This post was originally published in the spring of 2017. The examples have shifted and worsened since that time and the reality remains the same. We cannot escape the relationship between global crisis and oil prices.
In the last 3 Stories in 15 Minutes podcast episode I touched on the apparent futility of Nigeria’s efforts to battle Boko Haram and corruption while at the same time trying to manage the harsh economic realities that have resulted for that nation with the global downturn in oil prices. Nigeria is not the only one being affected of course. Lower oil prices around the world translate to cheaper prices at the pump for you and I but also massive volatility in global politics. There is a direct link between global crisis and oil prices – when those prices are high and also when they are low.
A quote often associated with the ideas of chaos theory philosophy suggests “If a butterfly flaps its wings in one part of the world it can cause a hurricane in another part of the world.” This relationship between direct and indirect consequences is demonstrated well with the decline in oil prices. The benefit these lower prices have afforded to wealthier industrialized nations translates to potentially cataclysmic crises in other parts of the world where economies have been previously propped up on unsustainable oil wealth.
Consider the following examples of the relationship between global crisis and oil prices :
- Saudi Arabia has shed tens of thousands of jobs in recent months due to the economic recession brought on by lower oil prices. As a result, the government has imposed austerity measures that analysts say could create turbulence within the nation. An “Arab-Spring” type of situation is not out of the question in this type of environment. Worse, and more likely in the home of Wahhabism ideology, would be the outbreak and spread of uncontrolled extremism in Saudi Arabia that results in a crackdown from the government which could then easily bleed over into the Iraq and Syrian conflicts.
- In Venezuela where oil accounts for roughly 96% of the nation’s exports, the nation is in meltdown on almost every front. As in other places, the collapsing economy brought on by falling oil prices has revealed deeper rooted issues of mismanagement and widespread corruption in the Venezuelan government. People are not only rioting in the streets but dying in their beds and homes as even the healthcare system is collapsing under the economic strain.
- In Iraq the country’s economy is in worse shape today than it was 3 years ago when it was producing 30% less oil. Years of corruption and mismanagement have left the Iraqi economy almost entirely dependent upon its oil production and now that those prices have fallen the stress is being felt across political and social systems, even while the fight against ISIS intensifies.
- Russia is one of the leading oil and natural gas exporters in the world and the downturn in energy markets have not left Vladimir Putin’s government unaffected. Many analysts suggest that Putin’s involvement in Syria along with higher levels of aggression in eastern Europe may in part be due to his need to turn domestic attention away from the struggles that declining oil markets have introduced to the Russian economy.
- In Algeria, the government provided low and zero interest loans to its population during the oil boom years to help pacify the problems of rising unemployment. Now, as the economy contracts, these kinds of luxuries and diversions are no longer available and a young population growing frustrated is being increasingly exposed to extremist sources growing in the region.
- The story is much the same in Angola where falling oil prices have revealed greater degrees of corruption and government mismanagement. Also exposed is a national economic infrastructure that has never been built up to withstand the lean times of an oil market contraction.
Oil prices around the world were at record highs less than a decade ago. Now they have dipped to historical lows. Much of this is caused by greater international competition in the energy markets and new sources of oil reserves (think shale). More importantly, low oil prices have revealed deeper issues of corruption, mismanagement, and a trend toward authoritarianism when the ruling parties are threatened. In many instances these global oil production leaders have either misplayed their hands in attempts to control the markets or sold out long term benefits for short term political gains with oil dollars domestically.
The greatest concern is not who to blame for these problems but a realization that as these crises intensify they envelop larger and larger portions of the global order. While the US and western Europe may be benefitting from the effect of that flapping butterfly wings in the present, if left unattended, there are hurricanes in other parts of the world growing in scope and intensity which will ultimately be at their own borders. We cannot escape the relationship between global crisis and oil prices.
global oil crisis