Why Low Oil Prices are Bad for the Global Economy as Well

In 2 weeks I’m going to be in Lebanon for vacation and as I will stop by the gas stations to fill up my car, I will be paying almost the same price that I used to pay when I first graduated from university around 6 years ago. At nearly 25,000 Lebanese Pounds per 20 liters all the Lebanese will be raving about it and enjoying this Holiday season to the maximum ( yes they will forget all the economic, social, residential, and environmental issues, they will also forget the refugee spillover from the neighboring war-plagued Syria, they will forget that we are still without a president for almost 8 months now and that our parliament is aiming to outlive the parliament that was around during all the 15 years of civil war. Ironically enough most of the faces are still the same and yes I am talking about the parliament and not about a senior citizens residential compound)

Of course not only the Lebanese are the ones joyful about it; in fact they share the same feelings with more than half of the residents of the planet. Americans are planning more and more road trips and the demand for big SUVs is ramping up again, and the Europeans might have something to cheer them up and keep them warm this winter after fears of Russia cutting them from the oil supply as a result of the ongoing tension between Russia and well most of the world. But all this comes with a price tag and a hefty one also; just as the increasing prices have been hurting the economies so will the decreasing prices. OPEC is still insisting on keeping the production and supply levels on current levels although supply is far exceeding demand and thus challenging the free market theory that supply and demand will lead to a market balance. The reasons behind this decision are plenty but I am not going to delve into the politics of it right now but the fact is everyone is hurting from it.

Oil producing countries are going to face massive budget deficits with many of them starting to question for how long they will be able to sustain such low prices and still go on with their development plans. Europe seems to be heading towards another recession in which low oil prices will not be of much help (the PIGS are now PIIGS with Ireland joining the club) they should start looking for a different animal name soon and preferably a longer one it seems.

In USA seemingly it will have the worst effect. The country that started the global economic crisis in 2008 might as well be leading the world into another one and if USA sneezes, Europe gets the flu. Right after the crisis, a massive effort was put into creating a more efficient economy that is not as much relying on oil as before and as a result a wide variety of fuel economic cars started to take more place on the roads instead of the traditional much larger gas guzzling V8s, the Prius which was literally the laughing stock of every movie and every comedian started to have its last laugh against all the skeptics. Green energy was strongly supported and subsidized and the glass panels industry witnessed a great boom. Now the lower oil prices have halted all this with the people reacting very fast to the low oil prices and ordering big trucks again and the still expensive alternative energy sources are being ditched in favor of traditional energy sources. What is even more, GM has announced its plans to lay off some workers from its Lake Oreon plan starting January 2015 and the reason cited is simply due to decreased demand on its economical cars the Buick Verano and the Chevrolet Sonic and I am guessing it won’t be long before the other carmakers will follow lead. Such is how much shortlived is the people’s memory and that’s how quickly they go back to old habits. Am I the only one seeing a “cash for clunkers” campaign looming in the Horizon once more?

Fiat was gambling on its tiny 500 model to conquer the streets of USA, Smart America was hoping that this would be its revival point and VW group were betting that their fuel economical tiny cars will help them dethrone BMW and Daimler as the kings of European cars in the USA. Alas, all those dreams might be going with the wind now.

In Lebanon, we party all the time; in the middle of the Israeli invasion on us we were partying, in the peak of the global crisis we were partying and now we are partying. In fact we don’t need a reason to party, we just need…… a place! But this time we have a reason and it’s the oil crisis. While countries have been bracing for the damages that the oil prices will cause to their economies, we are planning where to spend New Year’s Eve! I just hope that the economy does not sour so much that I lose my job and miss the chance of enjoying the low gas prices!

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