The Upside of Falling Oil Prices
. . . there is no downside. The perceived downside is to the equity markets, but this was due to an irrational exuberance, to coin a phrase. The long term price of oil is in the $20-30 bbl range, not the $100 bbl range. The reasons for the oil price shocks of recent memory include the China Ponzi and the fact that new oil development takes time to develop, and then ramp up. (I know, I know, Stockman is an apocalyptist but he is not wrong here. China is in trouble and its economy is a Ponzi Scheme.) As the price of oil spiked, American entrepreneurs got busy, making America the world's largest producer of oil.
The rising price also allowed many of the worlds worst regimes to gain substantial power, and amass a huge amount of hard currency.
"Many big oil exporters just aren’t the kind of countries you’d want to bring home to mother. Only one of the world’s top 10 oil exporters (Canada) was rated “free” by Freedom House. Many rank near the bottom on Transparency International’s indices of corruption. They spend a lot on their militaries and security services. And in many cases -- Russia, Iran, and Venezuela, for instance -- their hydrocarbon bounty has enabled them to intimidate neighbors, fuel adventurism, and generally project a baleful influence."
Bloomberg, if you are being remotely honest you need to add Saudi Arabia to the list, not only is The House of Saud embroiled in proxy wars throughout the Arabian Peninsula it is the primary driver of the Wahhabist/Salafist strain of Suuni Islam which drives international terrorism.
The great oil price decline will ultimately drive both reform in the region, and the necessary "Protestant" reformation of Islam. This Reformation is already underway via proxy wars like the war in Yemen. It will continue to gain strength. America has chosen the wrong ally in this fight. We chose The House of Saud for historic reasons, but they are our most clear enemy in the Middle East. On the other hand, our most promising ally, Iran, went sideways with America back in the days of Carter. We had foolishly failed to mend that fence until President Feckless ODither accidentally made the correct decision to bury the hatchet and bring Iran back into the family of nations. I guess even the blind pig finds the occasional truffle.
Iran's more integrated economy, and its single minded determination to parry the House of Saud's Wahhabist/Salafist army will preoccupy Iran, and limit its nuclear desires until long after the people of Iran achieve sufficient power to deflect the Iranian hardliners most negative desires, and ultimately move the nation towards democracy, free markets, and reformed religions. We are at the End of History after all and we know what works.
The very best thing we can to in the world today is to ensure the low price of oil. This will cause mono economies like Saudi Arabia, many of the other Arabian nations, Venezuela, among other, to weaken, which will drive internal change. It will also weaken other oil players like Russia, resulting in the taming of the Russian Bear.
While the oil bulls seem to believe that the price of oil is prepared to rally at every whim, it is not. The China Ponzi will likely either fully collapse, or deflate so significantly that China will be left in a far weakened economic state. China is a place of Zombie Factories, Ghost Cities, and at least 65-million vacant homes. The U.S. has 133 million residential housing units, by comparison.
It seems by any metric, China will be forced to rethink its massive oil guzzling expansion, and retrench to a much more rational position. In the end, this will mean a China which uses far less oil, and a China which is far less wealthy than it was just a year ago. The result will be a perpetual, year on year over supply of oil, with resulting low oil prices.
We should see the benefits to this shortly, probably first with the collapse of Venezuela. Unfortunately each of these eventualities, while good for the world as a whole, will lead to serious deprivation among the people in the country affected.
Careful American charitable giving can help ameliorate the suffering. You might want to get ready.