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How Falling Oil Prices Are Affecting Economies Around The World

I take a look at some of the economies most affected by the fall in oil prices

12Jan

Up until mid-2014, global oil prices had remained stable for four years, costing around $110 per barrel according to the BBC. However, June 2014 sparked a decrease in its value, with Brent crude oil costing a mere $50 per barrel, the first time since May 2009 that the price of a barrel had fallen below the $50 mark. This has been primarily caused by decreased demand in countries that are experiencing slow economic growth and America's increasing ability within fracking.

The Russian economy will be seriously affected by the drop in oil prices. The rouble has lost almost 50% of its value against the dollar due to falling oil prices, which has led to interest rates being increased to 17%. Financial Analysts are now predicting that the Russian economy will dip into recession by 2015, despite it being heralded as one of the BRICs only a decade ago. As one of the biggest exporters of oil, the business landscape in Russia is bleak at the moment and reigniting it will undoubtedly be one of President Putin's biggest challenges this year.

The situation is arguably even more volatile in Venezuela, where the economy is also teetering on the edge of recession. The Venezuelan economy was experiencing difficulties prior to the fall in oil prices anyway, with extensive subsidy costs setting the government back around $12.5 billion a year. The President has been pressured to cut these costs, but will have the petrol riots of 1989, where hundreds of people died, fresh in his mind. Saudi Arabia, also a major oil supplier, is likely to experience less in the way of financial hardship due to its substantial oil reserve fund, but the fall will still pose questions that the Saudi Arabian government will have to solve, including the decision as to whether they're to cut back its own production to support an effort to increase global oil prices.

The increase of fracking has been one of the main drivers of falling oil prices around the world. The US, now able to produce much more of its own oil and gas, has caused conventional demand to fall. Additionally, countries which import much of their oil look set to make considerable savings, with China, India, Japan and many of Europe's flagging economies just some of the nations set to reduce their economic output due to the fall in prices.

Even for the counties which on the face of it look likely to profit from falling oil prices, there will be caveats which will cause problems, with inflation being a real issue. Whatever the case, falling oil prices are having a real impact on the wider economy and are of major concern to the main exporters of oil and gas. The business landscape will be affected by fluctuating inflation rates and unpredictable demand. This year will be crucial for countries such as, Russia and Venezuela, whose economy seem to be riding on the price of oil increasing. 

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