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How Struggling Oil Prices are felt around the Globe

Wednesday, August 26, 2015

As you may know, the oil industry is a global one. When we’re paying rock bottom prices at the pump, not only are oil drillers in the US impacted by the pinch, so too are drillers in every country from Venezuela to Saudi Arabia to Russia. Also, as you may well know, the oil crash is crippling the job market for oil jobs everywhere from Texas to North Dakota. But US laborers aren’t the only demographic bearing the brunt of the price drop.

Venezuela

When we feel the push from the oil market, our economy gets a pull from other segments, such as manufacturing or agriculture. But not every economy in the world is diverse as the United States, and Venezuela is no exception. An economy driven entirely by oil exports, this South American country is poor even when oil is booming. Manufacturing only contributes to not only 20% of the country’s annual GDP and does not at all have a self-sufficient agricultural economy.

The country does however have the largest oil reserves on earth and is subsequently the most reliant economy on oil output. Oil is the economic engine to enumerable facets driving the economy, from housing to retail to production. So when demand drops for their oil on a global scale, every laborer from the small business owner to the oil driller feels the impact.

Russia

With the drop in costs, instead of using its own reserves, Russian officials have made the move to preserve its own supply. As a result, consumers are paying more to fuel their cars they would with the country’s own exports. But on the same token, they are building a hedge against the global market with their own produce. Like Venezuela, Russia is a top oil producer, consistently in the top three. But the economy is much more diverse, given the massive area of the country, and subsequently not as reliant on drilling.

Saudi Arabia

The phenomena experienced in Saudi Arabia when oil prices are struggling is the most interesting of all the oil producing economies. And that has entirely to do with the ruling royal family. Lavishly spending on gold-plated everything, the royal family is focused on spending vast sums of money directly from their oil wealth for a few reasons. This not only is an attempt to convince the rest of the world of their legitimacy, but to maintain a sense of stability among the population.

But royal spending is not cheap; spending up to $10billion dollars every single month, the family is being forced to dip into foreign exchange holdings. And if expenses don’t subside, the ruling class may never be viable again, given projections in the global oil market. And this only foreshadows the struggles the ruling family- and subsequently the entirety of Saudi Arabia- is sure to experience when oil wells run dry and oil is no longer a viable commodity less than one hundred years from now.



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