The slump of oil prices is continuing to have global economic repercussions.
At home, you may have noticed lower gas prices at the pump, but in other countries more dependent on oil, the effects are serious. Here are five headlines that tell the story:
— “Iran Minister: Currency Market to Stabilize” (Associated Press): With both sanctions and lower oil prices squeezing the country, the rial dropped more than 5 percent against foreign currencies this week. The AP reports:
“The [IRNA news agency] report quoted Ali Tayyebnia as saying there have been no basic changes in either the Iranian foreign exchange or investment markets and that he expects the “creation of a stable situation” in the markets soon.
“Tayyebnia also warned against a panicked rush on the currency market, and asked for calm. ‘The changes in recent days were mainly based on apprehensions and psychological factors. People should not have frantic behaviors,’ he said.”
— “Russia’s Currency Has Worst Fall Since 1998 as Oil Rout Continues” (Time) The story — sanctions, plus falling oil prices — is much the same in Russia. Time reports the oil rout is:
“… having a huge impact, not only on the stock of energy companies, but also on the economies of those countries which depend on oil for their budgets and foreign debt payments. Aside from Russia, the Nigerian naira has also plummeted, losing nearly 10% against the dollar in the last few days, while the price of Venezuela’s bonds has tumbled to levels which reflect high expectations of default.
“But it’s the ruble, the world’s worst-performing currency this year, which is most in the spotlight, especially since the Russian central bank decided to abandon its policy of supporting the exchange rate with a drip-feed of interventions last month. Finance Minister Anton Siluanov said last week the combined effect of lower oil prices and sanctions would slash $140 billion off the Russian economy this year.”
— Not Everyone Is Suffering (Bloomberg) Not all oil producers are being hit as hard as Iran and Russia. Bloomberg reports:
“The International Monetary Fund in October assessed the oil price different governments needed to balance their budgets. At one end were Kuwait, Qatar and the United Arab Emirates, which can break even with oil at about $70 a barrel. At the other extreme: Iran needs $136, and Venezuela and Nigeria $120. Russia can manage at $101 a barrel, the IMF said.
“‘Saudi Arabia, U.A.E. and Qatar can live with relatively lower oil prices for a while, but this isn’t the case for Iran, Iraq, Nigeria, Venezuela, Algeria and Angola,’ said Marie-Claire Aoun, director of the energy center at the French Institute for International Relations in Paris. ‘Strong demographic pressure is feeding their energy and budgetary requirements. The price of crude is paramount for their economies because they have failed to diversify.'”
The Wall Street Journal puts that prose into a nice graphic format.
— “Hooray For Cheap Oil” (BBC) The BBC looks on the bright side:
“… the important point is that an oil price fall represents a transfer of cash into the pockets of consumers, via lower prices for petrol and all goods and services where energy is a big component of the price.
“Consumers have a habit of spending this freed-up cash, which then stimulates economic activity and growth. …
“What’s the net benefit to the global economy of the tumbling oil price? Well, economists estimate that a 40% fall in the oil price, if sustained, would add something over 0.5% to global economic growth, perhaps as much as 0.8%.”
— Why Does Saudi Arabia Seem So Comfortable With Falling Oil Prices? (NPR) A lot of this stems from OPEC’s decision to keep oil production at current levels. The big question is why Saudi Arabia, the big player in OPEC, would be OK with allowing oil prices to plummet.
NPR’s Jackie Northam explained in a story back in October. Three big theories dominate: The Saudis are using oil to punish Iran; they’re using it to punish Russia; or they’re trying to manipulate the market to “try to quash competition, especially from new oil producers like those involved with the Canadian oil sands and the shale revolution in the U.S.”