Falling oil prices are a great thing right? In the short term and for the holiday shopping season yes they can be. If they continue much past the first of the year the results will be devastating and not just in other countries.
This may seem a little extreme to some but let me explain. Up until recently OPEC has controlled the world oil supply and through slight adjustments (like the Fed does for interest rates) in the production kept the price of oil from huge spikes and drops. With the US fracking oil as fast as they can the US consumption is being largely supplied from home. Add to this the decreased demand from China and Europe. This has resulted in a glut on the world market of oil and the subsequent collapse of the price. OPEC is mainly controlled by Saudi Arabia who holds about 25% of the worlds oil supply and 85% of the global spare production capacity. They have refused to reduce the production so far preferring to change from their supply based approach up until now to a market based one to maintain their share of the market.
Saudi Arabia is extremely rich. They can afford to accept the lesser price per barrel and though it will impact their country it won't be as severe as some. By allowing the price to drop so low it will put the nail in economic coffins of countries like Venezuela and Nigeria. This will lead to at least civil unrest if not out right civil war meaning those countries won't be producing as much if any oil for a while.
The oil in Saudi Arabia is also really cheap to get to. Not so with countries like America. Fracking was a great idea when the price was high. The costs of fracking are high but the price per barrel was at a point where it offsets those costs. Now with the price per barrel at one of its lowest points in decades those costs are no longer offset and will result in US fracking companies going out of business. This means unemployment as well rising gas prices and any rise in gas results in a rise in products. In addition, fracking is leading to increased earthquake activity in the areas being fracked so going back to it will likely encounter opposition if its allowed to falter. (Personally I think that is a positive for the US and the environment as it will drive the continued research and production of alternate fuels that are more earth friendly) Europe and Japan are already trying to fight off deflation and lower oil prices won't help them at all either.
Iran is another country as well as Russia that will struggle with its declining economy and outside international sanctions. Both countries have given Saudi Arabia grief recently so this is a good thing politically for the Saudi's. Then you have Iraq and Syria who are both in the middle of political transformations and can little afford the addition of economic woes. Right this minute there are 1.7 million Syrian Refugees spread throughout the area that have no food. I don't mean a little I mean none - the WFP is out of money and they can't find work because there simply is none. There very well could be full blown war in the area in the near future which would mean little to no oil from them. There are another 4 million in Syria still that will also be without food in the next few months if no one coughs up the cash. Then there is Libya, Ukraine, Egypt and others.
A 3-6 month period of the lower prices will result in loss of production in many countries world wide that will not find it easy to restart production, indeed if it even can be with potential civil war, leading to a huge spike in oil prices. At that point one of the only countries (if not the only one) that will be able to increase production to cover any short fall will be Saudi Arabia. Needless to say that though its good for them, not so good for others like the US though. Its something certainly to keep your eye out for and if you can that electric car purchase is still a good idea.
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