Winners and Losers; Cheaper Oil, a latest article from the
Economist, principally argued that the positive and adverse impacts of the
current dropping oil prices to the global economy itself as well as various
economic entities.
It was proved by the historical data that the world economy
is closely related to the changeable oil prices, in which approximately a 10%
change of oil prices is associated with a 0.2% change in global GDP. The falling
oil prices, presumably driven by the increased supply and weaker demand
recently, normally contributes to boost GDP by shifting resources from
producers to consumers, according to the article.
The impacts of the dropping oil prices on China vary.
Ranking the world’s second largest net importer of oil, China is profited by
saving annual import bill for oil imports, which indirectly attributes to the
improvement of living standard. Respectively, it will result in a further
adjustment to the structure of energy usage in China as well as reducing
current energy subsidies.
However, it is more complicated when the impact goes to
America. As the world’s largest consumer, importer and producer of oil
simultaneously, although, America will be helped on balance, the impacts also
vary by industries and regions.
Compared with the relatively mixed impacts to America, a
group of countries, which mostly depend on agriculture, gained unambiguously.
For agriculture is more energy-intensive
than manufacture, famers especially in poor countries are benefited from
cheaper oil, which led to lower costs of inputs.
When we come
to the losers, it is appealing that the Saudis would probably regain market
share, when some high-cost operators were driven to the wall by a period of
cheaper oil, which also discourage investment in others. However, compounding
with political conflicts, economic sanctions and sluggish domestic economy, Venezuela,
Iran and Russia will be in turmoil more deeply than other major exporters.
In my
opinion, while recently, the change of oil prices would have a less effect to
global economy in comparison with it used to be, but to some extent, it sustainably affects the global economy and political pattern profoundly.
When the oil price is dropped, obviously, the ones who get benefits are consumers and importers. They spend less money on gas and spend more in other products, so it encourages other industries. Oil companies who sell gas are also not impacted much since they can buy oil from government or foreign firms with lower price. The ones who hurt the most are producers. They exploit and have to sell it with lower price. If the oil price increases or decreases sharply, it has bad effects into the economy, so the governments usually have some budgets to keep the price stable. In oil industry, big companies like Exxon are not impacted because refining and chemicals get benefits from low price oil, and they can get revenue from that. However, if the oil price is still low, they may be affected in the coming months.
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ReplyDeleteI think it will be very interesting what sort of political fallout will come from the dropping oil prices and their economic repercussions. The article above talks about several countries who are hurting heavily due to the drop in oil prices. Russia is already seeing trade restrictions so this economic blow might be enough to push them over the edge. Whether this will lead to Russia being willing to take fault for some of their recent wrongdoings or if it will push Russia into doing something even more dramatic is yet to be seen though. Iran has been similarly sanctioned and perhaps the falling oil prices will finally force the nation to put its ideals second and start playing nice with the United States and other western countries.
This is very similar to the post that I made a few weeks ago. I talked about how the dropping oil prices would impact the terms of trade of several counties. Basically I ended up with the idea that countries like China and the United States who import a lot of oil would see an increase in terms of trade. This supports what you brought up on how these countries would be the winners. On the other side I mentioned how the countries you stated were losers would see a decline in terms of trade so I feel that these ideas compliment each other.
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