Oil prices started to fall rapidly in the summer of 2014, catching many countries off guard.
Major exporters of oil had enjoyed high prices for several years and were able to subsidize their economies with the huge profits hauled in.
When prices finally dropped a lot of economic sore points started to appear.
Though it hasn’t been bad for everyone (I'm looking at you every person who drives a car), the hurt has been bad for many.
For net-importers of oil like India this big dip has been a boon. The country imports roughly 75% of the crude oil it burns, meaning the country will save tens of billions of dollars that it can spend on other things, such as water and sanitation improvement.
But the net-exporters have suffered a lot. Since prices have remained low for more than a year now, many economies have struggled to sustain themselves, to establish prosperity without the crutch of oil revenue.
Here are some of the countries hardest hit by the downturn in oil prices:
Russia
Russia’s economy is shrinking. Sanctions imposed for its role in the Ukrainian conflict, inflation, its oligarchic distribution of industries and resources, a propagandistic media arm and crackdown on dissent have all played a part in an expected contraction of 3.4% this year.
But the fall of oil revenues is the real wrecking ball.
Russia’s government gets about 50% of its revenue from the oil sector and it is estimated that for every dollar drop in the price of oil, $2 billion USD in revenue is lost.
The price of a barrel of oil has dropped from well over $100 in early 2014 to around $45. That’s roughly $100-110 Billion USD in lost revenues for the nation.
Brazil
Brazil’s economy is also shrinking--another vanguard of the lauded BRIC nations slowing substantially.
At the end of August, Brazil’s stock market was down 22% compared to the previous year, its currency was sliding and its economy is on pace to shrink 2.1% in 2015. Brazil is also a country of deep inequality, and, just like in Russia, the middle and lower classes are the ones getting battered.
During the days of high prices, the state-owned oil company Petrobras subsidized billions of dollars worth of oil and so when the drop hit, it had no way of handling the debt it wracked up.
Now, oil is not at the root of Brazil’s woes. It’s just an exacerbating factor. In fact, the Brazilian economy subsidizes many other things for its citizens including bus fares and electricity, meaning the country spends heaps of money just so people can afford basic things.
This means that when inflation rises--when things become more expensive for people--these subsidies become more expensive and can ultimately become too hard for a government to support. And when this happens and citizens who had grown accustomed to artificially low-priced goods suddenly have to fork over more money, unrest usually follows.
So what is at the root of Brazil’s woes? China’s appetite for commodities.
Starting in the early 2000s, China became Brazil’s most lucrative trading partner. Trade went from $2 billion USD in 2000 to $83 billion in 2013.
Now that partnership is waning as China deals with its own declining growth. Bad news for everyone involved.
Venezuela
Venezuela is suffering through its worst economic crisis in its history, according to Bloomberg. Between 2014-2016, the economy is expected to contract 16.5% and inflation is expected to soar well above 1000%
In 2014, oil revenue accounted for 27% of Venezuela’s GDP and 95% of total export revenue. Throughout the 2000’s, Venezuela, flush with oil revenue, saw a rise in living standards, but now that prices have fallen growth has fallen and widespread social unrest has been unleashed.
Nigeria
Crude oil account for 90% of Nigeria’s exports. Oversaturation in the oil market, especially due to the US’s shale oil boom, has kept prices low and cut the amount of barrels sold by major exporters.
This has contributed to Nigeria’s current economic crisis, since oil is also the main source for the country’s budget and for funding the importing of food, according to the third highest ranking official in the country.
This is a dangerous situation for a nation that relies on imported food goods.
When you realize how many economies are centered on oil, it becomes less surprising that climate change is an enormous problem.
Burning fossil fuels is the main threat to the climate, yet countries seem incapable of extricating themselves from it’s clutch.
I hope that in this period of weak oil prices countries begin to do some soul-searching and realize that a future dependent on oil is not a viable future. The only viable way to move forward is through renewable energy.
That may be tough for some countries to realize, but accepting it puts them on a path toward more dispersed, stable growth, a growth that is not suddenly crippled by the drop of prices in one area.