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THE financial pages in Wednesday’s newspapers contained the news that the price of Brent crude may drop to below $50 a barrel before the end of the week. What does this mean for the world and for South Africa?
Surely, one might say, a lower oil price – especially when it has dropped by almost 50% in just a few months – is good news. And so it is, in many respects. For instance, when I fill my car with diesel, it used to cost up to €60 (granted, I live in the Netherlands where the state squeezes motorists for every cent they can get). On Tuesday I paid €47 for the same quantity.
Indeed, this is good for all economies dependent on imported oil and natural gas (the price of which more or less follows that of crude oil). It means that many countries all over the world will have to fork out much less money for their energy imports, which is good for their balance of trade.
It will also help the energy importers shake off the effects of the global economic crisis. Lower energy prices mean that consumers have more money available to spend on other things – television sets, motor cars, tourism, etc – which will help spur economic growth.
And when the economy grows again, unemployment drops, there is less state spending on social grants, income through tax increases, and Bob’s your uncle.
But things are never all that simple in real life. Whenever somebody is advantaged, you can safely bet that someone else will have to pay the price.
This price is paid by the oil- and gas-producing countries. One thinks especially of big producers like Russia, Iran, Iraq, the Persian Gulf states, Saudi Arabia, Libya, Venezuela, Nigeria and Angola.
Will fracking still be financially viable?
The United States, too, will feel the pain. The Americans have invested billions in the exploitation of shale gas to make them much more independent of the traditional producers. It is now an open question whether fracking, the technique with which shale gas is produced, will still be financially viable.
But the big oil producers will bear the brunt. And the price may not only be financial, but also social and political.
It so happens that all the big producers are, to put it mildly, not very stable. They are mostly governed by authoritarian, corrupt governments which often buy the population's acquiescence by distributing the oil riches just to the point of discouraging them to rise in revolt. Their grip on power is further buttressed by severe repression.
Iraq is a case in point. This country was an artificial one to begin with, created by the British, and remained quiet through the heavy hand of consecutive dictatorships – the cruel Saddam Hussein being the last one.
But then the Americans decided to charge in like the cavalry in a Western movie to liberate the downtrodden masses and teach them the American values of freedom, capitalism and democracy. And, of course, the whole country sagged like a heap of sand, and has been mired in civil war and upheaval ever since.
The Iraq of Saddam and his predecessors looks a lot like other major oil producers in the Middle East. They are all socially very volatile, but this is kept in check by a combination of authoritarianism and liberal state spending.
The falling oil price makes it much more difficult to keep on “bribing” the populations to keep quiet and refrain from unrest. This has the potential of forcing the issue in several of these countries, creating considerable domestic instability.
But it may also polarise several existing international conflicts.
IS reign of terror may spread
On the one hand, the civil war in Iraq and Syria, where Islamic State is responsible for a reign of terror, may spill over to other countries. The potential of a religious war between the Sunnites and Shiites, the two main branches of Islam, could be exacerbated considerably.
And in Russia, where the West’s economic sanctions are adding to Russia’s oil and gas price woes, there is even more potential of disruption.
At the moment the Russian population is stoically enduring their country’s economic problems, and there are no signs of President Vladimir Putin losing his popularity. The problem is Putin’s reaction when he fears that this may happen.
Several international commentators have expressed the fear that he might, in a manner of speaking, flee forward by escalating his conflict with the Ukraine and the West. This will require considerable skill on the side of Western leaders to handle without the continent sliding into a war.
Obviously, we are at present very far from such situations becoming reality. But it goes to show how volatile international relations are. Things are so fluid that anything, including the worst and best scenarios, is possible.
And don’t think South Africa will dodge the bullet. Our economy, too, is advantaged by falling oil prices, but if Angola and Nigeria once again explode, we can be sure that the pieces flying around will reach us as well.
* Leopold Scholtz is an independent political analyst who lives in Europe. Views expressed are his own.
Surely, one might say, a lower oil price – especially when it has dropped by almost 50% in just a few months – is good news. And so it is, in many respects. For instance, when I fill my car with diesel, it used to cost up to €60 (granted, I live in the Netherlands where the state squeezes motorists for every cent they can get). On Tuesday I paid €47 for the same quantity.
Indeed, this is good for all economies dependent on imported oil and natural gas (the price of which more or less follows that of crude oil). It means that many countries all over the world will have to fork out much less money for their energy imports, which is good for their balance of trade.
It will also help the energy importers shake off the effects of the global economic crisis. Lower energy prices mean that consumers have more money available to spend on other things – television sets, motor cars, tourism, etc – which will help spur economic growth.
And when the economy grows again, unemployment drops, there is less state spending on social grants, income through tax increases, and Bob’s your uncle.
But things are never all that simple in real life. Whenever somebody is advantaged, you can safely bet that someone else will have to pay the price.
This price is paid by the oil- and gas-producing countries. One thinks especially of big producers like Russia, Iran, Iraq, the Persian Gulf states, Saudi Arabia, Libya, Venezuela, Nigeria and Angola.
Will fracking still be financially viable?
The United States, too, will feel the pain. The Americans have invested billions in the exploitation of shale gas to make them much more independent of the traditional producers. It is now an open question whether fracking, the technique with which shale gas is produced, will still be financially viable.
But the big oil producers will bear the brunt. And the price may not only be financial, but also social and political.
It so happens that all the big producers are, to put it mildly, not very stable. They are mostly governed by authoritarian, corrupt governments which often buy the population's acquiescence by distributing the oil riches just to the point of discouraging them to rise in revolt. Their grip on power is further buttressed by severe repression.
Iraq is a case in point. This country was an artificial one to begin with, created by the British, and remained quiet through the heavy hand of consecutive dictatorships – the cruel Saddam Hussein being the last one.
But then the Americans decided to charge in like the cavalry in a Western movie to liberate the downtrodden masses and teach them the American values of freedom, capitalism and democracy. And, of course, the whole country sagged like a heap of sand, and has been mired in civil war and upheaval ever since.
The Iraq of Saddam and his predecessors looks a lot like other major oil producers in the Middle East. They are all socially very volatile, but this is kept in check by a combination of authoritarianism and liberal state spending.
The falling oil price makes it much more difficult to keep on “bribing” the populations to keep quiet and refrain from unrest. This has the potential of forcing the issue in several of these countries, creating considerable domestic instability.
But it may also polarise several existing international conflicts.
IS reign of terror may spread
On the one hand, the civil war in Iraq and Syria, where Islamic State is responsible for a reign of terror, may spill over to other countries. The potential of a religious war between the Sunnites and Shiites, the two main branches of Islam, could be exacerbated considerably.
And in Russia, where the West’s economic sanctions are adding to Russia’s oil and gas price woes, there is even more potential of disruption.
At the moment the Russian population is stoically enduring their country’s economic problems, and there are no signs of President Vladimir Putin losing his popularity. The problem is Putin’s reaction when he fears that this may happen.
Several international commentators have expressed the fear that he might, in a manner of speaking, flee forward by escalating his conflict with the Ukraine and the West. This will require considerable skill on the side of Western leaders to handle without the continent sliding into a war.
Obviously, we are at present very far from such situations becoming reality. But it goes to show how volatile international relations are. Things are so fluid that anything, including the worst and best scenarios, is possible.
And don’t think South Africa will dodge the bullet. Our economy, too, is advantaged by falling oil prices, but if Angola and Nigeria once again explode, we can be sure that the pieces flying around will reach us as well.
* Leopold Scholtz is an independent political analyst who lives in Europe. Views expressed are his own.
