Falling Oil Prices Could Rock Canada's Politics: ExpertA Tyee interview with Terry Lynn Karl, who wrote the book on petro states.By Andrew Nikiforuk, 18 Dec 2014, TheTyee.ca
[Editor's note: 'Oil Keeps Crashing': Just the latest headline marking a steady plunge that has the price of Brent Crude, the international benchmark, now scraping $52 a barrel. What are the political ramifications here in Canada and around the world? Andrew Nikiforuk’s interview with expert Terry Lynn Karl went viral when we published it on December 18 and remains one of the Tyee’s most read pieces today. In case you missed it…]
What do the plummeting oil prices tell us not only about our near term economic future in Canada, but the political fragility of the world's petro states?
Asked in a wide ranging interview what Canadians might expect if oil prices stay low for a few years, she predicted "a rapidly declining Canadian dollar, greater problems over pipelines, the reduction of future investments, and a very bumpy oil ride, especially for Alberta.
"Oil prices and stock markets used to go in different directions. When prices went up dramatically, market hysteria pushed stocks down, and recession would ensue. Because the price is now down, this should be a boon to consumers, help the economies of consuming nations, and represent a massive transfer of wealth from oil producers to oil consumers. But the stock market doesn't reflect this. In the last few years, the markets and oil prices are moving in tandem, and this is new.
"I suspect there are several reasons for this. First, advanced industrialized economies, and most especially the United States, have reached historic highs in inequality. This means that there is no wage growth, there is little consumer spending and the main concern is deflation, not inflation. While low prices help consumers, they simply will not have the same effect given acute poverty levels and the squeezing of the middle class.
"Second, the global economy may be de-accelerating, meaning this is not just a supply glut but also a reflection of lower demand from China, Europe and elsewhere.
"Finally, the stock market is reflecting the dangerous intertwining between oil futures and junk bonds, which was not the case decades ago."
Both oil companies and global economies are now carrying great debt loads as hydrocarbons become more extreme and difficult to extract. The world's largest 127 oil and gas firms generated $568 billion in cash from their operations during 2013-2014, while their expenses totalled $677 billion? How is debt affecting this whole picture?
To read the whole article, go to the link above.