The High Political Cost Of Cheap Oil

We always complain when the price of oil goes up, seeing how it affects the price of gasoline and heating fules, and by extension, the cost of everything else. But there are those who bemoan the falling price of energy, not because they are oil producers but because they have everything they can do to artificially raise the cost of energy. Who are “they”?

The White House, of course.

While it seems that we will never run out of oil, something that is anathema to Obama's push to price energy until it is out of reach of everyone not in the top 10% “for our own good”, the glut in oil supplies is driving prices down and causing ripples across the world's economy. In the US, lower oil pries and expanding supply have put immense pressure on the bio-fuel industry, making it less attractive economically and an expensive alternative to a cheap, plentiful fuel. It will continue to require government mandates to remain viable even though there is no real need for its existence.

Elsewhere, the drop in oil prices is putting the squeeze on governments dependent upon oil revenues for funds. One of those now in financial trouble is Russia, which requires oil to be at $100 per barrel in order to assure it will have the money to fund the government. With oil under $70 per barrel, Russia's government is in trouble. Iran is also in similar financial straits, as is Venezuela. (Venezuela's problems go beyond the drop in oil prices, with one of the biggest being the fall-off in oil production due to its failing petroleum infrastructure.)

Lower prices may also affect the dollar's power since there appears to be a shift away from the dollar as a pricing measure for crude oil. Some of this is driven by the sanctions laid upon Russia and Iran, which means they have great incentives to find ways of not using dollars for their oil sales. The rest may be laid at the feet of the US Federal Reserve's monetary policies that have made the dollar less attractive as a reserve currency.

It will be interesting to see what the lower prices will do to the shifting power structures throughout the world.