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Falling oil prices and the world economy

Oil-drumsIn the last 8 months crude prices have fallen from $110/barrel to $60 /barrel. According to the latest reports they are at lowest point since the year 2009 .Some experts are even expecting that ,they can touch $20/barrel level  in the coming months.Declining crude price have left both negative and positive affects on the world economy.In the following paragraphs,we have discussed about the  declining crude prices and their affects on the world economy.

Falling Oil prices and Big Asian Economies

Falling oil prices rally came as a blessing for Asian economies such as India and China.According to the economic experts,these falling prices will decrease their oil import bill and inflation.

India

India imports more than 85 % of its total annual oil consumption. Facts and figures show that it will save more than the $15 Billion or 0.15%  in oil import bill due to reduction in the international crude prices.Its trade deficit has also decreased by $0.91 billion  in the month of January 2015,as compared to December 2014.

Oil Prices

China

Chinese economy is also reaping benefits from falling oil prices,as it is predicted that it can easily save more than 4-5 billion$ per month from its import bill, if crude prices remain at this low level in coming months.Chinese inflation is also at historic five year low level of  about 1%,which is improving the consumer spending of the country.

Falling Oil prices and Energy revenue based economies

Falling crude prices have really damaged the energy  based economies in last few months.Oil dependent economies like Russia ,United States ,Venezuela and Iran have faced the worst consequences of this steep fall in the prices.

Russia

According to the latest news coming from Russia,its finance department has lowered its GDP growth 4% mainly due to reduction in  crude prices,as its 45% exports earnings come from oil . Other than that it inflation is also rising very rapidly and currency value is also going down very sharply.Russia decided to increase its interest rate to prevent inflation to rise,but that too is a very short term measure to control this serious crisis.So it has to search alternate means of revenue generation to recover the economy.

Iran

Iranian economy is also facing a troubling situation after recent oil price slump.Its economy was already in bad shape,but recent slide in oil prices has truly destroyed it. Figures show that country lost more than $70 Billion in oil revenue due this crisis. Iranian budget deficit is also growing,as it needs international prices at $100/barrel level to balance its budget.

United States of America

United States of America is facing a mixed affect of the prices fall.It has decreased its inflation but on the other hand also decreased its revenue, as USA is also a oil producing country.So we can say that consumers are really happy due to falling  inflation,but US oil producing companies are not happy due to decline in their revenue

Venezuela

Venezuela is the worst affectee of this crisis,as it is predicted that it may default in the coming months.Its  GDP will reduce by 3% this year due to the declining revenue.Other than falling oil revenues,its production will also decrease due to this crisis.It is projected that its crude industry will lose production of at least 200000 barrels per day in 2015.

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About Emaad Qureshi