Cheap oil claims a victim

I won’t pretend to have anything more than a general basic awareness of Venezuelan politics, so if you’re here looking for deep insight into yesterday’s elections, you’re in the wrong place. I’m not much of an expert on the global energy market, while we’re at it. But I do know one thing, I think: a country that needs oil to be priced at around $120/barrel on the world market in order to break even is a country that’s going to suffer potentially massive economic and political upheavals when oil is trading below $42/barrel instead. And Venezuela’s election may only be the first of more upheavals to come:

Screen Shot 2015 07 20 at 9.39.38 AM
via Business Insider

Even Qatar, at the low end of the spectrum, needs oil prices to rise. Countries that depend on high oil prices to finance lavish social welfare states, often in order to distract the public from serious underlying societal problems (not that I’m referring to anyone in particular here, mind you), really need oil prices to rise. Vladimir Putin needs oil prices to rise. Although hard numbers are impossible to figure out, ISIS probably needs oil prices to rise as well. ISIS aside, most of these countries have actually been increasing production, despite the downward pressure that places on prices, in order to make alternative oil sources like shale and deep water drilling nonviable. Venezuelan socialists aren’t going to be the last ones to feel the effects of these low oil prices. OPEC may have figured out how to keep shale oil from hurting its bottom line, but the solution turns out to have been for OPEC to hurt its own bottom line instead.

While you may find it hard to shed a tear over the fate of Venezuelan socialists, or Saudi autocrats, or Vladimir Putin, or ISIS, or anybody, really, when you’re reaping the rewards at the gas pump, consider that the heaviest burden of the economic crises caused by these low oil prices falls on already desperately poor people in Russia, Venezuela, Nigeria, Algeria, etc. Consider also that an economic downturn in these oil exporters will eventually affect everybody else, despite the temporary benefits a lot of us are getting courtesy of the cheap gas. Low oil prices are also a bad thing for the environment, because, while they make environmentally damaging shale and deep-water extraction less viable for now, they make important sustainable energy projects less viable as well, and meanwhile all that shale and deep-water oil is still there for the taking once prices rise again.

There are also specific negative effects to watch out for. Low oil prices will make it harder to stabilize Libya and to reform Iraq’s government, both important components of the fight against ISIS. They’re also hurting Iran’s economy at a time when people there are expecting the nuclear deal, and the subsequent draw-down of international sanctions, to provide an economic boost. If the Iranian economy deteriorates despite the removal of sanctions, voters there may very well take their frustrations out on reformist or moderate candidates in next year’s elections for the Majles and, crucially, the Assembly of Experts (which is the body that will select the next Supreme Leader). Certainly the conservative elements of the Iranian political system will use a continued economic downturn as evidence that the nefarious Americans (and their moderate Iranian puppets, in this scenario) aren’t holding up their end of the nuclear deal.

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Author: DWD

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