Oil prices have been dipping continuously for some time now. As such, the fall in oil prices has become a cause for concern, especially with OPEC’s decision to not flinch with lowered prices. Many countries are now worrying about the possible effects these prices would have on the world economy in the coming years.
Swing in the opposite direction
Many consumers around the world are celebrating the dip in oil prices. However, while this can be considered as a temporary break, there are always chances that the prices may swing in the opposite direction, leading to highly unaffordable fuel prices. For instance, if the oil prices continue dipping, oil production would become an expensive investment with less profits. This in turn would force many an oil producer to throw in the towel. And with the handful of oil producers supplying oil, the chances of an immediate steep hike in fuel prices are very high.
Another possible issue that would arise due to the continuous dip in fuel prices is civil unrest, mainly in those countries that continue to depend on the revenue generated via oil production. For instance, countries like Venezuela and Nigeria, are very dependent on fuel exports. These countries have limited subsidies to handle the economy in case of an outage. These limited subsidies would also not be enough to keep the country’s economy afloat until the prices level off.
Plight of oil dependent countries
Countries like Venezuela are already facing the wrath of reducing oil prices. Inflation has reached a record 64% while the nation’s currency reserves has hit rock bottom. And with over 90% of Venezuela’s export revenues gained via oil production, the nation would need the oil prices to remain stable if it intends to repay its debts as well as pay extra for imports. If not, it stands chances of facing an acute crisis in terms of commodities like household goods that may take ages to be imported and could possibly become scarce. In Venezuela for example, buying a roll of toilet paper would require individuals stand in queues in front of government supermarkets for hours on end.
At the end of the day, too much of anything is never good. So while we rejoice the fall of oil prices, we would need to note that it would be at the cost of the economies of several countries as well as the world economy as a whole.
Dipping oil prices could very well cause major issues in the near future. While the dip is considered temporary, chances of a swing in the opposite direction in terms of cost as well as the development of civil unrest in oil dependent countries are high.