Impact Of Falling Oil Prices
The global consumption of Oil is 91 barrel per day. Finally comes the time by which we have started listening that Oil prices have fallen by $ x per barrel. It is going to have a significant impact on world politics. The fall in oil prices would obviously affect the two i.e. importers and exporters. The importers would be happy whereas it would bring disappointment in the camps of exporters. It can also have a reverse impact that now there will a hope for more fall in oil prices which would bring the Oil market to slowdown. Examples for importers would be - China, India, Japan and for exporters would be - Kuwait, Iraq, Saudi Arabia, Venezuela, Nigeria.
Impact on Exporters
The fall in Oil prices would have a huge impact on oil exporters. All most all countries, the members of OPEC(Organisation of Petroleum Exporting Countries) and non members depend on the revenue earned by the oil, with the help of that they do government funding, provide subsidies. You would be surprised to know that Iran gives 80% subsidies on Oil. From this fact itself you would be able to predict the impact that it is going to have on their respective economies. Another classical example would be Russia. Recently Russian President Vladimir Putin expressed his concern that lower oil prices would force the government to cut their spending. Research tells that Russia requires at least $ 104 per barrel to to balance its budget next year which seems very difficult.
Due to the high cost of oil production in countries like US, Canada, Brazil etc... the fall in Oil prices could actually threaten the boom in oil production. The only exception is Saudi Arabia, it has not cut its production because of the substantial reserves it has.
Impact on Importers i.e. Consumers -
If we would have a macro economic view of the impact it would:-
(1) Lower Inflation
(2) High Output
The fall in prices of oil would help the net importing countries like India, China, Japan to bring the Fiscal Deficit down of their respective economies. Currently the fall in prices of Oil is like blessing. It would really help to bring the fiscal deficit down.
The Trap
There are some other predictions(mainly 2) on why Saudi Arabia has not cut down its production.
It has been claimed by Iran that a trap is being set by the USA and Saudi Arabia to lower the prices of oil to such an extent that it(Iran) goes bankrupt. Earlier it has been mentioned that Iran gives 80% subsidies on Oil.
Another prediction is that- Saudi Arabia is setting a trap for USA to stop the 'Shale Gas' plants due to heavy losses it would suffer due to fall in Oil prices.
The ultimate aim of Saudi Arabia would be to dominate the oil market.
There are some other predictions(mainly 2) on why Saudi Arabia has not cut down its production.
It has been claimed by Iran that a trap is being set by the USA and Saudi Arabia to lower the prices of oil to such an extent that it(Iran) goes bankrupt. Earlier it has been mentioned that Iran gives 80% subsidies on Oil.
Another prediction is that- Saudi Arabia is setting a trap for USA to stop the 'Shale Gas' plants due to heavy losses it would suffer due to fall in Oil prices.
The ultimate aim of Saudi Arabia would be to dominate the oil market.
The Road Ahead
In my opinion the prices would be stable around $ 88 per barrel. The Oil exporting countries like Iran, Russia would have to face recession. It would hurt them because of their funding and subsidies policies. For the Oil importing nations it would be a blessing to reduce their Fiscal Deficits. It would be interesting to what USA does on Shale Gas production.
In my opinion the prices would be stable around $ 88 per barrel. The Oil exporting countries like Iran, Russia would have to face recession. It would hurt them because of their funding and subsidies policies. For the Oil importing nations it would be a blessing to reduce their Fiscal Deficits. It would be interesting to what USA does on Shale Gas production.