Problems Beyond the Pump: The International Ramifications of Falling Oil Prices
By Jessica Canchola
About a year ago, when I started commuting to my internship in Sacramento, gassing up my Toyota Corolla every week was a demoralizing experience. Within seconds, a good chunk of my meager paycheck would disappear into my tank. But that was back when gas was nearly $3 a gallon. Now that prices have slipped below $2 in some places, things are different. Here in the United States, oil prices are the lowest they’ve been in seven years. Americans are using the money they’re saving at the pump to pay off debts, boost their savings, and treat themselves. However, these benefits sharply juxtapose the difficulties these same prices have created for countries that produce oil. In places like Venezuela, Nigeria, and Saudi Arabia, the far-reaching consequences of plummeting oil prices now threaten those countries’ national security and well-being.
In Venezuela, falling oil prices have caused problems proportional to the amount of influence oil has over that country’s economy. Venezuela is the world’s largest oil exporter. Likewise, oil accounts for nearly 95 percent of Venezuela’s foreign income, which is about half of its economic output overall. Unsurprisingly, the ongoing plunge in oil prices have caused some fiscal difficulties in Venezuela. The country is teetering on the verge of both default and recession. Inflation has skyrocketed to 800 percent. And thus far, hiking up oil prices domestically and devaluing currency has done little to address these problems. But more concerningly, these negative outcomes are imposing a great deal of hardship on Venezuela’s people. Because of decreased oil revenue, funding for things like education, housing, and health services had dried up. And extreme shortages of basic foodstuffs have begun to emerge.
Without oil revenue, Nigeria, Africa’s largest oil producer, has also been unable to provide its people with basic services like education. Along with high unemployment and low standards of living, these problems have inspired widespread social unrest in Nigeria that terrorist groups like Boko Haram have begun to chanel in their assault on the region. But, bereft of oil revenue, the Nigerian government has been unable to pay for the training and intelligence needed to help its army decisively defeat Boko Haram. Although Nigeria has made an appeal to the World Bank for loans to help shore up its budget deficits, it's unclear if this single action has the ability to solve what has ballooned into a multidimensional problem.
Like its fellow oil-producing countries, the dip in oil prices has also drastically decreased Saudi Arabia’s revenue. But unlike its peers, Saudi Arabia has been able to fall back on its cash reserves that total around $700 billion and have helped it shore up budget gaps and keep its government afloat. Regardless, the situation as a whole has forced Saudis to reconsider the structure of their oil-oriented economy — a soul-searching and exercise all oil-producing countries and concerned parties would benefit from.
Rates of inflation and dwindling revenues aside, the biggest and most disastrous impact of plunging oil prices on oil-producing countries has been its broader societal implications. Because of their over reliance on oil, the Venezuelan and Nigerian governments are unable to perform their most basic state functions of providing security and well-being to their people. Restructuring is necessary not only for the health of these countries’ economies, but also for the benefit of the people they’re charged with protecting.