Oil recently dropped below 70 dollars a barrel for the first time since 2010 and many
Americans are rejoicing.
Having cheaper gas is a good thing, right?
Well, maybe not.
A lot of countries and micro economies may stop functioning if oil prices
dip too low.
One of the biggest examples is Russia.
Since the most recent drop in oil prices,
Russia’s currency, the ruble, saw the biggest one-day decline since 1998.
This is
because oil and natural gas make up about 70% of the country’s exports, the second
highest
in the world, and Russia gets more than half of its budget from oil revenues.
This drop ensures
more financial hardships and less economic growth in a country already dealing with numerous
international sanctions.
Some argue that the combination of the economic loss plus the estimated 40 billion Russia
is losing from sanctions might put enough pressure on Vladimir Putin to end his conflict
with
Ukraine.
But it’s not likely.
Putin has been quoted being optimistic about his country's oil
problems, citing the upcoming winter which will bring cold weather and with it, a higher
demand
for oil.
But this is strictly speculation and history may have a way of repeating itself.
Many blame
the fall of the Soviet Union in the 1980’s partly on a decline in oil prices.
Other major oil producing nations, like Iran, Nigeria and Venezuela have their own struggles.
In fact, Venezuela’s economic woes have already led to countrywide violent rioting.
The country
is suffering from high levels of inflation, which has led to a scarcity of simple products
like toilet
paper and toothpaste.
One analyst was quoted saying that for Venezuela to be able to balance
its budget, oil prices would need to hit $200 a barrel.
The money lost from the new drops in oil
prices has forced the government to make major cuts and increase taxes, something that will
not help ease the unrest.
So, lower oil prices could cause entire countries to fail, but they aren’t the only people
affected.
Lower oil prices could also hurt the fracking industry and put thousands of Americans
out of work.
Fracking is an expensive process and in order for those companies to make a profit, they
have to sell their oil at a high price.
If the price dips low enough, they’ll have to stop drilling.
This
would be a major blow to states like North Dakota, Oklahoma and Texas where fracking
has
been likened to the dot com bubble.
To find out more about that, check out our video on the current US oil boom and how much
oil the US is actually producing.