Today’s pattern of lowering oil prices is a result of not just changes in supply and demand, but also other economic factors. The recent COVID-19 pandemic has brought the oil prices further down to record levels. This drastic dip in oil prices can have adverse effects on countries that depend on oil production and more significantly on the oil-producing countries. We’ll examine here the economic impact of this recent oil price collapse and which 3 countries are suffering the most due to this situation.
Saudi Arabia has been a key player among the oil-producing countries. Its vast oil reserves allowed it to produce an average of 9 million barrels per day in recent years and they are planning to step up their production to an average of at least 12 million barrels starting this year. While the country is among the top producers of oil, it is also one of the leading consumers of oil, being the 6th leading consumer in the world. A large part of its economy (around 75%) is dependent on oil production and export. The COVID-19 pandemic has significantly lowered the demand for oil by other countries due to the enforced lockdowns and quarantines.
Almost 50% of Russia’s government revenues rely on oil and natural gas export. With its recent fallout with Saudi Arabia over a disagreement with cutting oil production further in order to rescue the oil market from the economic effects of COVID-19. According to financial and economic experts from valuta-kurser.no, this development can negatively impact not just Russia’s economy, but the European and US economies as well. This can also have a domino effect on the world’s economies as countries that are dependent on oil will need to adjust to the oil price collapse. The same domino effect also applies to oil-producing countries and not just in the Middle East. This is why Russia is currently scrambling to take extra measures of protecting its economy and mitigating the negative impact of the big dip in oil prices in the world market.
Venezuela is also another player in the oil export and production industry. Due to the discovery of vast oil reserves in the country, it is poised to become a significant figure in the oil market. Like the previous two countries discussed here, Venezuela’s economic activities are largely dependent on the money it makes from oil production. This recent development in the oil price movement will put the country on a very difficult test and will also determine how it will emerge as an oil-producing country once the oil price turmoil subsides. In order for the country to continue funding its infrastructures, health care, pensions, and other essential government expenditures, it could be looking into imposing extraordinary austerity measures. The fallout of Saudi Arabia and Russia can also adversely affect Venezuela’s measures regarding oil production, as it now has to decide which side’s measures it will follow. If this country can endure the oil price collapse and recover from it, it will emerge as a stronger oil player.
The oil price collapse cannot be considered as a totally negative economic development. Looking at the situation through the lens of an economist, even the most negative economic situations can give way to other positive developments. There can still be benefits that can be gained from lowering oil prices, especially in oil-importing and oil-dependent countries. The bottom line here is the economy is subject to drastic rises and falls. The countries that can take effective measures to mitigate or counteract adverse economic conditions are the ones that can steer their people towards prosperity.