The media keeps reporting on cheap oil as if the people living under tyrannies need those governments to prosper.
A few days ago there was a good summary of God’s merciful, providential gift of lower energy costs, pointing out that some people think it may go down to twenty dollars a barrell. It was published at Newser.com.
But it also included a reference to this story in Fortune. After making some wonderful predictions about cheap energy, the article says:
Of course, geopolitical events can throw off these projections. Few sectors are as intertwined with international politics as the oil market, and already we’re seeing price declines have significant effects on events in Russia and Eastern Europe as well as places like Venezuela and Iran. In particular, Morse worries that cheap oil could lead to severe instability in countries like Venezuela and Libya. Upheaval in oil producing regions could limit production and therefore send oil prices higher.
I find it odd that Newser only linked that one claim and didn’t mention the counterargument in the next paragraph:
But Todd Mariano of Renaissance Macro Research thinks that if history is any guide, lower oil prices will yield positive, long-lasting effects. He says that the price decline we’re experiencing today “bears a striking resemblance to 1986,” when global oil markets also crashed and had wide-reaching effects on geopolitics and the global economy. The collapse in oil prices in the late 1980s played a role in bringing the Iraq-Iran war to a close, as both countries relied on oil revenues to finance that conflict. A similar dynamic could unfold in Russia, as reduced government revenues might make Putin’s adventurism abroad less feasible.
The most striking quality of the mid-eighties decline in oil prices, however, was how persistent it was. As Mariano writes, “Leaving aside the spike related to Iraq’s invasion of Kuwait in 1990, [U.S. crude oil prices] in nominal terms had still not recovered its late 1985 levels fifteen years later, in 1999.
A point that is glossed over here is that Russia’s communist government foundered and eventually gave up in the midst of this oil price collapse.
So maybe we need to realize that all these heavily-oil-dependent countries are actually oil-dependent oligarchies. When someone in the media says that Russia’s or Venezuela’s economy will be hurt by cheap oil that person is assuming that the oil industry is the economy.
It is theoretically possible that there is a country that has no other possible industry than oil, but for most countries, there are millions of people and other resources that will be liberated to try new things with the cheap oil and the cheap goods and cheap costs that go with cheap oil. Oil is great for oligarchic governments because they can plan it and use it to make themselves rich and either police or bribe their people to simply settle for their place in that dominant state-controlled industry. But how do we know that the money that can be made through oil is greater than the money that can be made through some new industry that can start to really build up with cheap energy?
All countries contain oil consumers as well as oil producers. For these consumers to suddenly have more access to energy could mean an economic growth spurt, one that the government can’t control.
That’s what we should be praying for.