Over the past seven-plus months, the price of a barrel of oil dropped from $107 to less than $50. This took prices to 2009 levels and surprised just about everyone. Stock markets do not like surprises, and many global indexes have dropped, adding another wrinkle of worry to an already wobbly global economic recovery. Scott Nyquist of McKinsey considers some of the implications from good to bad.. on some BRICs and MINT countries…
The really crushing, and frankly scary, situation has to do with state-owned producers. The simple fact is that many of the places that rely most heavily on fossil fuels are not exactly easy. Plunging prices poke holes in state budgets and can have wider ripple effects. Consider:
- Nigeria. The currency, the naira, is at its lowest level against the dollar since at least 1999.
- Russia. The ruble is hemorrhaging, which is hardly surprising, since oil and gas account for about three-quarters of the country’s exports. The weaker ruble will drive up the price of food; in addition, international banks hold a fortune in Russian debt. If that debt cannot be serviced, the still-fragile global financial system would get seriously hurt.
- Venezuela. This place is already in such a mess that it had shortages of toilet paper. Debt default is a real possibility.
- Iraq, Iran, and Libya. These countries rely almost entirely on oil for their export earnings and domestic budgets. In a region that is hardly short of turmoil, more of it isn’t out of the question.
- Norway. Even Norway is warning of a “severe downturn.”