The recent drop in oil prices has many economists worried about the state of the global market. On December 10th, crude prices hit their lowest in 5 years. The price for a barrel of oil has dropped 30% in the past three months. OPEC's latest monthly report, issued Friday, only accelerated the trend. Oil prices have not dropped this low in this short a period of time since the finance sector imploded in 2008. The 2008 crash was the expected result of a bubble. Oil peeked at around $150 a barrel before the 2008 crash. The present oil crisis is not merely an expected, if undesirable, effect of capitalism. It is the manifestation of novel economic factors. The U.S. is taking a lot of blame from OPEC. The U.S. is flooding the market with shale oil and gas, while demanding less oil and gas from the world market. This combination of demand-side and supply-side pressures is what makes this oil crash unique.
This CNBC piece discusses which countries will "Win" and "lose" the most from the drop in oil prices. I think mainstream news media needs to dedicate much more time to the geo-political ramifications of the oil crash. This is because oil money is the only thing allowing many oppressive governments around the world to hold up their ends of the social contract they have with their people. The oil-rich monarchies in the Middle East use their oil revenues to give their people free energy and myriad social programs. In exchange for these programs most residents are more than happy to forfeit what Americans would see as civil rights and liberties. If the price of oil stays too low for too long, there will not be enough money to buy the indifference to oppression needed to sustain autocratic rule over an increasingly literate populous. Saudi Arabia, Kuwait and Qatar have enough hard currency reserves to ride out this price drop. This fact explains the Saudi Oil Minister's, statement "why cut production?" This comment hints at an OPEC gambit to force smaller producers out of business. If this is the case, the cartel is taking a massive risk. The damage to the, relatively stable, commodities backed securities market alone could initiate a negative feedback loop with disastrous consequences. Currency devaluation is another huge concern. As of now, most oil-dependant currencies are being cushioned with various reserves, if the oil slump outlasts the reserves, a global financial panic is likely.