fluctuation that is predicted to be a short cyclical slump (Allen, 2015). Oil is expected to stabilize around $80 a barrel (“Winners and Losers”, 2014). However, smaller economies like Nigeria and Angola are expected to see a variety of negative consequences, including increased taxes and decreased governmental social projects. In Nigeria, the VAT tax is expected to double, and government projects are threatened with cancellation if the price of oil exports continue to fall (McGtoarty, 2015). Nigeria earns about 80% of its income from oil exports (Okare, 2015). The Nigerian government is struggling to raise tax revenue and cut expenditures as quickly as oil prices are tumbling (Okare, 2015). The largest economy in Africa, Nigeria relies on oil, and is discovering they are vulnerable to a volatile market that has been relatively stable for over a decade (L.E., 2014). The price of oil has a direct and serious impact on international development because of the global scope of petroleum production, consumption and commerce. All countries need oil for survival, which comes before development. National stability, development and and sustainability are all dependent on energy.
Cheap oil may be good for GDP on paper (L.E., 2014). However, it is bad for the environment, discourages technological innovation and development of alternative fuels, is not good for sustainable development and does not benefit developing countries. It is also hurting the one-dimensional economies that rely on oil for stability. The IMF has predicted a gloomier economic global outlook since the fall of oil prices (“Winners and Losers”). The Economist portrays the dynamic as having winners or losers, but in a globalized economy, everyone ends up losing when economics is polluted by political agendas, creating an unstable landscape that is dependent on the whims of governments and the non-rational variations of fuel prices. From an international development perspective, unstable fuel prices and unsustainable energy consumption is not a progressive path forward. Ultimately, alternative methods of energy production will have

References

Allen, K. (2015, January 15). IMF cuts global economic growth forecasts. The Guardian Retrieved January 21, 2015.
Arsenault, C. (2015, January 12). Will the world's hungry benefit from falling oil prices? Retrieved January 21, 2015, from http://www.reuters.com/article/2015/01/12/us- food-oil-hunger-idUSKBN0KL1KU20150112
Higgins, A. (2014, December 24). Oil’s Swift Fall Raises Fortunes of U.S. Abroad. Retrieved January 21, 2015, from http://www.nytimes.com/2014/12/25/
world/europe/oils-swift-fall-raises-fortunes-of-us-abroad.html
L., E. (2014, December 8). Why the oil price is falling. Retrieved January 21, 2015, from http://www.economist.com/blogs/economist-explains/2014/12/economist- explains-4
McGroarty, P. (n.d.). Nigeria May Double VAT Tax Because of Oil's Drop. Retrieved January 21, 2015, from http://www.wsj.com/articles/nigeria-keeps-key-interest- rate-on-hold-1421768219
Okare, R. (2015, January 20). Guardian News Website - Falling oil prices threaten three deep-water projects in Nigeria. Retrieved January 21, 2015, from http://www.ngrguardiannews.com/news/national-news/194676-falling-oil-prices- threaten-three-deep-water-projects-in-nigeria
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Winners and losers. (2014, October 25). Retrieved January 21, 2015, from http://www.economist.com/news/international/21627642-america-and-its-friends- benefit-falling-oil-prices-its-most-strident-critics