Dealing with Oil’s Collapse



At a meeting in Qatar earlier this month, global oil producers made a desperate effort to set production limits that would halt plummeting prices – and failed.

I hear you cheering. You’re yelling: Cheap gas!

But not so fast.

Cheap oil is giving consumers a temporary windfall, but will inevitably doom a global economy based on oil.

While net oil importers like the U.S., Europe, and Asia are getting a nearly $900 billion economic stimulus from plunging oil prices, many oil exporting countries are suffering. Venezuela, Russia, Canada, Norway, Nigeria and other African oil  producing areas have been hit hard (click on map above). It’s a situation that could breed widespread political and economic instability.

One reason for the price decline is overproduction. Iraq and Iran are back in the oil market – with a vengeance – and new technology has made North America’s massive shale oil and natural gas deposits accessible.

Another reason for the price decline is weakening demand. Worldwide efforts to  replace oil with green energy are bearing fruit at last. And the trend toward green energy is accelerating.

Political rivalry between oil producers such as Iran and Saudi Arabia is also contributing to overproduction.

The era of Big Oil is ending.

Of course, the world’s environment will benefit in the long run from Big Oil’s demise. Fossil fuel consumption is a terrifying hazard that has already brought severe climate change  and threatens to cause a global catastrophe.

But what will happen in the meantime?

Some analysts are predicting a global financial crash. Oil companies piled up debt when prices were high and an estimated trillion-dollar shortfall is expected if they default – as some are already doing. A sharp reduction in spending by oil producing countries is also expected.

Of course, as oil prices plunge, production will dry up – especially where extraction costs are high (such as shale oil deposits in Canada and the United States). And that will inevitably drive prices up again. But it won’t happen overnight.

The repercussions of an oil economy collapse are complex and perplexing.

We can only hope that global governments will have the political will and the know-how to create an alternative economy – as Saudi Arabia is already trying to do.

This is an important reason for Americans to be careful in November’s elections. If small government advocates win control of Congress, we can expect little – if any – action from Washington.

And if some amateur like Donald Trump becomes President, the disastrous situation would be compounded.

As I see it, America’s only hope at a time like this is to put someone with Hillary Clinton’s knowledge and experience in the White House – and  give her a Congress she can work with.

Click for more on the end of oil.

Click for Saudi Arabia’s plan.