Global Economy At Risk From Oil Price Dive
NEW HAVEN: Oil shocks four decades ago transformed the world economy and geopolitical landscape, and the latest oil crisis threatens to do the same. The price of oil hovered near $100 per barrel during the past three years, and the recent vertiginous fall in price to near $50 per barrel has sent markets reeling. Ali al-Naimi, oil minister of Saudi Arabia, considered the industry’s most powerful decision maker, said oil could fall to $20 a barrel.
While oil-consuming nations celebrate, the exporting nations anticipate unprecedented economic and political challenges. Most countries are importers of oil, so they will benefit from lower prices.
Lower prices improve economic prospects by way of two main mechanisms:
The first is through better public finances. In many developing countries, governments heavily subsidize energy usage by selling fuel for automobiles far below the market price. These policies have been destructive on many levels. By reducing fuel prices, such subsidies discourage fuel efficiency, exacerbating global warming. And they impose a dangerous burden on public finances because governments are on the hook when oil prices increase. Though fuel subsidies are often rhetorically justified on the grounds that they help the poor, research suggests that in most countries the middle class receives the bulk of benefits.
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