Oil Producing Nations Struggle To Cope With Falling Prices
ROBERT SIEGEL, HOST:
Americans are enjoying the lowest gasoline prices in seven years. They are driving more and using their windfall at the pump to pay down debt, save a little and spend the rest. The oil industry is feeling some pain, but most economists think the drop in prices will be a net benefit for the U.S. economy. That is not the case for other oil-producing countries. NPR's John Ydstie filed this report.
JASON BORDOFF: If you're a state that depends on oil and gas revenue, these are challenging times.
JOHN YDSTIE, BYLINE: That's Jason Bordoff who heads the Center on Global Energy Policy at Columbia University. He says Venezuela is one of the countries most challenged by the oil price plunge.
BORDOFF: The economy is in freefall, and the country may well go into default this year. It's been ravaged with shortages of basic foodstuffs. You can't find everyday necessities like toilet paper on the supermarket shelves. Inflation is 800 percent.
YDSTIE: Petroleum exports account for about half of Venezuela's total output, so as the price of oil dropped by more than two-thirds since mid-2014, Venezuela's economy imploded. Algeria, Angola, and Ecuador, where oil accounts for between a third and two-thirds of government revenues, have also been hit hard, and Nigeria, another big oil producer that has Africa's largest population and economy, is also suffering, says Bordoff.
BORDOFF: Economic growth was averaging around 7 percent in Nigeria for much of the last decade. It's going to be about half that this year.
YDSTIE: And the country now faces a large budget deficit. Nigernia's government has responded by cutting fuel subsidies and has talked to the World Bank about an emergency loan. Carl Weinberg, chief economist at High Frequency Economics, says the harm to people in low-income oil producing countries from low crude prices is disproportionate to the gains the many Americans are experiencing.
CARL WEINBERG: If you take a dollar away from someone poor in Nigeria and put it in the pocket of somebody richer, say, in Connecticut, the loss of income for the poor person hurts more than the benefit to the rich person.
YDSTIE: And in the case of Nigeria, the fall in oil prices doesn't just hurt the economy and living standards. Jason Bordoff says it also takes away resources the government could use to fight the terrorist group Boko Haram. And in Iraq, the drop in oil prices complicates the effort to fight ISIS. Bordoff says the oil price plunge is challenging some richer nations, too, including Saudi Arabia. The Saudis do have huge cash reserves that they've tapped to fill their budget gap and keep the economy moving.
BORDOFF: But they are taking advantage of this moment of low oil prices to begin a conversation about a quite potentially serious set of economic reforms. They've already raised fuel and electricity prices.
YDSTIE: And the government has levied new taxes on the Saudi population and is talking about privatizing some government-owned enterprises. There should be plenty of time for the Saudis to have that conversation because, Carl Weinberg says, low oil prices aren't likely to recover anytime soon.
WEINBERG: Commodity prices in general are low today because half a decade of very, very low interest rates and very, very easy money encouraged overinvestment in the production of commodities.
YDSTIE: So, Weinberg says, oil prices will likely remain low for a long time until the demand for oil grows enough to match the world's capacity to produce it. John Ydstie, NPR News, Washington. Transcript provided by NPR, Copyright NPR.