In the last few days we’re witnessing a new stage in the oil market competition, a phase where all the big producers are betting about who’s the strongest. For us, as customers, a downfall in the oil price is good news in the short-term – due to its consequence about the gasoline price. But what about the long-term? And what about the geopolitical consequences of this undeclared war?
Day after day the medium oil price is falling down and by now we’re reached the stage when the global markets start a negative reaction, pushing down the indexes and sending worried messages about major companies profit warning and the possible effects of a deflation inducted by a price “too low”.
But this is not the first thing to consider when it came to the concept of war itself. Why countries like Saudi Arabia or Kuwait do not choose, for now, to limit the oil production – a safe way to immediately increase prices? And why other countries like Nigeria are keeping a low profile about it?
A hyphotesis could be made, looking at countries that are seen as a nuisance in the global market. As stated before, this is a war. Think about Venezuela, for instance. They are already in a deep economic crisis, with the political model built by Chavez in a hurry to recover consensus. What if this price war goes on for a while? Will the local government be able to contain the rage of an impoverished population?
Now, take a look at Russia. Their economy is already going down in flames, due to economic sanctions imposed for geopolitical reasons (invasion of Ukraine, annexation of Crimea), and it’s strongly dependent from gas and oil sales. The biggest gas customers for Russia are the European countries and their demand is slowing down. With this ongoing price war on oil the Russian GDP will fall again and again, stressing to the limit the balance of power.
With the silent presence of China, the strongest economic player nowadays, that may be ready to get more assets if any good choice surface on the markets, what will happen in the next few weeks?
Finally, what about the future decisions of Iran? They got the weakest economy in the Persian Gulf area, the least diversified and the more exposed to this kind of economic conflict. Will they try to upper hands in Syria or in Lebanon as a retaliation?
For more information, this is an excellent example of a business analysis:
More from the same source, APS, about the implications of this price war:
This is a very good book for understanding the fundamentals about what’s going on about oil, by Daniel Yergin: